The goal of any investment is to produce a positive return on money invested (Capital Appreciation). There are many choices available to investors today and they include Stocks, Bonds, Real Estate, Commodities, Private Equity, Venture Capital etc. Most of these categories of investments are typically tracked by specific indexes (Example: For US stocks the most popular index is S&P 500) and one can track the returns of a specific category by tracking the returns of the index.
As there are many alternatives and choices, it helps investors perform a relative comparison of returns across the spectrum. While all of this is great, the hard part of investing one’s capital is in determining 3 things:
These are hard questions to answer for anyone including professional investors and advisors. Although, one can approximately get it right, there are multiple factors that can influence one’s returns even though the goals and expectations are set clearly upfront. Changes in market conditions and asset prices create the need for constantly re-calibrating the goals and expectations and adjusting the investment mix. A simple investment goal for most investors may be to participate in the stock market via an Index Fund and take the returns that the market provides. An extension of that goal for the daring is to generate returns in excess of what the index provides. In the following section, we will discuss equity/stock based momentum strategies and how one can produce returns in excess of what an equity/stock based index can produce.
