Invest Without Emotions
Investing insight to make you a better investor.
Things that stand out:
You can compare all these indices using our new tool. Code for the chart above is on github.
Ever wondered how the dollar adjusted NIFTY MIDCAP 100 index performed vs. US Midcaps? Wonder no more! You can now quickly run a comparison using our new Compare tool.
We have made a large number of datasets available:
| NASDAQOMX | The NASDAQ OMX TR USD Dataset |
| MF | A pruned set of Indian mutual funds |
| FRED | The St. Louis FRED dataset |
| THEME | StockViz Themes |
| IN_NSE | Indices available on the NSE |
| IN_BSE | Indices available on the BSE |
| ETF_US | US listed ETFs |
| EQ_US | US listed Stocks |
| EQ_NSE | Stocks listed on the NSE |
| EQ_BSE | Stocks listed on the BSE |
| MCX | Commodity futures listed on MCX |
| NCDEX | Commodity futures listed on NCDEX |
The “THEME” comparison tools also gives you the impact of STT and brokerage costs on returns.
So, now you can compare pretty much anything with everything.
When it comes to plotting a single time-series, we have made intraday prices on stocks listed on the NSE available. You can run these 10-days at a time:
The daily chart of NSE stocks also marks important corporate actions:
The biggest challenge we faced was managing data storage costs. Earlier, we tried to upload all the data to the cloud but we quickly ran into performance bottlenecks and costs overruns. So we went back to the drawing board and designed a hybrid solution where the data and the analytics reside within our firewalls and only results are displayed to the user. This allows us to keep these tools free and open to everybody.
If you want to see something here that would be of interest to other investors/traders, please WhatsApp us (+918026650232) with your ideas!
The long-term capital gains tax on equity returns of 10% may not seem as much but it makes a huge difference if you are one of those “long-term” mutual fund investors who switch funds every year. To think through the effect of the tax on compounded returns, imagine a simple scenario where you invest in the midcap index and just sell and buy it back at the end of every year. In this hypothetical scenario, from the year 2002 through now, gross returns of buy-and-hold would have been 2245% vs. 1754% after tax. That’s ~22% of profits gone poof.
Will mutual fund investors be better behaved given this new normal?
Code and more charts on github.
The earlier post on a simple momentum strategy ignored transaction costs and taxes. Typically, these are added to backtests where gross profits are high enough to consider them for further analysis. However, one of readers requested that we add these costs to get an idea of their effect on returns.
To keep things simple, we assumed a 25bps net transaction cost and a 10% tax on gains. The tax part is a bit tricky so we ran the analysis with some simplifying assumptions. Follow the github link to the code if you are curious.
Running with these assumptions, transaction costs and taxes lopped 82% off gross returns over Jan 2005 through June 2018.
What kills you are the taxes, not the transaction costs. There were only 17 trades throughout the period. It is the 10% tax on gains that ruins the compounding.
Code and other charts are on github. Look for ones with a ‘tx’ in the suffix.
Michael Batnick, in his blog titled “Simple Momentum,” proposes a strategy that follows a simple rule:
If the S&P 500 outperformed 5-year U.S. treasury notes over the previous twelve months, invest 100% of this portfolio in the S&P 500 in the following month. If the 5-year U.S. treasury notes outperformed the S&P 500 over the previous twelve months, invest 100% of this portfolio in bonds in the following month.
It outperformed the S&P 500 with significantly lower drawdowns. Could the same strategy work with Indian indices? We took NIFTY 50 and MIDCAP 100 indices and paired it with the 5-10 year tenure gilts.
The strategy returns are significantly lower than a simple buy and hold. December 2004 through June 2018, the NIFTY 50 version of it under performed buy and hold by 6% and the MIDCAP 100 version by 34%. This is before transaction costs and taxes. Here are the cumulative return charts:
The simple momentum strategy did have lower peak drawdowns than a buy and hold:
What keeps you out of the troughs also ends up keeping you out of the peaks. This is highlighted by how the strategy behaved in 2008 and 2009:
The simple momentum strategy is perhaps too simple. The backtest doesn’t capture transaction costs and taxes that would further ding the already lagging gross returns.
You can peruse the code and the charts used in this blog on github.