DIY Momentum QnA and Discussion

Welcome to the DIY Momentum QnA and Discussion thread!

Momentum investing can be a highly effective strategy, but it requires a solid understanding of the market trends, entry-exit mechanisms, and risk management. This thread is dedicated to discussing various aspects of momentum investing, sharing insights, and answering questions.

Investment Thesis:

Momentum investing involves capitalizing on the continuation of existing market trends. Stocks that have performed well in the past are expected to continue their performance in the short to medium term. This strategy relies on the psychological factors driving market participants and aims to ride the wave of market sentiment.

Positives:

1. Trend Following: Momentum investing allows you to ride the trend and benefit from the collective market sentiment.
2. Flexibility: It can be applied across various asset classes and market conditions.
3. Performance: Historically, momentum strategies have outperformed in certain market environments, providing superior returns compared to traditional buy-and-hold strategies.

Negatives:

1. Volatility: Momentum stocks can be highly volatile, leading to significant drawdowns.
2. Short-term Focus: Requires frequent monitoring and rebalancing, which can be time-consuming and incur higher transaction costs.
3. Market Reversals: Momentum strategies can suffer during sudden market reversals, leading to potential losses.

Risks:

1. Market Timing: Incorrect timing can erode potential gains and amplify losses.
2. Overfitting: Reliance on historical data can lead to overfitting, where the strategy performs well on past data but poorly in real-time.
3. Liquidity: Investing in less liquid stocks can result in higher slippage and difficulty in executing trades at desired prices.

Interesting Aspects:

• Screening Criteria: Share and discuss various screening methods to identify potential momentum stocks.
• Entry-Exit Mechanisms: Debate the merits of different entry and exit strategies, such as weekly vs. monthly rebalancing.
• Performance Metrics: Explore the use of metrics like the z-score to enhance momentum strategies.

I have been actively learning about momentum investing and have implemented a weekly rebalancing strategy in my portfolio. I am considering shifting to a monthly rebalancing approach and would love to hear your thoughts and experiences on this matter.

Let’s engage in a constructive discussion and help each other refine our momentum investing strategies. Please feel free to share your insights, ask questions, and contribute to the collective knowledge of the forum.

Looking forward to your valuable inputs!

Disclosure: I am currently invested in several momentum stocks and regularly rebalance my portfolio.

Feel free to make any adjustments or add more details specific to your experiences and knowledge!