Buying shares whose prices are rising, and selling those whose prices have fallen, might appear to be unlikely to succeed as an investment strategy, but it does. In fact, one portfolio based on momentum has outperformed the index by 115 per cent.
The strategy's long-term record of beating the market can be explained by perfectly sound reasons. But to maximise your profits, it's crucial to select the right shares and to watch for trends over the right period of time.
Momentum investing – ie, buying shares that have been going up and selling those that have been heading down in expectation of more of the same – seems just too simple to possibly work. But the strategy has an exemplary long-term record that can claim to have produced better and more consistent returns than many highly-paid fund managers. And our own investigation into the strategy's performance over the past five years suggests it has continued to do well despite the swings and roundabouts of the bear market. So, if you want to know how you could have picked the FTSE 100 stocks that have outperformed the index by 115 per cent since 2004, read on.
