In addition, everything in investing has to be benchmarked against two major factors:
1. Returns of FD before taxes
- This needs no management of assets except for 1 hour per year in a 1 year FD
2. Returns of Equity MF without leverage
- To me Reliance Equity (growth) is the best and longest term benchmark
- A subset of the above could just be the measure of the Nifty ETF (which has low fees) Performances
- This needs approx 1 hour a month or 1 hour a year depending on how active one wants to be using this investment vehicle
If one can beat these returns over the last 1, 3, 5, and 10 years, regardless when you started, before a Portfolio Manager of Your Own Personal Funds. If not, then resort to one of the above. Now, if a leverage portfolio is used, then you have to cut back the leverage in the benchmarking, or come up with a similar leverage on the above measurements (putting a FD return with borrowed money on margin, which is available in the US, but not in India, as far as I know).
I will even add one more factor to it. If you are doing an active portfolio management and it is taking you 10 hours a week on it, then what one has to subtract from the returns is the money you would make in a job or business by putting those hours into the job/business. That has to be factored into the benchmark since the above 2 factors are demanding 1 hour a month or 1 hour a year of time.
Now, when it comes to trading systems, life is exciting when you develop one, which may be back tested up the wazoo, but will not meet the requirements and performances of future market environments.
Hence, I love the discussions that a few of the Seniors have been doing about making things simple and keeping it to MAs or a simple combo of technicals.
Prashant has eluded to most of the above, but if one reads it carefully......I just added some more color and clarity to it.
KKP
On 8/26/2010 8:30 AM, Prashanth wrote:
Hello,A friend of mine was recently suggesting to the group where I was part of that the easiest way to pick stocks was to get MetaStock, run its indicators and select a list of stocks based on Discretion. I generally argue against such BS, but did not have the mood to do so and left it off. But the information he sought to convey is that all you needed is MS and a data provider and well, you could well be on the way to riches and glory.Just yesterday I was discussing with a friend cum client of mine the importance of "Benchmarking". I believe that if a system is not able to generate at the minimum twice the return (after deducting all expenses incurred in regard to trading that system) of the said Benchmark, it may be wiser to be a Buy and Hold (or shall I say Hope) investor since one can spend the same time doing some other profitable work.Generally when computing returns, people forget the risk they take (leverage) and instead calculate directly the net profit / loss A friend of mine recently showed me a list showing the returns generated by him for his clients. He has over 9 months averaged around 5% per month, net of brokerage & taxes. While on the face of it, its a commendable performance, what one misses is the fact that he uses nearly 5X leverage to achieve such returns. The question that one should then ask is whether the risk is worth the reward. 5x is no small leverage and one bad move can wipe out returns generated over months together.CheersPrashanth__._,_.___For Forum Rules of Conduct & Disclaimer, please go through
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-- Plan Your Work and Work Your Plan to Get Ahead in 2009-2012..... KKP Investor ------------ ------------ Bull Markets are Born on Pessimism, Bull Markets Grow on Skepticism, They Mature on Optimism, and Die on Euphoria - Sir John Templeton ------------------------------------ Bear Markets are Born on Recessionism, Snowball on Momentum & Technical-Breakdowns, Mature on Eco-Political-Nightmare Talks, and Die on World-Is-Coming-To-An-End Euphoria - KKP ----------------------------------------------- >BUFFET: My rule is to be fearful when others are greedy,and be greedy when others are fearful. ABOVE ALL: Whatever God Does, Accept that as Good; Leave Behind ALL Other Judgements/Justifications. ---------------------------------------------------------------------------------------------------- Disclaimer> Do you homework for your ownself and then invest. My ideas are not advice.
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