SK Biswal Chief Engineer at ONGC. Interested in Stock option trading ,Technical Analysis of Stocks & Commodities

Periodic Economic Examination And Regulation of Retail Portfolio

7 min read

Following presentation may not be valid for savvy traders and investors who have resources ,time and expertise  ,but for aspiring retail investors or part timers from other walks of life having passion for equities . Most have to suffer the pain of their hard earned money vanish in mutual funds and equities and their dream turning into nightmares and their economy ruined.

Economy And Health

Periodic Medical Examination and Periodic Economic Examination  have same the same purpose and objectives.Personal Health and Personal economy  have many parallels and periodic checks of are mandatory.This is because  both when worsens lead us to  the sad states of life.Unhealthy  medical report and bad economic report requires urgent remedies.Poor personal health and poor economy causes drudgery, deprivation,disease,desperation,death .Every decision making has to pass the test of personal economic feasibility .Chasing Future expected  profits should not endanger your economy .It is common sense to tighten belts and take austerity measures when your personal economy contracts.Your investment in a portfolio or mutual funds sometimes constitute major factor of your economy.Sadly  BP ,Sugar levels and one’s economy are closely interlinked and feed each other.



BANKS & THEIR NPAs  Vs.  Your Sound Personal Economic Policy

Banks maintain their solvency and economy by regulating their investments and credits in spite of their vast resouces.Banks have to face defaults or NPAs which have to kept at certain level to ensure their solvency and sustainability.Exactly  similar NPA policy has to be applied to your portfolio from time to time to ensure defaults  does not endanger your economy.Money does not grow in trees .For you to have money ,somebody has to spend. However nobody  likes to spend  easily-A small scale zero sum game.

Time ,Leisure,And Your Economy

Money gives Time and freedom from labour.We like and need Time for our self.Giving your time is giving away part of your life.Money makes everything quick and easy. Apart from our welfare or growth, Money is source of our present and future leisure.Liesure break from hard work for subsistence. So saved money stands for the saved LIESURE in future .Remember with less money saved ,you saved less leisure for yourself in future.So when you plan to spend on whatever you plan small or big ,you are cutting into net future leisure you have saved.Risky and volatile investment decision can make your savings vanish completely and you will be left with no leisure until we die.

Society And your Economy

Sudden Running out of money causes suffering and sadness. You have to forego many things of your life and family as you have to cut expenses. Society serves and solves many purposes of our life.We tend to enjoy the goods and services provided by society.Life becomes easy and pleasant. But when you run out of money ,society tend to closes its gates to you.Its hard but true.Without money you are rejected from any competition to share wealth of society.You and your family  may have to suffer Inequality and access to opportunities.

 Simple Mantra of regulating

Therefore our solvency and economy both present and future should be cornerstone of our investment strategy when there is risk involved. Risk taking has to tempered so that our view of future rewards should not permanently jeopardize our personal economy beyond redemption.Money or cash is scarce resource and consumption or use of which has to be regulated for long-term economic sustainability and not to impair one’s economy recklessly.

Sharmaji’s Portfolio  Analysis and Regulation


1.Target time horizon of two quarters

2.Two stage building of portfolio

3.Regulating economic impact of volatility on portfolio Or NPA targeting for safety

4.Breadth Indicator  as strategic tool or edge.

Sharmaji is a retired employee and neither claims degree in finance or economics nor has any idea of Poker and chess games.Sharmaji is  going to recount his personal  experiment with his small portfolio in current market condition .He chose to adopt Top down approach with bullish outlook.As busy professional He would  always like to have a portfolio which ensures his  continued interest in market and economy and  can imbibe a sense and discipline  of retail entrepreneurship or small time risk taker..He has been doing this over many years.His strategy is simple strategy of  managing a dairy farm.Dairy farm owner simple sells infertile cows to slaughterhouse and still manages to be profitable with productive ones.Sounds funny but it does work wonderfully.



And Your possible future share could just be  just a bite !!!

At the outset He  selected three sectors such as IT , AUTO and BANKING and shortlisted three stocks in each sector.Excercised due diligence in selecting  only blue chip stocks in terms of their fundamentals, Liquidity and past Volatilty.Yes sound technicals are always  important  parameter for entry.He invested  a small capital of 15 lacs.Then followed  his  portfolio by daily monitoring only in the afternoon to keep his labor minimum and track any one breadth chart.No big deal so far. Well, Market being volatile ,his portfolio could soon become accident wreckage in high way most probably.


Applied a simple solution called NPA (non performing asset) target  of the portfolio  for the week combined with common swing trading strategy .Since his capital invested being 15 lacs ,he fixed minimum weekly monetization target as 14lacs which mandated he can not accept losses exceeding 1 lacs.In other words his portfolio has to be liquid enough to Refund him or can be monetized at any time in week at least to minimum extent of 14 lacs or more.This way he wanted his portfolio to work as savings bank account and giving him  freedom  of access to his money instead having it locked in for years.His strategy is based on twin objective of optimal monetization of portfolio  any time and second being yield which is going to be his final Score in a test .You don’t predict a score and  don’t  wait even as market has reversed.Market  can only gives you a score you deserve and don’t disown it.

