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Stingy News: Momentum Investing

The death of the 200 day
09/29/18 Markets Momentum Investing
"The major market averages' recent all-time highs have done more than confirm that the bull market is still alive: They have raised yet more questions about the market-timing value of the 200-day moving average."

A trend equity primer
09/17/18 Markets Momentum Investing
"While many investment strategies have a concave payoff profile that reaps small rewards at the risk of large losses, trend-following strategies exhibit a convex payoff profile, one that pays small premiums with the potential of a large reward."

Momentum for retirement
08/07/18 Retirement Momentum Investing
"Under every withdrawal rate scenario tested, from 3.4% to 12%, the median portfolio managed to more than double the initial investment after 30 years despite withdrawals of various sizes. Further, as a 'risk of ruin' measure, only when the withdrawal rate approached or exceeded 10% did any risk at all appear that the account balance would dip below half of the original amount invested at any time within the 30 years."

Simple momentum
07/16/18 Momentum Investing
"This simple momentum strategy would have grown at 10.5% for the last 91 years, compared to 10.1% for the index."

Momentum's magic number
07/16/18 Momentum Investing
"We find similar results, with performance peaking when the formation period plus the holding period is equal to 12-to-14 months."

Momentum strategies have produced standout results
07/02/18 Stingy Investing Momentum Investing
"Yet momentum investing works when practised rigorously and systematically. In fact, it has beaten the market over 211 years of U.S. stock market history, from 1801 to 2012, according to AQR Capital Management, which is based in Greenwich, Connecticut. It has also performed well in 40 other countries and for more than a dozen types of assets other than stocks. Heck, some researchers have found that momentum even works when it comes to trading baseball cards." [$]

Cliff Asness interview
06/25/18 Funds Momentum Investing
"AQR Capital's Cliff Asness, a rare combination of Great Investor and Financial Thought Leader shares his views and strategies."

Sector vs country momentum
06/19/18 Momentum Investing
"This short research note shows that long-short Momentum portfolios of sectors or countries in European stock markets generated positive excess returns over the last two decades."

52 week high and the Q-factor
06/19/18 Momentum Investing
"Firms with high momentum (close to 52-week high) and low asset growth perform the best."

Factors from scratch
06/04/18 Value Investing Momentum Investing
"The excess returns associated with Value and Momentum result from convergent and divergent processes, respectively. Value stocks are systematically underpriced and gradually converge on their fair value over time. Momentum stocks start out fairly valued or slightly overvalued, and go on to become more overvalued in the short-term, before reverting back. Both styles represent a market mistake that can be captured as alpha."

Factor investing: art and science
04/30/18 Value Investing Momentum Investing
"Having studied finance for a long time, I think I now know less about how the stock market works. In fact, I probably should have stopped studying finance after I read Ben Graham's Intelligent Investor, over 20 years ago. Life would be a lot easier, or at least less complicated. Adhering to Graham's straightforward value investing ethos certainly worked out for Warren Buffett"

Explanations for momentum
04/10/18 Momentum Investing
"Our findings show that at least a substantial part of U.S. and international momentum profits represents a risk premium for the exposure of the strategy to systematic crash risk"

Common misconceptions about momentum
04/10/18 Momentum Investing
"With so much information available, it is not be surprising that many analysts have missed seeing some of the research. Based on the way momentum is generally used, it is clear to me that there are some serious misconceptions about it. Here is my discussion of some of the more serious ones."

What's cheap?
03/27/18 Value Investing Markets Momentum Investing
"Stocks with high conviction buyback programs are as cheap as they've been since the tech bubble, and trending cheaper."

