A look back at a very simple momentum strategy

In late Nov 2014, I chose five shares using a simple strategy:

  • Stockopedia Momentum score > 89
  • Passed at least 4 long screens on Stockopedia
  • avoid duplicating sectors

On that basis, the shares selected were: PSN, WIN, AVON, FOUR, HIK

If you had held the shares for a year to 19.12.2015, your results would have been, in percentage terms: PSN +28.0, WIN +21.4, AVON +43.1, FOUR +52.1, HIK +10.2. That’s a mean performance of +31.0. Compare that with the indices: FT100 -3.9, FT250 +11.2, ALL-SHARE -1.1.

I find that a very impressive performance. None of the shares are in AIM, and in fact two of them, PSN and HIK, are now members of the FT100.

I think that avoiding AIM is a good idea if the experiment were to be repeated. I am undecided as to whether passing 4 long screens is a positive, or not. I definitely think you should avoid duplicating sectors.

The big question is: has momentum run its course, and should we switch to some other strategy? The simple answer is: I don’t know. Paul Scott said recently that he is finding value again, which is something very useful to know. But I get the impression that value is not abundant. I think a lot depends on where you think we are in the market cycle.

The market has had a shake-out during the last few months. The Footsie is now just coming out of being oversold. For awhile now, it has been profitable to buy when the Footsie is oversold, and sell when it is overbought. So a bounce is definitely on the cards.

It’s more difficult to say what will happen over a year. Are we in a range-bound market, a correction in a bull market, or in a bear market that started in April and still has a long way to go?

If it is the last case, then my hunch is that value strategies will be poor performers, with the market continuing to shake out the weaklings. It will be the momentum, or high quality companies, that will do well.


About mcturra2000

Computer programmer living in Scotland.
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