At the end of every week he  would review his  portfolio  to see the drawdown which when less than 1 Lac he leaves his portfolio untouched and carry it  over to next week.For 4 weeks in a row his portfolio performed wonderfully  well and remained within the regime he has fixed and he enjoyed the satisfaction of being able to refund  and encash  14lacs at any time.On fifth week his worst horrors came true and stared him at face. Drawdown one day  rose to 1.2 lacs tad more than his target.He did not wait for market to bottom and bounce with hopium.He immediately shortlisted three stocks with maximum draw down and sold them right away.So my net investment came down to 10 lacs and his refund after selling is 3.8 lacs.Yes monetization and economy is  target and chief concern. Now waited for swing low level and selected another set of three stocks based on current technicals  and invested 5 lacs.His strategy now  is common swing trading trick.( In a market in which upswing are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%) .This percentage principle plays a subtle role in final outcome.So his total investment now 15 lacs again  and realized loss is at 1.2 lacs..At this stage once again you have to set your NPA target which he set at 1 lacs level at which he decided to liquidate the portfolio.

In the second leg of his portfolio ,it appreciated as market rallied and  portfolio rose to 18  lacs at which he sold when market appeared to have topped. This he accepted as his final  test score and He had no profit target at all .only had  NPA and economy target and  a directional view on market which was complete assumption. It is not fool proof strategy.There are more sophisticated portfolio hedging strategies.However  most of them are beyond grasp and resources of a retail investor forever in fear of losing everything or shirt in market.Law of Probability combined with adherence to principles of sound economics can provide safety and security to a common enterprising  investor. Targeting monetization first  and accepting your score ensures long term entrepreneurship in equity markets.Major premise here being he did expect an uptrend from beginning before his portfolio building  and with a market view.A look at breadth charts can help you to have tentative outlook about market.Besides Breadth indicators are enough to guide you to make objective decisions from time to time to manage or to time changes in  your portfolio.

What is breadth?

Breadth refers to the fraction of stocks that are participating in an up or down move in the market. For example, if a large number of stocks are participating in an up move in the market then we can interpret this as being bullish. If, on the other hand, only a small number of stocks are making an up move in the market, then we can interpret this as being bearish. Investors can use the McClellan Oscillator to judge the health of the market by peak and trough analysis. In the charts we can  also see how even though the market was showing rising peaks and troughs, the McClellan Oscillator was showing declining peaks and troughs – a bearish divergence



Encashment  is Refunding.Allow me to explain the idea with help of an inverter and its battery.This does sound  like bit unfamiliar cocktail. However there are amazing resemblances.As voltage drops due to excess domestic power load ,you have to recharge your inverter battery before once again switching it on.Inverter if gets completely discharged ,you can not use it for lighting et all.Battery voltage is similar to your money .As voltage in battery builds up when plugged to Main ,your portfolio unrealized wealth builds up when plugged to market rally and gets discharged when market crashes.As you unplug when voltage is down , exactly similar way  you switch off portfolio when monetization is low. 


Price and price action behaves like unending Spirals -both ways  and broadly oscillates between profit and losses.Your portfolio  is going to be volatile sometimes critically due to news flow called noise or just random buying and selling pressures in market or  varying purchasing powers .  Very simply ,MONEY Or Return  M = ±K √T  (T is time). As per Monte Carlo concept,  portfolio Return is going to be function of  a constant drift and random volatility at any future time .Volatility as a statistical property of price keeps eroding returns of your portfolio like tax ,therefore impacts your economy while you are stand by for long term return on portfolio. This is subject of  quant finance. In other words, portfolio should be  structured with such combination of stocks that probability of losses  in excess of certain percentage  due to volatility should not happen on more than 5% occasions ,so that 95% times or more, economics of portfolio is not impacted. This result can be obtained with historical data.Then laws of probability can ensure that your portfolio is profitable on more occasions for you to achieve mean positive  return.Market and Nautilus spirals are similar and you can end either at wider or narrow end in absence of any regulation of your money and portfolio value.


To conclude  Sharmaji could successfully use swing strategies to decide entry and  for shuffling of portfolio and used Breadth indicators as strategic parameter for monitoring portfolio residence time and used tactics of NPA  level for emergency safety exits.This was my simple and complete plan and it did work wonderfully for a small portfolio with minimum stress.Always vote and support your personal economy first and foremost.

SK Biswal Chief Engineer at ONGC. Interested in Stock option trading ,Technical Analysis of Stocks & Commodities

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