Momentum in Imperial Russia
03/27/18 Academia Momentum Investing
"Some of the leading theories of momentum have different empirical predictions that depend on market composition and structure. The institutional theory predicts lower momentum profits in markets with less agency. Behavioral theories predict lower momentum profits in markets with more sophisticated investors. One risk-based theory predicts occasional momentum crashes. In this paper, we use a dataset from a major 19th century equity market to test these predictions. We find no evidence to support the institutional theory due to the lack of delegated management. We exploit a regulatory change in the middle of our sample period to test behavior theories. We find evidence consistent with overreaction theories of momentum. We find no evidence to support a rare disaster theory."

A momentum signal
01/29/18 Momentum Investing
"Historically, the S&P 500 has been followed by above-average returns over the next 6, 12, 24, and 36 months when this cyclical momentum measure is above 85."

Value and momentum portfolio construction
01/22/18 Value Investing Momentum Investing
"Being a Value investor is difficult, given that the stocks of a Value portfolios tend to have inherent issues, otherwise, these stocks would not be cheap. Being a B/M-focused value investor over the past decade has been especially hard, as the factor returns were effectively zero - plenty of pain, but no gain. Experiencing this factor cyclicality often leads investors to contemplate adding other factors in the hope of improving performance. An obvious candidate would be Momentum, as cheap and rising stocks are more appealing than cheap stocks. However, it is not quite straightforward for investors to add Momentum to a Value portfolio as there are several options available. In this short research note, we will analyze Value & Momentum portfolios created by three common multi-factor model approaches - the combination, the intersectional and the sequential models."

Three strategies for 2018
01/08/18 Dividends Value Investing Stingy Investing Momentum Investing
"Three ways to make money, updated for the coming year: The climbing cats, the safer dogs and the hot potato"

You can have your momentum factor and eat it too
12/11/17 Momentum Investing
"We don't address this in the paper, but I would argue that this finding - that momentum is implementable at low cost - holds even more strongly when it's part of a multi-factor portfolio, where factors that complement momentum, like value, will dampen turnover. All considered, we find that momentum is quite implementable in real life."

The monster portfolio
10/30/17 Dividends Stingy Investing Momentum Investing
"But if investing in solid stocks bores you to tears and you're willing to take on more risk for the slim possibility of gigantic rewards then I might have the just thing for you." [$]

A terrible strategy
05/21/17 Momentum Investing
"But historically waiting for the market to fall has been an abysmal strategy, far worse than buying and holding in both absolute and risk-adjusted terms."

Idiosyncratic Momentum
05/07/17 Academia Momentum Investing
"They found that despite similar performances over the first year, these momentum portfolios perform dramatically differently beyond year one - relative-return momentum reverses strongly (producing returns of -0.40 percent per month in months 13 through 60), while abnormal-return momentum continues for years (producing returns of 0.20 percent per month in months 13 through 60)."

Jim O'Shaughnessy talks at Google
04/09/17 Value Investing Momentum Investing
"Investors who do not have the following traits and emotional quality should index their portfolios. I find they are the majority of investors today." [video]

Q and A with Wes Gray
02/26/17 Momentum Investing
"The article suggests that the world of investment ideas is almost like religion or politics - you're on one team or the other - but you can't be on both teams at the same time, and there's very little room for conceptual overlap across dissonant ideas. So if you are a value investor, the idea of momentum disgusts you. Similarly, if you are a momentum/technical investor, the idea of value investing is horrid."

Factor zoo
02/26/17 Momentum Investing
"Factor-based investors and advisors now think they have an advantage. They base this belief on the results of theoretical asset pricing models, many of which have failed empirically."

The momentum index
01/28/17 Indexing Momentum Investing
"Momentum investors cut their losers and let their winners run. In a roundabout way, that's exactly what the stock market has done over time."

Mistakes of momentum investors
12/04/16 Momentum Investing
"It is important to remain focused on what is important - accumulating wealth while protecting yourself from severe bear markets. Once you have a good investment strategy, you need to be patient so it can do its work for you. Warren Buffett said the stock market is a mechanism for transferring wealth from the impatient to the patient. This applies to momentum as well as other investors."

