Author Topic: Does anyone use MOMENTUM investing techniques?  (Read 14233 times)

forummm

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #50 on: August 05, 2016, 12:02:56 PM »
2% is hugely expensive. I've studied momentum techniques, and even if you believe that past performance indicates future returns (which you shouldn't wrt momentum for various reasons), the outperformance in back tests is usually less than 2%.

I would certainly not bother if the historical outperformance was only 2% or even 5%, I wouldn't risk it, especially not the way I do now with only 5 stocks. Maybe with ETFs...

My backtests show significantly more outperformance than that. I'm not sure what formula/strategy/algorithm you played with and what stocks/etfs you applied it to. For the record, my algorithm is not just based on momentum. True, it's the most important component, but I have a couple of other indicators thrown in such as volume and moving average which smooth things out.

You believe you have a system that gets you more than 5% outperformance vs the index?!?!?! That's a bold claim. Care to share any of those backtests?

kenaces

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #51 on: August 05, 2016, 02:13:51 PM »
I think there are some academic papers that show just like value, momentum has significant premium over market BUT even if you can backtest and find 3-5% you still have to overcome a HUGE trading cost and taxes.


Nad

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Does anyone use MOMENTUM investing techniques?
« Reply #52 on: August 05, 2016, 03:05:44 PM »
Ok, here are some figures from my backtests. Note that all these figures do NOT take into account transaction fees or taxes.

Here are the monthly returns, in blue is my system, in red is a Canadian market ETF. My system has an average monthly return of a little under 3%, the index is at under 1%.



Here's what it looks like cumulatively, again, not including fees and taxes. Starting with $100,000. Log scale.



Average yearly return is approximately 35% over that period, while the index is at approximately 10%. That's an average over-performance of 25% before fees and taxes.

[flamesuit on]

kenaces

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #53 on: August 05, 2016, 03:28:42 PM »
One 13 year back test isn't much evidence but I hope you started using this in 03 :)

forummm

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #54 on: August 05, 2016, 07:08:45 PM »
One 13 year back test isn't much evidence but I hope you started using this in 03 :)

And in a world where there are no taxes and transaction costs.

Nad

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #55 on: August 06, 2016, 01:40:22 PM »
I know, there are some limitations to the model. I'm working on going back further in time but it's more complex than it seems. I'll report back when I have more info...it might be a while though.

As for the fees, it's true that it can eat a big chunk of the returns, especially with a small investment. But if you're doing this on $100k it starts to be minimal. And even on smaller investment, the over-performance is significant enough to still warrant the fees.

Taxes are the biggest issue with this system IMO. But again, this greatly depends on what kind of account you're using. A tax advantaged account will eliminate most of the issues.

torbisen

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #56 on: August 06, 2016, 02:09:27 PM »
Does many of you follow a protifolio of stocks rather than buying a fund? I have read this magazine for 15years now, (Dine Penger in Norway) and they have this portifolio with 8 stocks, changing just every month. For 28 years they have done 23% average from stocks only from the norvegian index, beating the index by a mile or two.
I trade within a taxaccount so the taxes are postponed to when you take money out. I looked into the two porblems of fees for trading and different stock price the day after the adviced stock portifolio is given. I studied two years of trading, and in average you can expect to subtract 4,5% of the 23% (or the annual performance of that year) There was less than 5% chance for missing out on 9% of the profit yearly, and the same 5% chance of missing out on approx 1% of the profit. This is because of the variation of the severity the stocks were more expensive than rated in the mail from the magazine the day after the advise came out. The advice comes out an evening based on the price that day, and you buy it the next day.
I also read a book of Stig Mikalsen called Stocks and Stocktrading (in norwegian) Where he has an chapter telling that following such an portifolio is the easiest way to beat the index.  Actually all the portifolios he mentioned beat the Norwegian index Oslo BÝrs for 85-90% of the years counting. Even better, they also beat the index in bad years.
I tried to follow for 6months this spring and was up around 12-13% while the index did around 7%. 
I am definately gonna do this for parts of my portifolio. I believe that with small sums you are able to move effectively in the market, rather than if you have a big fund, you cannot just sell all your holdings in one stock at once, because it will drive the price downwards.
As i say, this has been going on monthly for 28years in this magazine, and i have been reading and following for 15, but it is only lately that the postponed tax accounts together with the falling prices for buying and selling and my amount of savings is doing this practically possible for me without to big losses to tax and to payment for trading.
By the way these guys that gives the advices also sell funds, which does much worse, basicly i think because they are big, moves slow in the marked and has a lot of rules regarding how much to invest in certain sectors and so taking away the freedom of investment.
Would be good to hear what your opinion on such investment strategy would be.

torbisen

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #57 on: August 06, 2016, 02:10:38 PM »
By the way. The way they invest is momentum based. Keep the stocks that has momentum, and take small losses in those wrong investments that showed not to follow the momentum for much longer.

MustacheAndaHalf

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Re: Does anyone use MOMENTUM investing techniques?
« Reply #58 on: August 06, 2016, 10:29:00 PM »
One 13 year back test isn't much evidence but I hope you started using this in 03 :)
And in a world where there are no taxes and transaction costs.
Taxes are not the deciding factor between a 13-year return of 5000% v.s. 350%, per other poster's numbers.