If anything, these market swings have made me question momentum strategies even more. It sure looks like market prices are randomly gyrating wildly in both directions
I don't know what you're talking about, Sol. Clearly the fundamentals of the 500 largest U.S. based companies dropped dramatically (5%) over the weekend, then improved dramatically (5%) over the course of Monday morning (all the firms made a whole lot of sales of their products that morning?) and then worsened dramatically over the course of Monday afternoon (all the firms had a whole lot of returns from the morning's purchases?) and then the fundamentals significantly improved (2%) again around 3:30 (a huge afternoon productivity boost for the multinational workforce) and then worsened (2%) again around 3:50 (all those lazy workers around the world left early for the day). And then overnight the fundamentals shot way up (3%) (all those workers came back to pull all-nighters) and stayed there until around 3pm when they dramatically worsened (4%) (it turns out all that productivity from the all-nighter was wasted because everyone forgot to save their documents and accidentally kicked the power cords out from the backs of their computers all around the world). It just makes total sense.
Momentum is partly predicated on irrational human behavior and groupthink.
The past few days have only served to strengthen the compelling arguments supporting Dual Momentum.
Efficient and rational markets? Lol
Arguing that the market is inefficient as you have done here Forummm is supportive of the central thesis of momentum investing, and counter to the random walk theory from which buy and hold indexing is originated.
And don't take my word for it. Take Sol's. Here is his quote from 8/22 in another thread.
"Quote from: Pooperman on August 22, 2015, 10:05:22 AM
If markets were rational, there would never be sales or spikes.
I'm not so sure about this. People always talk about the 2000 tech bubble/crash as an obvious example of irrational markets, but it seemed to make perfect sense at the time. Prices are based on people's expectations of future profits, so when expectations change prices change. Expectations can change for all sorts of reasons.
Last month, the prevailing view in the financial pages was that megacorp tech firms were dominating the markets because they are so insanely profitable. Apple is worth more than Exxon/Mobil but it has 200 billion in cash and a P/E of only 13, so it must still be a good value, right? Fast forward a month and China devalues their currency and Iran is dumping oil during a glut and the fed is raising interest rates, and suddenly everyone's expectations for the future are not so rosy anymore.
Nothing really changed over that month other than how people think the future will unfold, given some new information. It seems perfectly rational to me for people one month ago to expect Apple and Google and Amazon and Facebook to continue to mint their own money. It also seems perfectly rational to me for people today to think profits will mean-revert. A 10% price swing on those rational expectations doesn't strike me as anything freakishly unusual."