Momentum with indexes
11/20/16 Momentum Investing
"Investors can take advantage of momentum with funds that apply the strategy to individual stocks, or apply it directly using ETFs offering exposure to equity sectors, single countries, or individual asset classes."

Dead or just painful
09/11/16 Momentum Investing
"On the one hand, stock-selection momentum strategies can have the potential to generate excess expected returns over the long run; on the other hand, these strategies sometimes generate massive amounts of investor pain when they inevitably go through long bouts of poor relative performance. It's a kind of quid pro quo: in order to access the potential gain, you must willing to accept the potential pain."

Largest momentum strategy
05/22/16 Momentum Investing
"Buying during a bear market is probably one of the most difficult things an investor can do, but staying invested as stocks rise may be a close second. There are constant temptations to 'take money off the table' or 'de-risk your holdings' after a nice run-up. It's not easy to allow compounding to occur without getting in the way and screwing things up."

Are you ready for the Hot Potato?
04/24/16 Stingy Investing Momentum Investing
"The Global Hot Potato portfolio, rebalanced monthly, gained an average of 16.7% per year from the start of 1981 to the end of 2015. It beat the classic Couch Potato by a whopping 6.7 percentage points annually."

You can't beat all the chimps
04/16/16 Markets Momentum Investing
"The fact of the matter is that even a random number generator can, and will, outperform practically all mutual funds. Such random strategies may seem like a joke, and perhaps they are, but if a joke can outperform industry professionals we have to stop and ask some hard questions."

Multi-factor badness
03/28/16 Value Investing Markets Momentum Investing
"My argument would be that momentum and value mature at different rates. For example, positive momentum tends to be a short-term impulse while expensive tends to be a long-term drag. Negative momentum is a short-term drag while cheap is a long-term positive force. The measurement periods are totally different."

Why is momentum neglected?
01/31/16 Momentum Investing
"It should come as no surprise that the same irrationality causing momentum to work in the first place also keeps investors from accepting and using it. Behavioral economists have long shown that people are consistently irrational."

Trend following backtest
01/09/16 Momentum Investing
"I'm going to conduct a comprehensive backtest of three popular trend-following market timing strategies: the moving average strategy, the moving average crossover strategy, and the momentum strategy. These are simple, binary market timing strategies that go long or that go to cash at the close of each month based on the market's position relative to trend. They produce very similar results, so after reviewing their performances in U.S. data, I'm going to settle on the moving average strategy as a representative strategy to backtest out-of-sample."

MiB: Michael Covel
01/09/16 Momentum Investing
"On this week's Masters in Business radio podcast, I speak with Michael Covel, author of Trend Following and Turtle Trader. Covel is a student of trading, and has helped demystify a number of fascinating aspects of how top traders achieve their greatness."

Factors that launched 1,000 ETFs
12/26/15 Value Investing Momentum Investing
"Across the five factors, the average long/short spread was 10.3%/year for the entire period (1964-2015), 10.6% for the period of rising rates (1964-1981), 11.8% for the period of falling rates (1981-2008) and 2.3% for the ZIRP period. Clearly, things have tailed off."

Backtesting: a cautionary tale
12/18/15 Momentum Investing
"The failure to see consistent outperformance from the group as a whole has made me increasingly skeptical of investment approaches that claim to be data-driven. In my view, such approaches receive too much trust and respect, and not enough scrutiny. They hold a reputation for scientific credibility that is not deserved."

Momentum deterioration
12/18/15 Momentum Investing
"Buying high momentum has had a rough 15-years relative to longer-term history, but avoiding poor momentum has continued to work quite well."

