Mi ST ATH – Ideal Alpha Booster for your Equities Portfolio

MI ST ATH is an absolute momentum strategy which chases stocks near their All time highs. It is a well-researched phenomenon that stocks that are near to their all-time highs have a high probability to keep performing well.

What is All Time High (ATH) ?

Now let us quickly understand this from an example.

Reliance had made a high of 125 around Mar 2004 and then consolidated for a while before making a fresh all time high in July 2005. Traditionally, people may have apprehensions about entering a stock when it is at it’s peak but here’s a contra opinion. If Reliance had to go to say 500 levels, it would first have to cross 130 making a fresh all time high and continue surging ahead all the way up.

A STOCK THAT BECAME A MULTIBAGGER ONCE MADE A FRESH ALL TIME HIGH

In this scenario, Reliance made a fresh all time high of 125 around Jul 2005 and then went on to reach almost 825 levels clocking a stupendous 563% before losing steam to the global financial crisis in 2008. An important reason for the success of ATH as a concept is that there is no resistance once a stock hits ATH.

Let us take another instance of Reliance making a fresh ATH after scaling a peak of 825 in Jan 2008.

The stock consolidated for a period of 9 years before making a fresh ATH in Oct 2017. We have already seen what happened when Reliance previously made a new ATH. Here – Reliance was once again trying to tell us that something spectacular may happen all over again & let us see how it turns out this time.

An astounding 246% since Oct 2017. Let us quickly take a look at another example before moving to the details of the strategy.

The ADANIENT ATH story !

Traditionally – Investors may be quite hesitant to take fresh positions in a stock that has run up about 128% fearing a round of profit booking / consolidation or any other reason. ADANIENT made a fresh ATH surpassing 260 levels in Aug 2020. Let us see what unfolds after this.

A monster run of 1190% & still going strong. You may now be wondering if all stocks that make fresh ATH’s will go on to become multibaggers – The answer NO. Not all stocks may continue on the strong momentum. Some stocks may make fresh ATHs and drop from there, some may remain stagnated at the same level, some may go slightly higher and fall again but the point we wish to make here is that THERE IS AN OPPORTUNITY & WE ARE TRYING TO MAKE BEST USE OF THAT OPPORTUNITY

Introducing Mi ST ATH

This is weekly rebalanced absolute momentum strategy that picks 10 trending stocks from the universe of all stocks above 1000 Crore market cap. The objective of this strategy is to achieve outperformance in all kinds of market scenarios

Performance during Bull Markets

When you consider the period of Mar 2020 to Oct 2021, CNX 500 index went up by 154% while Mi ST ATH clocked a phenomenal 286%.

Performance during Bear Markets

You can clearly see the how the strategy avoided deep cuts by allocating to CASH thus keeping the drawdowns minimal.

Mi ST ATH is a not a core – but a Niche strategy that you may consider as an add on to your equities portfolio

It is a High Risk strategy that may work well in high momentum markets

It is very nimble to get out of losing stocks and rebalances every week

Quickly moves to CASH resulting in lower drawdowns during sharp market falls

Can go through whiplashes during phases when there is no momentum

Performance during Choppy Markets

Momentum strategies can end up losing some grounds during choppy market scenarios due to the inability to ride on strong momentum.

Mi ST ATH Yearly Performance

Absolute Return Metrics

This strategy has done extraordinarily well as you can see from the metrics since Apr 2016. Rs 100 invested on 01 Apr 2016 would’ve been Rs 239 on the benchmark CNX 500 index as against a whopping Rs 836 on Mi ST ATH.

Rolling Returns Comparison

In both the charts of absolute rolling returns, the 3 year absolute returns on Mi ST ATH at the end of Mar 2020 post COVID fall was at a superb 73% compared to (-12%) on CNX 500 & we can also see consistent outperformance across both 3 & 4 year periods.

CAGR Metrics

The 3 Year CAGR of Mi ST ATH at the very bottom of market fall in Mar 2020 was at a healthy 20% compared to (-4.4%) on the CNX 500 index. This outperformance was effectively possible only because of the combination sticking with the 10 most trending stocks and shifting to CASH during weak market situations.

Other Performance Metrics

Stock Stories from Mi ST ATH

To Summarize . .

Mi ST ATH can be a superb alpha booster to your equities portfolio.

• 10 trending stocks from the universe of all stocks above 1000 crore market cap
• Tries to outperform when the markets trend on the upside thus extracting alpha while keeping the drawdowns minimal when the markets trend on the downside.
• Superior performance & significantly lower drawdowns compared to CNX 500 index

Come in with a mindset to stay for as long as possible (preferably 4+ years) and have a phenomenal journey !Hope to see you in WeekendInvesting Family soon.