Moneysense writing about Momentum strategies…
Momentum strategies involve investing in stocks that have displayed a recent short term positive trend in a certain quality such as price, earnings, profitability, etc. For the most part, momentum concentrates on price trends and they do not look at the stock’s business, industry or competitiveness. The theory behind momentum investing is to capture a continuing trend that stocks with increasing prices will continue to rise. Research studies have shown that momentum investing can achieve significant profits.
You’re fine as long as the momentum doesn’t change path.
This essentially says the strategy will not work all the time and will experience greater swings in portfolio value vs. the index.
If you are interested in the strategy but don’t want to implement it yourself, there are a few Canadian momentum investing ETFs you can buy. But not before you read what Moneygeek‘s warning about why you should avoid Momentum ETFs.
Something happened starting from 2002. The effectiveness of the momentum strategy started to wane and after 2005, the squiggly line went below 0 and kept going down. This means that if you had employed the momentum strategy after 2005, you would have done worse (and recently, much worse) than the overall market.
What’s your call?
