Manual Stocks SIP Experiment

Recently, I mooted an idea in AIFW FB group about manual SIPs in stocks from the coming month. I got a lot of encouraging and valuable feedback from the esteemed members. Further to that discussion, I embarked on simulating how manual SIP in stocks would have fared if I had started the same from April 2014. This post is about the manual stock experiment and results thereof.

Experimental Conditions:

  • Monthly SIP amount = Rs. 15,000
  • Stocks to invest: INFY, SUNPHARMA, HDFCBANK
  • Prices are adjusted to factor in Bonus Shares and Stock Splits
  • Priority (high to low): INFY ==> SUNPHARMA ==> HDFCBANK
  • Stock purchases are made on the first available opportunity on either of the counters
  • If there is a roll-over balance, a max. of Rs. 30,000 shall be invested in a specific stock
  • Purchase criteria:
    • Stock price should be below 30 DMA and 200 DMA
    • Since I took a hard deadline of 1-Apr-2014, if 200 DMA is not available, 30 DMA is only considered.
  • Dividends are not considered for returns calculation
  • Brokerage + STT is assumed to be zero for calculation purposes
  • SIP purchases doesn’t mean that I don’t add to these scrips in a lump-sum manner. However, the same is not considered for this experiment.

Now, the big question is on the choice of stocks. These are stalwarts in their market dominions and leaders in their own right. I choose IT, Pharma and Public Banks as these scrips have generally given better returns over a decent period of time.

Experimental Results:

StocksSIPSimulation sheet describes the different purchases made in different scrips in the past 23 months. From the sheet, following results can be observed:

INFY:

  • Bought 129 stocks at an average price of Rs. 913.16 – Total Investment: Rs. 117,798
  • At CMP of Rs. 1127, the stock is returning an overall gain of 23%

SUN PHARMA:

  • Bought 136 stocks at an average price of Rs. 771.75 – Total Investment: Rs. 104,958
  • At CMP of Rs. 864, the stock is returning an overall gain of 12%

HDFC Bank:

  • Bought 130 stocks at an average price of Rs. 930.06 – Total Investment: Rs. 120,908
  • At CMP of Rs. 989.30, the stock is returning an overall gain of 6%

From an overall portfolio perspective,

  • Net Investment: Rs. 343,664
  • Current Value: Rs. 391, 496
  • Gain: 14%

Postscript

If we consider the dividends also, there would be a total of Rs. 7000 dividend payout till date. If we add this also to the returns becomes 16%.

Next Steps

I need to review this simulation as this is yielding fantastic results. Please do share your thoughts/feedback/suggestions or corrections as you observe.

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11 thoughts on “Manual Stocks SIP Experiment

  1. of course it is a good strategy in flat or markets trending up. Trending down markets? The only thing stock SIPs or mutual fund SIPs help is with disciplined investing and small monies being invested than full amounts. Also why do we have to use DMAs? Isn’t that getting into a different world altogether

    Liked by 1 person

    • Just to add, it’s also a good strategy when market is in down cycle. If you consider the last 6 months, the market overall is in a down cycle. However, the decision is not based on Markets, but being stock specific.

      I use DMAs to check if the price is relatively lower to historical average i.e. kind of threshold. We can take different strategies such as investing a fixed amount on 15th of every month or something similar. Using a DMA helps to catch wild down swings and benefit out of a short-term down-trend in a stock. I don’t wish to add too many parameters as I prefer to keep the investment strategy simple.

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  2. I dont understand how it is a good strategy in downward trend in a stock. Eg. Infy bought @ 1000, went 900 and bought, went to 700 and bought and went to 750. what should i do? Wait or buy more? My understanding is sips are only for discipline and small monies which in a way eliminates timing the markets. That is the other reason I am confused about using DMAs also

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    • The whole point of SIP is not to time the trend. From the purchase strategies, you can observe that purchases were triggered as the trend went down. The purchase trigger was mainly based on the DMA levels. Now, the SIP doesn’t prevent you from adding more to your existing lot. In my post also, I have outlined that I would definitely add on dips.

      One critical point is how to determine when to buy. It’s purely a personal choice. I have my own limits which may be completely different compared to yours. So what works for me may not work for you and vice-versa.

      This is mainly about feasibility of SIP in stocks as an idea and what kind of returns one can expect. Just to add: I will be investing separately in the same stocks over and beyond the SIPs.

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  3. I would like to see if a different perspective works here. Lets assume for a min that Infy is a bond whose par value is 1000/- (somebody told us) and also the bonds are held by many people and is freely traded. This bond has a 15-18% interest (varies year by year ) but pays only cumulative. Assuming for the first year it is 15, the par value a the end of first year is 1150 (for the second year). As long as the bond price is less than 1000, I will buy since my yield will be good. At 1100, may be I will still buy since the yield is affected only slightly . 1200 on I wont buy. If you look at it that way you will accumulate at lower prices. Of course stock is not a bond and par value is not known and the yield or interest rate is only approximate. This way DMA( market timings) are taken out of the equation. Since I don’t believe in technicals, I felt this perspective works for me. What do you say?

    Liked by 1 person

    • Your thought is a very interesting and highly relevant one. I will pose only some questions which you could ponder on and answer it for yourself.
      How do you decide what is the fair value of the bond? From a stock perspective, this is where P/E, Dividend Yield etc would come into picture. Deciding on the fair value is the first big ask as it’s not the same for all entities.
      Next, you have considered only when bond value goes up. What about bond value comes down? How do you decide your thresholds that between this range say in your example, 900 – 1100 I will buy? If a bond goes below 900, then what do you do?
      DMA is not about market timings. It’s a trend on how your company is fairing. It is providing you with a guidance on what to expect based on previous data. Now there are lots of factors due to which the price can go downhill. How do you get an essence of what’s happening? The answer is through trendlines and DMA. In my previous statement, I mentioned on the limits i.e. when do I decide it’s a fair price and buy.. You used some thresholds that you setup. I am using a relatively mathematical model to do so.

      Both of us have similar thoughts, but have slightly different approaches. As long as it helps us to become wealthy, I think we should be fine with either of them.

      P.S: Just a question: Have you bought bonds from secondary market? i.e. Tax free bonds?

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  4. HI Ganesh,

    A bit modification you can try is to analyze whether to buy or not hold on the expiry day. If price on expiry is more than DMA then you can postpone the existing month investment to another month.

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    • Yes this is definitely one strategy which can be tried. However, my time horizon for these investments is minimum of 5 years and beyond. In this case, the difference will not be very significant as the expectation is order of magnitude different.

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