2008 and 2009

As I had posted before, I had gone substantially into cash and was making selective investments.  I used this last year to re-organize my investment structure with a view to expand in the years to come.  As a result, I am starting a new performance series with 15-Jan-2008 as my new start date.  Initially, during the transitional period, the series is a combination of multiple portfolios which get December 2009.  This transitional period was very convenient due to the portfolio weighing requiring mostly transfer of cash, rather than securities across portfolios.

During the 11.5 months till end of Dec 08, Nifty went from 6206.8 to 3033.45 losing more than 51%.  Then for the next 12 months, it went to 5201.05 gaining 71%.  Overall, it went down 16%. (Percentage returns are not additive - they are multiplicative; so it is (1+-.51) = 0.49 x (1+.71) = 1.71).

It had been a great two years instructive of lessons in weighing your portfolio, giving it the right preference between cash and stocks.  As a result, the difference in return has been a whopping 185% for a period of 23.5 months, essentially meaning that if you had passively invested in an index fund on Jan 15, 2008, you would be sitting on a loss of about 16%, while my portfolio would have returned 185%.  This is more true if you include dividends, the over performance actually becomes 191%.

Here's the interesting factoid about that 185% over-performance, half of that gap was made in May 09, when the market jumped and almost all the stocks hit the upper filter after the results of the elections came out.  Now that is a lesson, against trying to time the market.
In absolute terms, I fully invested by March 2009 and stayed that way till May 2009 when I went to 80% invested and again to 95% invested till October 2009.  End of December, I am about 2/3 invested.  The 2/3 may be overstating it, since I am expecting to receive some additional funds into the portfolio by the last week of January, which would bring it down to 40%.  So effectively, I am 60% in cash.

My process has been pretty simple so far - I time entry and exit based on individual stock valuation; disregarding the overall market sentiments.  A few cases attesting to the point , which I had written about earlier.

Patience has been a true virtue in this rough and tumble road, since I show a quotational loss of upto a third during some months.  This drop came to my attention just now, when I was collecting the data to post.  I usually disregard short-term quotational losses and am focused on entry to exit returns, rather than period to period returns.  After-all, longer the period of measuring, less volatile the returns will look.