When most software engineers in India were lining up for a US visa or an onsite assignment, an Nooresh Merani left his job to pursue a career in trading. Shifting his strategy from a pure technical approach that he followed initially, Nooresh presently uses fundamentals as a validation tool.
Speaking to Shishir Asthana of Moneycontrol, Properity trader Nooresh Merani talks about his learnings from 2008 crisis and his trading style.
How did you perform after the first year of learning?
In 2007 it was easy to perform. Momentum was very strong in those days and everything that you purchased moved up. There was only one big correction of around 30 percent in 2006 but after that, it was a cleaner move higher.
How did you handle the 2008 crash?
So 2007 was a breeze and that is when I made my capital. Apart from one foolish mistake, which I did, influenced by someone, the run was good. I had a solid portfolio in terms of returns in 2007 but with this one mistake I messed up the returns. Thankfully, I had taken money out of the market which was not affected by this mistake. Also, our midcap portfolio was doing well so that helped too. The key learning was to cut down on my leverage after 2008 debacle.
When did you actually feel confident as a trader?
Post the 2008 fall the next two years were good for us. 2011, 2012 and 2013 were tougher with markets not doing much, there were not many big movers. During this period I met a lot of people who were investors and worked on my strategy. By 2014 I was clear on my strategy.
The strategy of buying companies on sectoral breakouts was clear during this period. During this time I realised the extreme short term is not my temperament. It takes time to understand yourself. Most people are focussed on trying to understand what to trade but are not focussed on what you can digest.
How will you classify yourself as a trader – a trend follower or a momentum trader?
I am a breakout guy. I am also a techno-funda guy (using both technical analysis and fundamental analysis). What this means is I buy stocks with strong fundamentals but only when they are in momentum. I look at little bit of fundamentals but I interact with a lot of people who follow fundamentals, that’s why I call my strategy Gyani log ka stock momentum mein lena (buying stocks tracked by intelligent people but only when they are in momentum).
Apart from that my core belief is when to deploy cash and when to remove cash. That is what will decide your return. For example, if you are sitting on 20 percent cash in November 2008 (post market crash) or are deploying fresh 30 percent money in February 2016 (a market correction) will decide your return for the future.
Selection is what people are focussing on but my focus starts from allocation. So the choice is when do I leverage when do I not leverage and when do I sit on cash. I do leverage a little, say if I have Rs 100 I will go for a maximum position of Rs 140.
Can you walk us through your strategy, how do you identify stocks?
I track all 1,600 to 2,000 liquid stocks on the NSE on a regular basis – that is what we do as a team. I start looking at 52-week highs. Then if we see, say all paper stocks are making new highs, we pick up the leader in terms of technical analysis. It is only then that we do a fundamental check to validate and see if some negative surprises do not prop up.
I believe in baskets. If I like textiles I would buy Vardhaman Textiles, KPR Mills, and Welspun India. Then I the sector continues to touch new highs I go to the next basket of stock which in this case would be either a KG Denim or Indo Count.
All through over the years I have been focussing on mid-cap space. That is our forte instead of looking at only the large caps. My focus has been trading the mid-cap more rather than a large cap. It’s a different way of looking at the markets because most technical analysts will look at only the top 100 companies. Our study starts after these 100 stocks.
Do you trade the absolute breakout or do you wait for a retracement from the breakout?
We take the moment the stock breaks out. My worry is missing out. When most people are worried about losses we are worried about missing out on the trade. It is not about the 5 percent stop loss but about the 30 percent trade. A lot of traders miss out on omission mistakes. For us, it is painful to lose out on a trade where we were convinced and we did not take it. If in a break out if you wait for a retracement and it does not come you may miss out on the 30 percent trade.
What is the success rate of breakout trades?It is generally between 40-60 percent. But if your hit rate is low you need to amplify the returns, which is where taking the trade becomes important to us.