Godrej up 572%

Do you know of a stock that moved up 750% from Oct 2008 lows in India? Do you know of an open source system that captured 572% of this multi-year move? I am on a road show in North America for Orpheus and this is what one financial advisor told me, “If you are able to capture 20% of a trend consistently, you have a winning system at hand.” Now what will we call ORMI 10 capturing 80% of the Godrej trend? One may call it a fluke, a coincidence, luck. What if we tell you our ORMI India 10 delivered 142% more than Nifty since July 2006. This means 20% more compared to Nifty on an annualized basis. I know it’s hard to believe, the magic of extreme reversion.

Indexing: The INDIA 30 Orpheus Risk Management Index (ORMI) is based on proprietary algorithm.

The indices values that are disseminated today are broadly based on market capitalization methodology. Market capitalization methodology has been challenged globally for a few broad reasons. 1) As an asset strengthens it is given more weight 2) As an asset weakens it is given lesser weight. This on one side captures momentum but on the other side suggests investors to focus more on growth compared to value. This increases portfolio risk when market growth slows down or reverses, as has been the case since 2007. When markets contract, the erstwhile top performers push into red for extended period of time causing large drawdowns and emotional pain.

The India 30 Index is based on the above extreme reversion idea i.e. outliers tend to reverse, which suggests that investing is about value picking and extremes are prone to reversion. Our Index extends and fine tunes the idea first mooted by De Bondt and Thaler in their 1981 paper suggesting that 3 year worst losers portfolio tends to outperform the 3 year best winners portfolio.

Coverage India: CNX100, BSE500 traded stocks and Indian Indices.

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