Just like performance cycles, time triads are the basis for numeric ranking.
Are you upset that you bought HDFC Bank when SBI moved up, you bought Caterpillar but GE delivered, in March 2009 low you put your bets on Nifty but the CNX IT outperformed blue chips by 40 per cent. That was for buyers; let’s talk about sellers now. Should I sell stronger assets, or the weaker ones?
Now that natural gas has outperformed crude oil by 25 per cent since June 15, should I sell natural gas or oil? Has Infosys topped? “Should I book profits selling Infosys or is a short better on CNX IT?”
Entry and exit
These questions are of high concern both for individuals and institutional investors. If there was a numeric ranking system investing decisions could become easier.
The system will reduce the confusion regarding the performance and this dispels the emotional suffering of missing the bus, that is entry and exit blues. “Why did I not enter, exit or vice-versa?” One would also realise how weak the conventional fundamental systems are. Not many fundamental systems told us that the equity bear had a sweet tooth.
| PAIR PERFORMANCE | |||
| % Change | % Change | ||
| HDFC Bank | 8.3 | SBI | 19.5 |
| Caterpillar Inc | 7.7 | General Electric | 15.3 |
| Nifty | 6.8 | CNX IT | 9.4 |
| Crude Oil | -12.1 | Natural Gas | 34.9 |
| Crude oil is represented by Bloomberg European Dated Brent & Natural gas by Mid-Continent Natural Gas Spot. % change in price over a one month period. Source: Bloomberg | |||
It was consuming sugar and chocolates while global investors were reeling under recession. Both sugar and cocoa are at multi-year highs.
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Ranking them
Socionomists can explain why sugar and cocoa rose while equity was cracking. Coca Cola zero is a bull market, fitness crazy, societal trend. What socionomists did not do was a numeric ranking. March 2008 till March 2009 was time to go long sugar, short equity.
So what is numeric ranking all about? Numeric ranking (NR) is about being able to pinpoint performers and performance in a numeric way. What is the number one and the worst (30th) stock of the Dow? A few readers may now think “what’s new here?” the novelty is time, connecting NR with time.
Time horizon and assets
Top 10 or Top 30 could change if we keep altering the holding period variable. How long do you want to hold your assets in your portfolio? As one moves from the day traders’ eighteen minutes holding period to the Warren Buffet holding period of multiple years, NR of the assets will vary. So just mentioning that Wal-Mart is a top performer does not mean anything if you don’t mention the respective holding periods for the stock.
NR also needs a top-down approach. The ranking could start from a segregation of asset classes. Is equity ranked higher compared to commodities till end of 2009?
Assuming it is a yes though (it does not seem so), the starting point will be from broad sectors that is NR of sectors. For illustration let’s give technology (1), banking (2), Nifty Blue Chip (3), metals (4), staples (5), pharma (6), industrials (7), utilities (8), oil & gas (9) and the broader market (10). After NR of sector we go to the sector component and do the ranking again. If we take three top sectors and 3 top stocks from each we have a nine-stock portfolio.
Since the ranking is dynamic and based on ten to thirty-day holding period, the top three sectors will change and along with it your nine stock selection, every two three weeks.
A portfolio based on NR
What drives NR? Remember performance cycles? The cyclicality between performers and underperformers is fractalled. So if we know your preferred holding period we can design your NR portfolio.
Time triads can numeric rank not only assets but many socionomic trends also. The research on time is limitless, entry and exit is just a beginning.
The author is CEO, Orpheus.asia, a global alternative research firm