On Jan 7, 9:52*am, beliav...[at]aol.com wrote:
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CXO Advisory is a good site that summarizes academic investment
research for investors, and in a post

January 14, 2008 - Fama and French Dissect Anomalies
http://www.cxoadvisory.com/blog/external/blog1-14-08/

they discuss a paper "Dissecting Anomalies"
http://papers.ssrn.com/sol3/papers.c...ract_id=911960 by Fama and
French. Momentum is found to be an important anomaly.

On Tue, 8 Jan 2008 13:18:04 -0600, Douglas Johnson
<post[at]classtech.com> wrote:


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I really like things like this - humorous sayings that convey a
message.


-HW "Skip" Weldon
Columbia, SC

beliavsky[at]aol.com wrote:
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I didn't mean to imply that momentum investing is a form of value
investing (you snipped this part of my post out of your quote). I was
addressing Elle's point about exploiting short term price movements.
Value investing often capitalizes on downward movements in stock prices
when those prices are deemed irrational by a value investor, yet value
investors are not generally considered gamblers.

-Will

william dot trice at ngc dot com

beliavsky[at]aol.com wrote:

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An old Wall Street saying, worth what any Wall Street saying is worth, is "Value
investors sell to growth investors. Growth investors sell to momentum
investors. Momentum investors sell to value investors."

-- Doug

On Jan 8, 10:34*am, Will Trice <wtr...[at]notmonitored.com> wrote:
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I would not, because value investors are more often buyers (sellers)
of stocks that have fallen (risen) in price, the opposite of what a
momentum investor would do.

"Will Trice" <wtrice[at]notmonitored.com> wrote
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Two cents: I think I'd call this (1) a rationalization of
succumbing to the temptation to try to make money quicker,
and (2) a *********zation of value investing. ;-)

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I think real value investors (Graham purists and not-so-pure
types) tend to overwhelmingly agree when a stock is a
"growth" stock buy vs. a "value" stock buy. E.g. if company
fundamentals show the stock to be way overvalued, value
investors won't touch it. IOW I don't think this extension
is "logical," since it rejects fundamental tenets of what is
a "value" stock.

Elle wrote:

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I don't necessarily disagree with this, but maybe one could consider
trying to capitalize on short term movements just a logical (and
extreme) extension to value investing? Many value strategies suggest
taking advantage of price declines (though obviously this isn't really
momentum investing).

-Will

william dot trice at ngc dot com

"Will Trice" <wtrice[at]notmonitored.com> wrote
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I think you're right. That is, re-reading the context
carefully, it has to be an annual figure. (Eddy, the author
of the original article, confirmed this earlier today at one
of his sites.)

So we're down to about $8000 in transaction costs, using a
discount broker and at about $5 a trade.

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I agree. Just to break even relative to the long term buy
and hold value yada approach, my rough calculations put the
number between about $120k and $160k, with the
aforementioned assumptions, plus assume the effective short
term capital gain tax bite is somewhere between about 10%
and 20%. Knock on wood, since I believe short term capital
gain tax rates have varied quite a lot over the years.

So say one has $200k to boost one's income. Should one use
this momentum "strategy" so one might do a little better
than a conventional, buy and hold value yada method?
Theoretically and according to this article and its
citations, history says one would make about 2 points more
(12.2% effective return after transaction costs and taxes)
than using the conventional approach. I know that compounds
to a lot more over time. Still, I think I'd want to consider
how a five-year bear market might ravage such a portfolio
early on first. A Monte Carlo simulation might yield more
meaningful results.

Plus I do not like banking on short term capital gain tax
rates not fluctuating much, especially as my income would
rise.

Lastly, the underlying "theory" of this approach is
something for which I cannot argue using sound economic
principles. Banking on a "rational" exploitation of the
"mass hysteria" that often drives short term stock price
increases and declines ultimately just stinks of gambling to
me.

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If they stood out, then as I think you know, I think we'd
know about them.

Elle wrote:
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I think the 91% turnover was an annual figure reducing tranaction costs
by an order of magnitude. But, you're right, that's still a pretty
hefty amount just for transaction costs. You'd need to put at least
$100k or so against this strategy to keep the transaction costs from
eating up the historical premium (with $5 trades).

Don't momentum mutual funds exist? How do they perform?

-Will

william dot trice at ngc dot com

<beliavsky[at]aol.com> wrote
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I think what's most talked about is diversifying. That is,
holding value and growth; small and large and in-between;
international and domestic; etc.

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The three major U.S. stock exchanges trade some 9000 stocks.
Using the "momentum strategy" of these articles, one is
supposed to hold the top 10% each month (based on the last
11 months of performance). This would be some 900 stocks.
Turnover is remarked to be some 91%. Problems that would
have to be solved before giving this "momentum strategy" any
credence:

-- Effects of transaction costs (stock commissions).
Ballpark, each month we're looking at $5 per trade (through
a discount broker) with around 800 buy orders and 800 sell
orders. Hence $96,000(!) a year. Can this strategy be
modified so the transaction costs would not kill the
ordinary investor? I mean, apart from the obvious
modification of buying a mutual fund with this strategy. Are
there mutual funds with this strategy? If not, Eddy
Elfenbein has discovered a gold mine, hasn't he? Lemme know.
:-)

-- Effects of Short Term Capital Gain taxes

When people discuss stock-picking strategies here, usually they talk
about value investing. I think momentum should also be considered as a
factor -- it has outperformed value over time, according to the
"Crossing Wall Street" blog

http://www.crossingwallstreet.com/ar..._up_on_mo.html
http://www.crossingwallstreet.com/ar...ncredible.html

Of course, one can and probably should use a multi-factor model.

One advantage of using momentum for the individual investor is that it
is very easy to get the needed data -- historical stock prices.