Trading portfolio v/s a man with a dime!!

Trading portfolio v/s a man with a dime!!

Go to any stock broker or anyone familiar with the financial markets and he/she will advice you to maintain a trading portfolio covering different sectors of the economy.

Having nothing else to do this evening, I planned to see how this strategy shapes out and calculated the returns of a sample uniformely distributed portfolio over

a) A long term investment- 3.5 year time          b) A short term investment- 1 month time

and something POPPED up, which grabbed my attention!!

Long term investment- If an investor invested INR 10,000 in this portfolio on Jan 1, 2009 with uniform distribution across shares, as expected, this long term investment in portfolio would give him higher returns than traditional sources such as a Fixed deposit etc. and he would have earned INR 9919.93 more than what FD would have given him. This was a no brainer!!

Short-term investment-If the same investor invested INR 10,000 in this portfolio on June 10, 2013 with uniform distribution across shares, this short term investment in portfolio would give him returns much worse than traditional sources such as a Fixed deposit etc. and he would loose INR 372 . This again is kind of expected given bearish market trend and volatility.

The brain teaser started when I tried to find the investment required so that investing in this portfolio for short term would be more profitable than the Fixed Deposit and I was stumped to see that there was no answer to this. No matter how much anyone would have invested in such a portfolio over this past one month, he/she would have only lost money.

Section for finance nerds (Alas! you too need to read this to get the pun in the title)-

Now, I know people with advance finance degrees and experts from the world of MBA would argue about  this portfolio validation, consideration of beta while forming a portfolio, validation of historical data in future models and hundreds of other technical issues but your (99%, if not all) arguments would be based on Capital asset pricing model, which itself has numerous flaws.

With every assumption you make in your model, you reduce the probability of your model actually working in the real world and often the most trusted finance gurus have models with working probability <50% due to these underlying assumptions (which of course never come out of the dungeons of secrecy!!). Hmm... in that case, why not just toss a dime and buy a stock!! (50% working probability).

so, need a COIN ANYONE!! 

Strategy image taken from hotel-innavoder.com