I Made 38% RETURNS since 2016 Investing in the WORST Performing Stocks 😱 Loser's Portfolio Strategy

a few months back I think this was February when one of my subscribers aim had presented some data where Mr Sharma had taken all 30 stocks that I had labeled as my magic formula stocks from the year before and when mapped over the next year this portfolio had delivered a 75% return this made me happy and sad at the same time happy because the research had resulted in a 75% performance which is undoubtedly brilliant but I was also sad because although I had done the hard work I had myself not invested in those stocks which Honestly made me look like a bit of a loser and that's when I made a promise to myself but little did I know that just like there was another gentleman Mr AKA Chan who was keenly tracking a portfolio of stocks that had earlier presented called The Losers portfolio and he was not just tracking he had also invested in it and that portfolio had given him some handsome returns now when I first heard about it from a I was a bit skeptical because but I should do some detailing around it and so in this video we'll examine the losers portfolio in Greater detail as we understand its history its performance over time the stocks that can be a part of this portfolio and much more which brings me to indd money a popular personal finance application that tracks your finances helps with Goal planning and also offers investment Solutions ring from Mutual Funds ETFs domestic stocks US Stocks IPOs fixed deposits and a lot more so very simply the losers portfolio involves intentionally investing in stocks that have performed poorly that is stocks that have experienced significant price declines now the word significant is pretty subjective I mean someone might say a 20% price drop is significant someone else might say 30% even 50% and because there is no one definition for this I generally not want to go below 50% because that might mean something is truckly wrong with that company and that's definitely something that we don't want so just to illustrate I'm assuming a cut off of 50% as the maximum drop in stock price when I pulled out a list of stocks whose market cap is currently more than 1,000 crores and after sorting them according to their last oneyear returns two companies that is Rajesh Expos and Raj Ron Industries seem to have exceeded our cut off and as a result they'll be excluded from a losers portfolio while companies like Primo chemicals best agrolife 197 Delta cop Etc will qualify within our framework by now I'm sure you would be wondering losers portfolio but incidentally the inspiration for this video comes from an analysis cited by Professor ashwat Daman in his book investment fables where it says that if an investor were to buy the 35 biggest losers over the previous year and had held these stocks for the next 5 years then he or she would have generated a cumulative excess return of 30% over the broader market now conceptually why the losers portfolio might work is down to a couple of reasons firstly there's the principle of mean reversion that is if the price of a stock is down then generally it should rise up to its long-term average and consequently there is some money to be made there and secondly there are the contrarian principles that is by investing in a losers portfolio you're acting against the which as many Studies have shown can be rather profitable Professor dudin has talked about it in his book but of course since his analysis was done on us data which is of absolutely no interest to you and me and that's why I took it upon myself to do this entire exercise over a 10-year period on the Indian stock market so that the efficacy of the strategy can be understood and if the numbers are solid then probably everyday investors like you and me can implement it in the times to come and it's not just about implementing one has to track those numbers as well which is where indd money comes in with its Rich suit of features including a net worth monitoring tool that automatically keeps an eye on your assets and liabilities you can track the current value of your stocks mutual funds fds gold ppf EPF NPS Etc and the results are presented in an easy to understand visual format next is goal-based investing that helps you plan your future needs like buying a home a car your kids education retirement Etc and you can align different invest ments to specific goals with Target timelines and the indd money app will handle all the tracking for you the app also features an expense tracker and once you've sync your savings bank account to it you'll know exactly where your money goes across different categories without having to manually input any of the data and lastly the indd money app automatically tracks all your credit card transactions giving you detailed analytics it also detects hidden charges and you can check your credit score on the app at zero cost in fact every every feature I've explained here comes to you absolutely free of cost it's all automatic you can set it up for all members of your family in a single view which is very unique to this platform and unless paper journals and complicated worksheets is your thing it's time to step up your financial tracking by downloading the indd money app today as always the link to the super useful platform is available in this video's description okay so step one is to compile all the information and as a part of our study I extracted a list of companies whose market cap was over 1,000 cres which came to a good 1,348 companies now please note these companies that I've pulled out are in existence today and all of them were very much there 10 years back also that is in 2014 this is actually a problem because this means my data has a survivorship bias in it which means I might have ignored some companies that were existing in 2014 15 or 16 but are no longer there in our data set because in all probability these companies might have been acquired or merged or liquidated spun off Dlisted privatized Etc I'm sure there'll be some companies of the sort but because every screening software has some drawbacks we have no choice but to ignore this limitation anyways once we have this list step two was to pull out every stock so all 1,348 stocks I had to pull out the financial year closing price that is the stock price as on the 31st of March of every year from 2014 onwards for this I took help from Google Finance and although I found some gaps in the data I generally think the tool did a rather decent job all right so for the first year of a study I picked up the 35 worst performers of FY 2015 so the period between April 2014 and March 2015 and applying the 50% cap that I explained earlier this list gave me companies like 63 moons jindel steel ly Enterprises Shri Ruka sugars and so on now because Professor Daman wants us to look at this as a portfolio of losers let's say I invested 10,000 rupees in each of these 35 stocks so that's an outlay of 3.5 lakh rupees and an year later that is on the 31st of March 2016 I find that this portfolio's value would have risen to 5.4 lakh rupees giving me a 55% return while the Nifty 500 during the same time period delivered a return of 6.5% so 55 versus minus 6.5 this was definitely a promising start for the losers portfolio and this got even better next year when the 35 loser stock portfolio I received