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Chilika Capital Strategies

Chilika Capital Strategies. Speculation is dealing with the uncertain condition of the unknown future. Every human action is a speculation in that it is combined in the flux of time. - Ludwig von Mises. Chilika Capital Strategies. Description and Positioning Premises Investment Approach

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Chilika Capital Strategies

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  1. Chilika Capital Strategies Speculation is dealing with the uncertain condition of the unknown future. Every human action is a speculation in that it is combined in the flux of time. - Ludwig von Mises Private and Confidential

  2. Chilika Capital Strategies • Description and Positioning • Premises • Investment Approach • Risk Management • Benefits • Performance • Bio • Summary The perfect speculator must know when to get in and get out; more important, he must know when to stay out. - unknown Private and Confidential

  3. Chilika Capital Strategies • Description and Positioning Systematic Long Short Trend Following Strategies for Commodity, Equity and Currency Men who can both be right and sit tight are uncommon. - Jesse Livermore Private and Confidential

  4. Chilika Capital Strategies Premises We trade divergence using trend following methods. • We Profit in up and down markets • We don’t buy and hold • We don’t predict, only react to trends and hence it is robust and is adaptable to various market conditions • We let profits run for big money Markets can remain irrational longer than you can remain solvent. - John Maynard Keynes Private and Confidential

  5. Chilika Capital Strategies Premises • Our approach to trading is Scientific • Our performance is historically strong in crisis periods (e.g. Stock market crash of 2008) • Our trading is portable across market. The same model is used in commodity or equity or currencies irrespective of geography. This shows the robustness of the idea. The trend is your friend except at the end when it bends. - Ed Seykota Private and Confidential

  6. Chilika Capital Strategies Investment Approach – Focus on fat tails • Extreme moves are more common than suggested by normal distribution. e.g. Oct 19,1987 crash, whose probability is actually once in 1 million years according to Normal distribution method! • Reflects the existence of trends • Risk control techniques based on normal distribution will not always work. • Conversely throws up unique profitable trading opportunities. If you think education is expensive, try ignorance. - Derek Bok Private and Confidential

  7. Chilika Capital Strategies • Investment Approach – Focus on Divergence Markets exhibit convergent and divergent tendencies at the same time • There is the efficient segment of the market which converges around its current value. • There is also other segments which diverges from its current value in either direction. • The proportion of each of these segments keep changing depending on general and market conditions. • Identifying divergence throws up profitable trading opportunities Converging (efficient) Diverging (inefficient) Current Value Be less curious about people and more curious about ideas. - Marie Curie Private and Confidential

  8. Chilika Capital Strategies Investment Approach – Trading Style • Long/short Commodity/ Equity/Currency strategy • Identification of divergent trends • Trend following and system based approach • Research and back testing of patterns • Development of trading rules • Rigid adherence to trading rules and trading plan Change is not merely necessary to life---it is life. - Alvin Toffler Private and Confidential

  9. Chilika Capital Strategies Investment Approach – Development of Trading Rules • Trading systems incorporate certain basic rules: • Clear definition of objectives • Consistent approach i.e. trend following • Use of money management to control risks • Clear delineation of entry and exit points • Trading the market both from the long and short side • Not predetermining profits but predetermining losses • Acceptance that one cannot know everything and therefore a certain indifference to rationale behind a move Great Trading starts with knowing when to do nothing. The market is screaming like a spoiled brat? Step to the side. That’s your first play. Private and Confidential

  10. Chilika Capital Strategies Risk Management Relevant trading strategy • Strategy is based on the divergence principle that is easily understood • All rules developed through back testing • Risk of individual positions and overall portfolio is managed on a daily basis. • Every individual position has a stop loss attached to it so that the position is exited in unfavorable condition • Adequate money management rules • Net market exposure systematically reduced in falling markets • Reduction in trading size if draw downs exceeds a minimum level • Position size is set according to a set percentage of the portfolio Fish see the bait, but not the hook; men see the profit, but not the peril. - Chinese proverb Private and Confidential

  11. Chilika Capital Strategies Risk Management Emotional discipline • Approach developed through disciplined research • Deep understanding possessed by the managers of the reason the approach works • No emotional attachment to any positions or any markets • Iron clad discipline in pruning loss making positions Winners don’t do different things, winners do things differently. - Shiv Khera Private and Confidential

  12. Chilika Capital Strategies Benefits - upside • A robust system that is portable across many markets • Diversification comes natural to the system • Lower cost as frequency of the trades are less. • Has generated above market returns • Established trading method that has been employed across geographies successfully by many famous traders • No correlation with stock market or any other asset classes • Less Drawdown* then stock markets (e.g. our program has gone thru a maximum drawdown of 21% while Sensex has gone as much as 61% in 2008-09 fall! ) *Drawdown means quantity of loss in the account in percentage terms When it is question of money, everyone is of the same religion. - Voltaire Private and Confidential

  13. Chilika Capital Strategies downside • Higher return usually is accompanied by higher volatility (higher volatility is generally on the upside) • Profit is not continuous but comes in big chunks (is it downside???) No Guts, No Glory. - Private and Confidential

  14. Chilika Capital Strategies Performance All Return figures(in %) here are TAKE HOME return for investors They are after all TAXES and FEES If I’d asked my customers what they wanted, they would have said a faster horse. - Henry Ford Private and Confidential

  15. Chilika Capital Strategies sell Unprofitable condition Profitable trades(Long) Profitable trades(Short) buy The above chart shows an example of real trading carried out in Dhaniya in 2011. As can be seen we have some profitable trades and we have some loss making trades.

  16. BIO Sunil Kanati is a Designated Partner of Chilika Capital Advisory LLP, a firm specializing in financial research, development of financial trading models, proprietary trading and advisory services. Prior to that, he was based in UK while researching into various trading systems while having a day job. He has experience of live trading of the financial markets both Indian and UK and US markets. He has been engaged in developing trading algorithms for over 8 years. Soumitra Sengupta is a Designated Partner of Chilika Capital Advisory LLP, a firm specializing in financial research, development of financial trading models, proprietary trading and advisory services. Prior to that, he was managing the Agile Partners Excalibur Fund, a systematic US long/short equity fund based in the Cayman Islands and managed out of London. He has extensive experience of the financial markets and has been engaged in developing trading algorithms for over 10 years. He is also a Director of a 2nd company Lamron Analysts Pvt Ltd, a firm engaged in financial research, development of financial trading models and proprietary trading. Lamron has a stack in Chilika and both the firms do the business independent of each other. Private and Confidential

  17. Chilika Capital Strategies • Summary The strategy provides investors with an alternative investment approach • Possibility of superior absolute returns • Easily understandable trading strategy • Consistent investment style • Transparent reporting It is not the strongest of the Species that survive, nor the most intelligent, but the ones most responsive to change. - Charles Darwin Private and Confidential

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