Rebalancing, A Rational Move 

It’s rebalancing season for Windmill Capital’s smallcases, and the spotlight is on ‘model’ smallcases—a realm where well-rounded strategies meet adaptation to Indian markets.

First, a primer on model smallcases

Model smallcases follow specific models or strategies sculpted from established principles and methodologies, offering a systematic approach to selecting and managing stocks. Noteworthy examples include CANSLIM, Naked Trader, Value & Momentum, and others, with most of these models originating in the US and adapted to Indian markets.

Navigating Bias with Rebalancing

Just as vehicles require periodic tune-ups and oil changes to maintain optimal performance, rebalancing your portfolio involves scheduled assessments and adjustments. Both practices aim to ensure efficiency, longevity, and adaptability to changing conditions.

Self-managed portfolios often give in to emotional bias. Investors tend to cling to losing investments with the hope of a turnaround, while hastily parting ways with winners in fear of an impending fall. This behavior can lead to suboptimal returns. 

Let’s take a model smallcase like Value and Momentum as an example. As the name implies, the value of stocks is crucial. Inexpensive stocks, relative to their fundamentals, often outperform their pricier counterparts over the long term. These stocks must also witness momentum. Stocks whose price has run up recently will continue to see further price rise.

While X is an undervalued stock and has strong fundamentals, its recent price trajectory doesn’t align with the momentum strategy. Here, the discerning eye of rebalancing comes into play. While the stock may be a gem, it might not belong in your Value & Momentum smallcase.

Our team works hard to ensure that we revisit the smallcases that you chose to invest in such that they stay true to the underlying idea on which it was initially built. Hence rebalancing is the antidote to emotional biases.

In essence, rebalancing becomes a strategic move toward financial clarity, steering portfolios away from biases and toward optimal performance.

In conclusion

Windmill Capital’s model smallcases have undergone the meticulous process of rebalancing. For those yet to invest in smallcases, now is the opportune moment to start. For those who have already invested, apply rebalance to unlock the full potential of your smallcases.

Until our financial paths cross again! ✌️

Windmill Capital Team

Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. For more information and disclosures, visit our disclosures page here –https://windmillcapital.smallcase.com/#disclosures