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How to allocate to Capitalmind Portfolios?
This post is for anyone who is new to Capitalmind and is either looking to make fresh investments across Capitalmind Portfolios or looking to re-align their existing portfolios.
Asset allocation sounds like a big scary term. But all it means is: You invest in different things. Stocks are risky. Fixed deposits are not. Bonds are somewhere in between. Bitcoin is crazy. How much in each? That’s what Asset allocation means.
First things first, decide on your Asset Allocation. There is no one right answer here, but here are a few points to consider. Also, remember nothing is etched in stone, it can always evolve, getting started is the key.
If you don’t know what it should be, then start with a 50% equity, 50% debt allocation.
For example, you may have 10 Lakhs in Equity, another 8 Lakhs in PPF, and some 2 Lakhs worth of Gold. In this case, your asset allocation will be 50% in Equity, 40% in Debt, and 10% in Gold.
Here’s a crude rule of thumb to know if your asset allocation is off. If movements in a small set of securities cause you significant emotional discomfort, then you’re either over-allocated to that asset class or missing the forest for the trees.
We’ve written a lot about why spending time and energy on getting your Asset Allocation right is key for long-term investing success. You can read more over here.
Whoever said Perfect is the enemy of good, was perhaps talking about asset allocation.
Okay, back to the serious stuff. Here’s how you could go about it
As a beginner, aiming for an equally distributed asset allocation of 1/2 each in Equity and Debt or a 1/3 each in Equity, Debt, and Alternatives, is also fine.
There are two possible scenarios here,
If you already have substantial investments in Stocks – You would need to revisit what made you buy those stocks, was there a thesis that you believe in, do you have exit criteria if that thesis does not play out?
The point here is to decide on one thing: Should I stay invested in my stocks (given that Capitalmind also has stock portfolios) or should I just sell them and move on?
What about Mutual funds?
If you are SIPing into multiple Mutual funds, check if there are overlaps within them, say you have a Large Cap Mutual fund and an Index mutual fund? If that’s the case it’s better to stick with one, preferably an Index mutual fund would do. Over time if you wish you could turn that into a CM Passive like portfolio.
Alternatively, you can always, exit all your existing investments and start with a clean slate.
Either way, at the end of this exercise, you know two things:
Add the above and you would have a sense of how much capital exists to invest across CM portfolios.
We all know at least one friend who has taken up running long-distance. Maybe seeing strava maps of their 42 km runs even made you feel guilty enough to order your own pair of that special running shoes. Now they collect dust in a corner of your shoe closet. Turns out, you’re much happier playing squash for your exercise. Or maybe bicycling is your thing.
Different activities have different levels of time, equipment, and energy commitments. What’s right for you might not be right for me. What matters is finding the right set of lifestyle habits and sticking with them for the long haul.
Picking and choosing equity portfolios is a lot like finding the right lifestyle habits that work for you.
The basic guide to allocating to Capitalmind Equity Portfolios
This is just one configuration for those who would prefer to dip their toes into all strategies.
Depending on your context and history with the markets, certain portfolios and their core philosophy will resonate more or less than others. Then allocate more to those and drop one or two others.
Maybe you have substantial exposure to an active Flexi-cap mutual fund that’s been doing well and you know you want to stay invested. In that case, maybe you don’t need the 20% Focused portfolio allocation. Or you have substantial holding in the N100 (Nasdaq 100) fund in which case you could consider assigning the 20% Passive portfolio allocation incrementally to the CM Low Vol portfolio.
There are no wrong answers, but switching back and forth between portfolios depending on recent short-term performance is probably one of them. The right answer is the one that lets you worry less about what levels markets are at on any given day and lets you go do things that matter most.
Coming to the Debt part of asset allocation, we’ve got CM Fixed Income portfolio. Here, we keep a hawk’s eye on the credit risk and interest rate cycles, to take calls on bonds and debt instruments that go into this portfolio. If you are looking for:
But do not use it for short-term money, money that you need within the next 3 years. There are other ways to park for the shorter term. Given short-term interest rates, we just recommend parking money in a Savings Account.
Warning! Derivatives are leveraged instruments and you can potentially lose more than what you brought to the table, we suggest you trade derivatives-based strategies only after understanding the potential downside risks.
Equity portfolios are for your long-term equity exposure. But you could also have a little extra that you can use to generate trading income. This can be done using derivatives. (At Capitalmind, we don’t look at intraday trading in stocks). Derivatives involve leverage.
Here are some of the derivatives-based strategies that we run.
CM Chase is an index trend following system, which uses a combination of futures and NIFTY ETF as underlying. The minimum lot size to trade this strategy is Rs. 10 Lakhs. The strategy is designed to capture week-long trends on both up and down moves. This is a highly active strategy and requires daily presence. After a phenomenal run 2020 the strategy ran into a rough patch lately, typically all market-timing-based strategies are cyclical.
Uncle Theta trades
Uncle Theta is a category of options strategies. Some of which are short timeframe Option writing strategies that we run, the recommended minimum lot size is two lots, which would mean a minimum allocation of Rs. 4 Lakhs + 1 for any drawdowns so a total of 5 Lakhs.
At Capitalmind we keep an eye any Equity-based arbitrage opportunities or Special situations. Its suggested that you keep some powder ready for such opportunities. These opportunities are held anywhere from a few weeks to a few months. Here is an example: POWERINDIA’s experimental trade that gave us 46% in 7 months.
Typically an allocation of Rs. 2 Lakhs for such opportunities would be ideal, but remember this: you may not have a running opportunity at all times. This is more ad-hoc, and when opportunities arise, investments can be made.
All announcements are made on slack in the channels prefixed with #actionable. You will get an email for actions in the equity strategies – such as when we add or change stocks, or a rebalance (like in momentum).
A base case for investment is something like this:
While this may seem like a lot of things to do, life’s never linear, there could be months where you may not be able to save or invest, and that’s okay.
Sometimes you may miss a signal by a few days, that okay too, don’t get too occupied with all of that and ignore the more crucial aspects of asset allocation, in a way missing the forest for the trees.
Second, start with understanding your personal constraints, typically there are three of them, capital, time, and knowledge. There are portfolios or strategies which require a higher minimum ticket size, there are portfolios that need a lot of your time, and then there are strategies that you may find hard to understand. Start with portfolios that are well within your constraints.
Third, you may want to think of Asset Allocation in terms of Core and Satellite parts. Core is where you would allocate a large 70 to 80 % of your savings, Satellite is exploring other strategies, and maybe occasionally scratch that itch.
When it comes to Asset Allocation, strive to be an “optimalist” instead of a perfectionist, focus on working towards an ideal asset allocation, a few percentage points of deviation here and there is absolutely fine, and won’t really matter in the long run.
There is only way to eat an elephant, one small bite at a time…
Or as the Roman emperor Marcus Aurelius, reminded himself in his private journal, “Don’t await the perfection of Plato’s Republic; be satisfied with even the smallest progress, and consider it an achievement”
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