History of Momentum Investing⚡️

Momentum investing is a popular strategy that has gained much attention recently. But did you know that Momentum Investing is a strategy that’s not just decades but centuries old?

The strategy is based on the principle that stocks that have performed well in the past are likely to continue to perform well, and stocks that have performed poorly in the past are likely to continue to perform poorly.

In this blog post, we will explore the history of momentum investing and how it has evolved.

Read the full story on Wright Research’s blog.

The Origins of Momentum Investing

The concept of momentum investing dates back to the 19th century when Charles Dow, the founder of the Dow Jones Industrial Average, observed that stock prices tended to move in trends. Dow believed that stocks that were rising in price were likely to continue to grow, and stocks that were falling in price were likely to continue to fall. This observation formed the basis of what we now know as momentum investing.

Momentum investing gained popularity in the 1990s when academic researchers Jagdish and Titman published studies showing that stocks that had performed well tended to outperform stocks that had performed poorly in the past. In addition, these studies found that momentum was a persistent and pervasive phenomenon that could be exploited to generate excess returns.

The Evolution of Momentum Investing

In the early days of momentum investing, the strategy was based on a simple buy-and-hold approach. Investors would buy stocks that had performed well in the past and hold them for an extended period, hoping that the momentum would continue.

Over time, however, momentum investing has evolved, and new strategy variations have emerged. One of the most popular variations is called “relative momentum” or “cross-sectional momentum.” This strategy involves buying stocks that have performed well relative to other stocks in the same sector or industry. The idea is that even if the overall market is in a downtrend, there will always be some stocks that are outperforming their peers, and these are the stocks that the investor should focus on.

Another variation of momentum investing is called “time-series momentum.” This strategy involves buying assets that have performed well over a specified period, such as the last 12 months, and shorting assets that have performed poorly over the same period. This strategy is designed to take advantage of trends that persist over time.

The Future of Momentum Investing

Momentum investing has become increasingly popular in recent years, and many investors now use the strategy as part of their overall investment approach.

The future of momentum investing appears bright for several reasons:

• Increasing Availability of Data: With the growth of technology and the availability of big data, investors have access to vast amounts of information about stocks, sectors, and industries. This data can be used to identify trends and patterns that can help to identify momentum opportunities.
• Evolution of the Strategy: As mentioned earlier, momentum investing has evolved, and new variations have emerged. These unique variations allow investors to take advantage of momentum in different ways, increasing the flexibility of the strategy.
• Behavioural Finance: Behavioural finance has gained increased attention in recent years. Behavioural finance studies how investor behaviour can impact market trends and momentum. As investors become more aware of these behavioural biases, they may be better able to identify and exploit momentum opportunities.
• Low-Cost Investing: With the rise of passive investing and the availability of low-cost investment options, investors can quickly and inexpensively build momentum-based portfolios. This ease of implementation makes momentum investing accessible to more investors.

How to Invest?

Look no further than Wright’s Momentum strategy, one of the top-performing momentum strategies in the market.