Momentum wins again

Chris Dillow of Investors Chronicle has this in the current edition

Yet again, momentum investing has done well. My no-thought momentum portfolio (which comprised the 20 best-performing stocks with a market capitalisation of over £500m in the 12 months to June 2017) rose by 8.3 per cent in the third quarter, thanks to big gains in stocks as otherwise diverse as Fevertree, Ferrexpo and IQE.

I think momentum is worth a go.]

Comments

  • ColdIron
    ColdIron Posts: 8,901
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    I'm yet to be convinced that backing yesterdays winner tomorrow is a winning formula. I tend to agree with your other sentiment ...
    capital0ne wrote: »
    Now if I could only know which was the coming year's top performer..............
  • i expect chris dillow was far too sensible to actually buy that portfolio himself, though :)

    there is lots of evidence for "momentum" working in some sense. but just buying 20 individual shares is far too risky a way to try to capture the effect.

    there are a few ETFs now which try to capture momentum, while buying a much broader range of shares. it wouldn't be too crazy to put a little in them. i'm not really convinced, though ...

    momentum investing is a high-turnover strategy. not just higher turnover than simple cap-weighted trackers. but also higher than value investing, or small-cap investing. there have been quite a few studies showing that momentum strategies have been able to make money, even after trading costs. but is there any reason why that will continue to be the case in the future?

    what happens if too many people pile into momentum? (perhaps those ETFs are a sign that this is about to happen.) will it stop working? ... do we even know why it was working in the first place? AFAICS, there's not much consensus about that.
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    capital0ne wrote: »

    I think momentum is worth a go.]

    Best to adopt a long term strategy and stick to it. No one method consistantly outpeforms. If it did machines could simply auto trade.
  • Well I do have long term strategy that's been doing just fine for the past twent years, just thought it might be a bit of fun to bung say £10k into a momentum fund/method
  • Malthusian
    Malthusian Posts: 10,898
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    capital0ne wrote: »
    Well I do have long term strategy that's been doing just fine for the past twent years, just thought it might be a bit of fun to bung say £10k into a momentum fund/method

    Jumping on a bouncy castle is fun, putting £10k into a momentum strategy means you will most likely lose money, which isn't fun. Or you will be one of the lucky ones to make substantial returns, which will be nice but you'll probably spend more time wishing you'd put all your money into your momentum strategy instead of just a piddling £10k that makes little difference to your lifestyle.
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