Does momentum investing really work ? Can it outperform benchmarks consistently ? I have my doubts, but I have tried to be open minded & revisit the idea. 2nd Jan, 2018, I have created a equal weighted, Hot Stocks portfolio with a strict trailing stop loss and tracking the performance. Retain the winners and cut the losers. This is an experiment, albeit sincere one. However I have allocated a very small fraction of my savings.Its not at all a recommendation and only a learning experiment.
Price Momentum by definition is rapid price acceleration with volume increase and is expected to continue until and unless adverse force acts on it. In a way it clearly aggravates asset mis-pricing and cares very little for valuation and quality of business. Actually momentum creates opportunities for value investors as price sharply deviates from value. Momentum sooner or later faces reversals & crash, called momentum crash !