The Payoff and Perils of Momentum-based Stocks

Many investors follow momentum-based methods or approaches when investing in equities, but does momentum investing actually work and what are the results? This is the basis for a recent AAII article by Charles Rotblut, CFA, vice president at AAII and editor of the AAII Journal. Relative price strength, which compares the price performance of a security to another security or the overall market or an industry, is one of the most popular ways to identify… Read More

Market Shifting From Momentum to Value

A pair of brief pieces in Barron’s, one by columnist Jack Hough and the other on behalf of JPMorgan, discuss the implications of the recent selloff in momentum stocks. As Hough explains, “momentum investing refers to the practice of buying what’s already going up” and can be used within a broader strategy, such as by “looking for recent stock momentum among [a portfolio’s] value picks” when rebalancing. Many portfolios employing a “long/short momentum” strategy lost… Read More

Adding an Acceleration Factor to Momentum Investing

In a post on the CFA Institute’s Enterprising Investor blog, Joachim Klement of the CFA Institute Research Foundation highlights research suggesting that “one can improve the results of traditional momentum investing by looking at momentum acceleration.” Klement expresses some skepticism regarding momentum investing – “why should prices go up just because they have gone up in the past?” – and notes the risk of “momentum crashes.” Nonetheless, he notes that Cliff Asness and others have… Read More

AQR’s Asness on Fama, Momentum Investing and More

Clifford Asness, Managing and Founding Principle of AQR, writes in his “Cliff’s Perspective” blog about Nobel Laureate and Professor Eugene Fama’s views on momentum investing. Asness is a believer in momentum and, as he notes, wrote a dissertation on it under the supervision of Fama. Asness notes that “the long-term success of the momentum factor seems to be a challenge to many observers,” including Fama. Commenting on a recent interview with Fama, Asness notes that… Read More

Value Portfolio, Meet Big Mo’

Much like a shot of nutrient-rich wheatgrass can add a “power boost” to your morning smoothie, a shot of momentum can add a big boost to your value investing portfolio, Validea CEO John Reese says. The idea of focusing on hot stocks may make value investors, who tend to find bargain-priced stocks amid the beaten-down members of the market, cringe, Reese writes in his latest for Canada’s Globe and Mail. “But value stocks aren’t always… Read More

Stocks Trading Near 12-Month High May Be a Good Investment

Morningstar data shows that, at least for Canadian stocks, buying equities at or near their 12-month high may be a better investment than buying companies trading near their 12-month low.  Testing a portfolio of the 40 Canadian stocks trading nearest their 12-month high at the beginning of each quarter produced a return more than 1,000 basis points above the benchmark. Volatility among these stocks was also significantly lower than the benchmark. The results appear to… Read More