A conversation with Cliff Asness
11/21/15 Academia Value Investing Momentum Investing
"Tyler and investment strategist Cliff Asness discuss momentum and value investing strategies, disagreeing with Eugene Fama, Marvel vs. DC, the inscrutability of risk, high frequency trading, the economics of Ayn Rand, bubble logic, and why never to share a gym with Cirque du Soleil." [video]

Absolute strength vs relative strength
08/23/15 Stingy Investing Momentum Investing
"When it comes to the markets, the difference between a large wave on a fairly calm day and a huge wave on a stormy day is similar to the contrast between relative strength and absolute strength. But both momentum measures have provided outsized returns over the long run." [$]

Absolute strength
08/16/15 Academia Momentum Investing
"We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength winner and loser portfolio breakpoints are recursively determined by the historical distribution of realized cumulative returns across time and across stocks. The historical distribution yields stable breakpoints that are always positive (negative) for the winner (loser) portfolios. As a result, winners are those that have experienced a significant upward trend, losers are those that have experienced a significant downward trend, and stocks with no momentum have cumulative returns that are not significantly different from zero. The absolute strength momentum strategy is related to, but different from, the relative strength momentum strategy of Jagadeesh and Titman (1993) and the time series momentum strategy of Moskowitz, Ooi, and Pedersen (2011). Time-series regressions show that the returns to the absolute strength momentum strategy completely explain the returns to the relative strength and the time series momentum strategies, but not vice versa. Absolute strength momentum does not expose investors to severe crashes during crisis periods, and its profits are remarkably consistent over time. For example, an 11-1-1 strategy that buys absolute strength winners and sells absolute strength losers delivers a risk-adjusted return of 2.42% per month from 1965-2014 and 1.55% per month from 2000-2014."

Try the hot potato
08/16/15 Inexing Stingy Investing Momentum Investing
"When it comes to investing, the MoneySense Couch Potato represents the regular option for portfolios. It's not fancy, but it is effective and has been very satisfying over the long term. Investors looking for a little more spice might consider an aggressive style of indexing that has provided fiery returns without much downside. Call it the 'Hot Potato,' if you will."

Why momentum investing works
07/12/15 Momentum Investing
"Even if you aren't a practicing value investor, the value anomaly is easy to explain - buy at a discount and then wait. The momentum factor is based on buy high, sell higher or alternatively, cut your losses and let your winners run. Value investing is based on a long-term reversion to the mean. Momentum investing is based on that gap in time that exists before mean reversion occurs. Value is a long game, while momentum is usually seen in the short- to intermediate-term."

Momentum and stop losses
06/20/15 Academia Momentum Investing
"Stop losses and other trend following methods are a way to head off some of the usual pitfalls of human judgement, such as the disposition effect, loss aversion, ambiguity aversion, and flight-to-safety. There is no reason why they should not be used by all momentum investors."

Momentum across time
06/13/15 Momentum Investing
"One conclusion we can draw from these results is that whether we are talking about the equity premium, the value premium or the momentum premium, investors require patience and discipline - aided by strong belief - to benefit from most strategies."

215 years of global multi-asset momentum
06/13/15 Academia Momentum Investing
"Extending price return momentum tests to the longest available histories of global financial asset returns, including country-specific sectors and stocks, fixed income, currencies, and commodities, as well as U.S. stocks, we create a 215-year history of multi-asset momentum, and we confirm the significance of the momentum premium inside and across asset classes. Consistent with stock-level results, we document a large variation of momentum portfolio betas, conditional on the direction and duration of the return of the asset class in which the momentum portfolio is built. A significant recent rise in pair-wise momentum portfolio correlations suggests features of the data important for empiricists, theoreticians and practitioners alike."

Value bears vs. momentum bulls
05/28/15 Value Investing Dividend Investing Stingy Investing Momentum Investing
"Investors want to know where the markets are headed. Unfortunately, market forecasts are less reliable than weather forecasts, which in my neck of the woods is saying something."

Index roulette revisited
05/23/15 Indexing Stingy Investing Momentum Investing
"Momentum is one of the biggest and most omnipresent forces in financial markets. Its fingerprints can be found in stock returns, across geographies and between asset classes." [$]

How to combine value and momentum
04/04/15 Value Investing Momentum Investing
"The evidence suggests that we keep highly active exposures to value and momentum in their purest forms (assuming we are doing high-conviction non-watered down versions of the anomalies). Blending the strategy dilutes the benefit of value and momentum portfolios."

