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Richard Morin explains momentum investing in this video. Such momentum can be explained by the tendency of investors to hold onto losers (hoping to return to profitability) and to readily sell winners (and take profits). Momentum can also be created by investors' over reaction to events affecting the stock market and by herding tendencies, particularly those of fund managers not wanting to risk missing the next big move.
Of course, the old efficient market theory espoused by most economists says a stock can never be mispriced, yet strategies like this exist to take advantage of just such occurrences. In this case, he is claiming an annual average performance which is five percent better than the returns of the TSX index. That is a significant performance improvement!
Mr. Morin says that price momentum works particularly well in the Canadian market. I would assume it is because of the cyclical nature of resource companies, but don't know of any research that would back up my statement. If anyone knows the reason, I would appreciate it if they could provide the information in a comment to this post.
When asked about costs, he stated the use of highly liquid stocks (lots of shares traded) is important in keeping costs low. Larger companies, especially those included in indexes and funds make good candidates.
So much for not being able to time the market!