Momentum Investing

cynicaldoc

http://www.telegraph.co.uk/investing/funds/investing-formula-bonkers-method-produced-5662pc-returns-will/

In my mind this is absolutely ludicrous. But I'm 31 and currently only have £3,000 in an ISA I set up 12 months ago. So really it's not exactly the £100s of thousands that some of the hitters on here have accumulated. So perhaps not so ludicrous...

Currently I have 55% in Lindsell Train Global Equity, 38% in SMT and 7% in SXX.

My current aim is to add to the first two as much as possible per month and perhaps buy more SXX in the hope it triples/quadruples as forecast when production starts in 2021. And then see if I can retire in 25-30 years with a healthy compounding growth.

However, I'm wondering whether to dabble. I realise that the retrospectoscope makes this all very easy and this is partly posted to generate debate but partly out of morbid curiosity!

aroominyork

cynicaldoc wrote: »

in the hope it triples/quadruples as forecast

As forecast by who exactly?

Regards bonkers, when I look at these theories I don't know whether to be sorry I haven't the guts to try them or glad I haven't the stupidity.

cynicaldoc

Well yes. Hence my question at a relatively young/new to investing stage...

And I read about the forecasting on iii, FT and motley fool.

LHW99

I seem to think there have been varieties of this idea over the years (was "dogs of the index" one version?) but if it really worked that well and easily then (one day) we'd all be millionaires

grandst

Another case of curve fitting, if these worked we would all be rich. There are momentum factor ETF's and a momentum global multi asset fund by valu trac if you are interested in momentum.

Malthusian

This old chestnut again. I have nothing to add to what I said two years ago:

Did the geniuses behind the Bonkers portfolio actually invest in it over the last 20 years? Of course not. Anyone can look at the data from the last 20 years and pick a set of rules which result in amazing performance. There is no evidence that any of the thousands of people who've come up with the thousands of possible momentum strategies make money in the future.

The magician's trick with the Bonkers portfolio is that funds are switched every six months, and only into funds over £50m in size. Why? £50m is a very arbitrary figure - if you're worried about manager permanence then £50m is not very large, and if you're comfortable enough with that level of risk, investing in a £40m fund shouldn't worry you at all. And why six months? If momentum works, why not three months (following the typical reporting calendar)? Or one?

The answer is staring us in the face: because when they ran the data without the £50m rule, the portfolio didn't perform as well over the last 20 years. So they changed the rule and ran it again, and kept going until they had a portfolio with a 3000% 20-year return. This is all you have to do to generate an amazing portfolio, just keep changing the rules and re-running the simulation until you find a portfolio that performs brilliantly. It's the investing equivalent of a quack scientist changing the parameters of the experiment until he "proves" that homeopathy or telekinesis works - until he gets the result he'd already decided upon before he started.

This is how momentum investing works. It's a brilliant strategy provided that you have a time machine so you can go back to the beginning of the timeframe where that particular momentum strategy made money.

There is a reason all articles about momentum investing read "When we tested this portfolio using data from the last 20 years..." and not "As a successful fund manager / wealthy investor who has used a momentum strategy for 20 years, here are the returns I have made..." And it's not because momentum strategies have only been invented in the past few years - they have been in use for a century.

IanSt

cynicaldoc wrote: »

Currently I have 55% in Lindsell Train Global Equity, 38% in SMT and 7% in SXX.

My current aim is to add to the first two as much as possible per month and perhaps buy more SXX in the hope it triples/quadruples as forecast when production starts in 2021. And then see if I can retire in 25-30 years with a healthy compounding growth.

I wouldn't advise anyone to think they can invest in single stocks and make long term above average growth.

You might be lucky and win for a few years, but there is also a higher risk that you find one day that they've gone broke because of some event you hadn't even considered could happen.

Keep to long term holding of global/general funds and although you won't get rich overnight, you also won't go bust.