5 triple play stocks to consider
01/24/15 Dividends Value Investing Stingy Investing Momentum Investing
"Investors can win with dividend stocks and they do even better with value. But triple plays are possible when the two are combined and momentum is added into the mix."

High-flying Fairfax
11/23/14 Value Investing Stingy Investing Momentum Investing
"Melding value investing with momentum investing tends to be particularly powerful. In this case, think of value investing as the meat and potatoes of portfolio construction. The idea is to stick to good companies at reasonable prices. Momentum investing represents the horseradish because it favours hot stocks that are expected to move even higher."

52-Week High and Momentum Investing
11/15/14 Markets Academia Momentum Investing
"That is, the price level, relative to a reference point (the 52-week high), seems in this context to be an even more powerful price predictor than momentum in isolation. And while reversals do occur for momentum stocks, 52-week high stocks do not reverse."

The remarkable truth about 52-week highs
08/16/14 Markets Momentum Investing
"if one of your stocks hits a new 52-week high, you probably shouldn't be nervous. In fact, perhaps you should be excited."

You'll love momentum investing
05/30/14 Stingy Investing Momentum Investing
"Our propensity to spot patterns in almost anything is one reason why I give short shrift to technical analysis. But the surprising universality and persistence of momentum investing is winning me over."

Fact, fiction and momentum investing
05/10/14 Academia Momentum Investing
"It's been over 20 years since the academic discovery of momentum investing, yet much confusion and debate remains regarding its efficacy and its use as a practical investment tool. In some cases 'confusion and debate' is us attempting to be polite, as it is near impossible for informed practitioners and academics to still believe some of the myths uttered about momentum - but that impossibility is often belied by real world statements. In this article, we aim to clear up much of the confusion by documenting what we know about momentum and disproving many of the often-repeated myths. We highlight ten myths about momentum and refute them, using results from widely circulated academic papers and analysis from the simplest and best publicly available data."

On stock splits
05/26/13 Value Investing Markets Momentum Investing
"This brings me to my conclusion: stock splits are a momentum effect, but it is larger when companies are still have a cheap valuation. Perhaps splits have no effect on stock performance - it is all momentum and valuation."

Absolute momentum
04/07/13 Academia Markets Momentum Investing
"There is a considerable body of research on relative strength price momentum but relatively little on absolute, time series momentum. In this paper, we explore the practical side of absolute momentum. We first explore its sole parameter - the formation, or look back, period. We then examine the reward, risk, and correlation characteristics of absolute momentum applied to stocks, bonds, and real assets. We finally apply absolute momentum to a 60-40 stock/bond portfolio and a simple risk parity portfolio. We show that absolute momentum can effectively identify regime change and add significant value as an easy to implement, rule-based approach with many potential uses as both a stand- alone program and trend following overlay."

A crystal ball for stocks?
02/20/12 Stingy Investing Momentum Investing
"At a very deep level, we're all suckers for patterns. The problem is, it's easy to stumble on erroneous patterns in large mounds of data. You can see the result on TV almost every night in the form of new medical breakthroughs. You know, titillating things like the discovery that eating yellow foods decreases the risk of having a heart attack. But after loading up on squash and turning a strange shade of pale, another study might come along that refutes the first and instead points to the cancer causing properties of yellow food. It's a wonder health-conscious people eat anything all. (Rest assured yellow foodies, these examples are fictitious.) The problem being, just because you've spotted a pattern doesn't mean that it's predictive or, in math speak, correlation does not prove causation. All too often what the researcher actually uncovered occurred simply by chance. That doesn't keep our love of predictable patterns from infiltrating the markets in all sorts of unexpected ways."

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