What is momentum investing?
“Winners tend to keep winning and losers tend to keep losing.”
It is also defined as persistence in performance.
Stocks that have done well will continue to do well, while those that have done poorly will continue
to do poorly.
What is the proof for Momentum?
Momentum has been one of the most heavily researched finance topics over the last 20 years.
Academic research has proven momentum to be a superior investment strategy from the early 1800s up to the present day, across nearly all asset classes, in all countries around the world.
That’s two centuries of evidence.
After many years of such intense scrutiny, the investment community now accepts momentum as the most robust, enduring, persistent and pervasive investment factor for achieving consistently high risk-adjusted returns.
We’ve created a Library of Evidence dedicated to listing some of the books and research papers related to the subject of momentum.
Is it better than other investment strategies such as value, growth, size or dividend investing?
The evidence is clear: if you are going to invest in equities, momentum is the superior strategy.
Does this mean one must discard other investment approaches in your portfolio?
No. They do have a role to play as diversification.
But clearly, momentum must be part of any investment portfolio.
Why does it work?
Because of something called Behavioural Finance.
The explanations for momentum are closely linked to the psychology of the individual, the sociology of large groups of investors and the buying behaviour of institutional investors.
The behaviours that result in momentum are deeply ingrained, which is why momentum will always be present in financial markets.
Momentum and Alpha-Elite
Momentum investing is traditionally based on simply identifying the best stocks based on rising prices or highest returns.
However, there are far richer and more complex behaviours of investors “hiding” in the price of a stock than simply “best performance”.
We have found a way to vastly improve generic momentum investing. Here's how we do it →