as of March 2016 went on to deliver a return of 51% over the next 12 months while the Nifty 500 grew in value by just half that is at 25.5% a similar pattern was seen in the next year with our losers portfolio delivering 23% as against the Nifty 12.9% but then came March of 2018 and the losers portfolio that we derived for our methodology failed to live up to our expectations delivering a negative 9% return while the Nifty 500 did 9.7% I think the big drop in mid and small cap stocks might have something to do with this but what this also shows us is that every strategy will have their ups and downs and my presumption here is that the losers portfolio does not do well when there is a sharp correction in the markets but let's see let's just continue our Examination for a few more years and see where it leads us to okay so next St is the March 2019 portfolio which had to go through the covid impact and as a consequence it lost 54% in value between April of 2019 and March of 2020 while the Nifty 500 lost half of that at almost 27% so I think what I said earlier about the losers portfolio doing well in a bull market and Performing badly in a beer market seems to be holding true and this was further evidenced in 2020 when the losers portfolio grew by 231 again 77% and again in 2022 when it grew by 9% against the netive 1.2% that the Nifty 500 delivered I'll say the only year where my hypothesis did not come to fruition was 2023 as many of the losers in our portfolio continued to be losers yielding us a return of netive 11.8% while the Nifty 500 returned positive gains of 40.5% so this was quite a difference but at least now we know how the losers portfolio as for my method ology compares to the Nifty 500 over the years and at least mathematically and on a 9-year basis the losers portfolio quite ironically has won the performance battle against the broader index all right so we have the concept we have a methodology and because we have the numbers to prove that the system actually works if you're keen on building your own losers portfolio just as an experiment just like how Mr Chan did it that here are the list of 35 stocks you might want to consider and this list is as of the 1st of May 2024 of course you don't need to exactly copy this feel free to apply additional things that you've learned on my channel so variables like sales growth EPS growth PEG ratio promoter shareholding interest coverage ratio return on Capital employed and stuff like that just don't go overboard with it by stuffing in too many criteria but do remember this portfolio that we have just discovered I think will only work if we treat it as a system as a methodology and strictly adhere to the rules that we have defined for ourselves actually let me explain this part in detail with a couple of observations here so let's go back to the first data point that is the FY 2015 list and when I look at the performance of those 35 stocks as of the 31st of March 2016 we find that just one stock dwar sugar was singularly responsible for the big performance jump in our portfolio as it grew by over 10 times in that single year now the problem is if you don't treat this portfolio as a system then the moment this stock this darik sugar goes up by say two times or even three times you'll be very tempted to sell the stock saying that is but the fact is this is not an isolated incident with constituents of the losers portfolio across years showing a lot of variability with many of them doubling in value while a few of them also losing half of the value in fact in the earlier video I made on the contan strategies the 35 stock loser portfolio I featured there had actually given us a 5year cagr of 91% Yes you heard that right 91% but if I were to remove just four stocks Orchid Pharma best AGR life pangali foods and Raj Ron Industries then the annual return of this portfolio comes crashing down to just 31% which brings me to Observation number two which is how long should we hold these loser stocks I mean is this something we should keep for just one or two years or can I hold this portfolio for a longer duration of say five six or 7even years it's an important question so I went back to the data my trusted 9 years of data and I mapped out the trailing returns across years that you can see in this table here okay now this can be looked at in different ways but by my Reckoning years 1 2 and 3 seem to be the most profitable for a loser stocks and over time that bump up seems to dissipate away now the ones I've marked in red are the outliers these are the covid years and if I ignore March of 2020 and let's say March of 2021 as well which was more of a recovery year even then the early years seem to be the more profitable ones so if you're keen on trying out the losers portfolio as an experiment then keep a holding of one two or a maximum of three years and see what happens but just in case you decide to hold onto these stocks for a longer period of time actually let me just give you the numbers and honestly I was not sure if I should be sharing this with you as it can lead to some confusion but still let's have it so if I had held on to the loser stocks or rather if I had put in 10,000 rupees in the top 35 loser stocks every year that is in the year 2015 16 17 all the way until 2023 then I would have invested some 31 lakh 50,000 Rupees on a staggered basis and the value of these stocks of this portfolio as of 31st of March 2024 would have come to a staggering 223 LH rupees which gives us a cagr of 38.5% I repeat 38 .5% and in comparison the nifty50 would have delivered just 14.7% and even one of the best performing actively managed mutual funds during this period the parak parik flexi Cap Fund would have delivered just 21.5% and here we have this group of losers this losers portfolio strategy that has delivered a return of 38% which is absolutely amazing but having said this don't don't don't forget survivorship bias because I'm pretty sure there are some non-exist loser companies that our screening software is unable to provide and this would definitely reduce our returns by how much well I have no idea and I can't even guess that number on what it might be but as I've always said investing is a game of probabilities and it is very probable that the losers portfolio would have done adequately well and is therefore worthy of a consideration to be run at least as a small and simple experiment if any of you are Keen of jumping into this then I'll really appreciate if you can drop an email from time to time and let me know how this is working for you once again thank you for your time a big thank you to AKA Chan for inspiring me to take up this topic please share this video with others subscribe to my newsletter and I'll see you very soon until then [Music]

Channel: Shankar Nath

Views: 27,736

Keywords: shankar nath, beginners buck, shankarnath, sankarnath, akshat shrivastava, pranjal kamra, soic, finology, rachana ranade, sahil bhadviya, parimal ade, vivek bajaj, labour law advisor, warren buffett, investing, investment, nifty, sensex, stock markets, mutual funds, losers portfolio, loser's portfolio, portfolio of losers, aswath damodaran, stock market strategy, stock strategy, investment strategy, investing strategy, 52 week low, 52week low, stock price fall, stock crash

Id: U6T4FqBOeEQ

Length: 14min 53sec (893 seconds)

Published: Sat Jun 08 2024