Identifying and Investing in stocks that move higher than the market over the short term is called Momentum Investing. As many of our followers are aware, the goal of any investment is to produce returns that are at least in line with the market. However, many are always looking to do better than what the market returns. Momentum investing is one type of investing which has shown to beat the market over the longer term. The idea of momentum investing is to find stocks that tend to move higher and ride those stocks until they no longer move. A real-life comparison may help here.
Let us imagine you want to go from place A to place B – There are two choices:
Take a train that gets you from place A to place B in 24 hours
Take multiple different trains which take you from place A to other places and then finally to place B in 12 hours
#1 can be compared to investing in the stock market and #2 can be compared to investing in momentum stocks. In #2 you are riding express trains that get you to your destination faster. Mapping it to stock market jargon – Momentum investing has the potential to produce returns that are better than investing in the overall stock market via an Index fund such as S&P500/NSE500 ETF/Mutual Fund.
We have several blogs on this topic on our website and you can check them out here.
It’s been a year since we launched QuantMomo and the momentum strategy in both India and the US markets. We are pleased with the overall performance and results that the algorithm has produced for our followers. We had the opportunity to live-trade the strategy with a few of our followers and witnessed the overall performance of the strategy. The following are a few key takeaways that we can summarize from our trades in 2023:
In the US, the momentum algorithm produced +4.38% on a cumulative basis. The $25K we invested in algorithm ended up being $26.1K at the end of the year. This pales in comparison to the +23.91% returns on S&P500 and the +11.07% returns on the Equal weighted S&P500 Index.
| Date | US MOMO | MOMO P&L % (Total) | S&P 500 | S&P 500 P&L % (Total) | S&P 500 (Equal Weighted Index) | S&P 500 P&L % (Total) (Equal Weighted Index) |
|---|---|---|---|---|---|---|
| 2022-12-29 | $25,000.00 | 0% | 3,849.28 | 0% | 5,764.56 | 0% |
| 2023-01-31 | $26,277.53 | 5.11% | 4,076.60 | 5.91% | 6,158.68 | 6.84% |
| 2023-02-28 | $25,611.62 | 2.45% | 3,970.15 | 3.14% | 5,944.16 | 3.12% |
| 2023-03-31 | $26,000.59 | 4.00% | 4,109.31 | 6.76% | 5,878.10 | 1.97% |
| 2023-04-27 | $25,412.85 | 1.65% | 4,135.35 | 7.43% | 5,829.27 | 1.12% |
| 2023-05-30 | $25,693.71 | 2.77% | 4,179.83 | 8.59% | 5,707.72 | -0.99% |
| 2023-06-29 | $26,990.65 | 7.96% | 4,396.44 | 14.21% | 6,025.36 | 4.52% |
| 2023-07-28 | $28,029.13 | 12.12% | 4,582.23 | 19.04% | 6,268.93 | 8.75% |
| 2023-08-30 | $27,542.76 | 10.17% | 4,514.87 | 17.29% | 6,096.08 | 5.75% |
| 2023-09-29 | $25,886.13 | 3.54% | 4,288.05 | 11.40% | 5,754.77 | -0.17% |
| 2023-10-30 | $24,541.10 | -1.84% | 4,166.82 | 8.25% | 5,467.52 | -5.15% |
| 2023-11-29 | $25,388.50 | 1.55% | 4,567.80 | 18.67% | 6,003.20 | 4.14% |
| 2023-12-29 | $26,095.52 | 4.38% | 4,769.83 | 23.91% | 6,402.89 | 11.07% |
India had a slightly different performance than the US on a cumulative basis. It started out negative for the year where the strategy significantly lagged the Index. However, the strategy started picking up in May 2023 and continued to outperform the index. The NIFTY500 ended the year with +25.47% gains while the momentum algorithm generated returns of +67.82%.
| Date | India MOMO | MOMO P&L % (Total) | NIFTY 500 | NIFTY 500 P&L % (Total) |
|---|---|---|---|---|
| 2022-12-29 | ₹100,000.00 | 0% | 15,485.18 | 0% |
| 2023-01-31 | ₹98,800.26 | -1.20% | 14,935.50 | -3.55% |
| 2023-02-28 | ₹88,647.71 | -11.35% | 14,518.75 | -6.24% |
| 2023-03-31 | ₹88,182.11 | -11.82% | 14,557.85 | -5.99% |
| 2023-04-27 | ₹96,667.06 | -3.33% | 15,075.05 | -2.65% |
| 2023-05-30 | ₹102,003.61 | 2.00% | 15,766.40 | 1.82% |
| 2023-06-29 | ₹111,869.06 | 11.87% | 16,430.00 | 6.10% |
| 2023-07-28 | ₹118,243.91 | 18.24% | 16,948.35 | 9.45% |
| 2023-08-31 | ₹122,652.21 | 22.65% | 16,924.30 | 9.29% |
| 2023-09-29 | ₹131,306.76 | 31.31% | 17,292.60 | 11.67% |
| 2023-10-31 | ₹131,993.96 | 31.99% | 16,801.10 | 8.50% |
| 2023-11-30 | ₹150,525.51 | 50.53% | 17,987.95 | 16.16% |
| 2023-12-29 | ₹167,815.11 | 67.82% | 19,429.15 | 25.47% |
In addition to the above, we reviewed our results in a separate blog entry – check it out here.
