It seems difficult to explain the rewards
of momentum investing in terms of increased risk (though that argument has been made).
I have done my research prior to this but now I am trying to learn more
about momentum investing as a successful investing strategy for one of portfolios I am managing.
The simple reason why
momentum investing works is because people have a tendency to follow what's popular and avoid what isn't.
I tried to
do momentum investing with one particular newsletter for a little while, but didn't see the benefit in constantly trading mutual funds.
When you purchase a rising stock or sell a falling stock, you will be reacting to older news than the professionals at the head of
momentum investing funds.
On paper,
momentum investing seems less like an investing strategy and more like a knee - jerk reaction to market information.
But as a strategy and if executed well,
yes momentum investing has shown it can yield solid results and occasionally, outperform a buy and hold approach.
Stay away
from momentum investing in the «sexy» and glamour stocks and invest in companies that are boring and undervalued.
I am currently in the works of putting together a more detailed post outlining
what momentum investing is and how to do it.
While momentum investing worked well in 2013, there is no guarantee that it will continue to work that well in the future.
When you start looking
at momentum investing, you actually don't start to invest in a stock until it has shown an upward trend for a period of time.
Why Investors Shouldn't Give Up
on Momentum Investing Momentum strategies have turned in disappointing performance for nearly the past decade.
This strategy rectifies the pitfalls of the traditional cross-sectional momentum investing approach
This collaboration with FTSE Russell represents a huge leap forward
for momentum investing and further endorses our momentum model as one of the leading methods to enable fund managers to harness the power of this important factor.»
Baring Asset Management reveals brand consolidations; Core Bond Fund launched by Vanguard; FTSE Russell moves forward on collaboration with
momentum investing specialist Trendrating.
I thought the things I read explained mean reversion quite clearly, but I wasn't entirely clear on how to implement momentum investing
In this post I want to explore pure momentum quant portfolios and in particular ways to make
pure momentum investing tolerable and implementable to more investors.
The theory
behind momentum investing is to capture a continuing trend that stocks with increasing prices will continue to rise.
Momentum investing seeks to take advantage of market volatility by taking short - term positions in stocks going up and selling them as soon as they show signs of going down, then moving the capital to a new position.
For example,
momentum investing systems can include strategies to avoiding risk by buying put options to give you a way to avoid losses on your holdings, or using stop - loss orders to sell falling stocks before they drop too far.
Leapfrogging is a form of
momentum investing where investors jump from one stock to another, routinely switching out of the laggards in their portfolio and into funds with better performance.
In particular, there is a model known as Dual
Momentum Investing which offers better returns while controlling the risk.
At its simplest,
momentum investing means picking stocks based on how well they have fared over the past year compared to the average.
You might
say momentum investing is the most modern of the three approaches, since its fans often try to computerize their investment decisions.
About a year ago, Norm Rothery wrote an article
about momentum investing for MoneySense, and he summed up his analysis this way: