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.
The Momentum strategy had a rough year and ended down 13.08% for the financial year. However, the strategy has outperformed both the Index and competitors since Inception. While we can provide many reasons for why the strategy underperformed, a couple of them are worth mentioning:
Since it is a rules-based strategy, we do not tweak the rules, and one future initiative that we are actively working on is to provide more strategies that can better hedge the drawdowns and losses. The all-weather strategy has been an excellent hedge, as you will see in in our detailed blog post (link below).
| Date | India MOMO | MOMO P&L % (Total) | NIFTY 500 | NIFTY 500 P&L % (Total) |
|---|---|---|---|---|
| 2024-03-28 | ₹100,000.00 | 0% | 20,492.55 | 0% |
| 2024-04-30 | ₹107,623.65 | 7.62% | 20,997.20 | 2.46% |
| 2024-05-31 | ₹107,968.30 | 7.97% | 21,103.30 | 2.98% |
| 2024-06-28 | ₹113,815.32 | 13.82% | 22,559.70 | 10.09% |
| 2024-07-31 | ₹113,772.97 | 13.77% | 23,530.80 | 14.83% |
| 2024-08-30 | ₹108,546.58 | 8.55% | 23,734.55 | 15.82% |
| 2024-09-30 | ₹105,621.22 | 5.62% | 24,245.20 | 18.31% |
| 2024-10-31 | ₹101,512.71 | 1.51% | 22,689.35 | 10.72% |
| 2024-11-29 | ₹100,495.03 | 0.50% | 22,687.00 | 10.71% |
| 2024-12-31 | ₹105,523.18 | 5.52% | 22,375.40 | 9.19% |
| 2025-01-31 | ₹88,531.83 | -11.47% | 21,580.90 | 5.31% |
| 2025-02-28 | ₹77,290.13 | -22.71% | 19,880.90 | -2.98% |
| 2025-03-28 | ₹86,915.90 | -13.08% | 21,339.55 | 4.13% |
In addition to the above, we reviewed our results in a separate blog entry – check it out here.
