4 Myths of Momentum Investing

February 16, 2017

Stocks and mutual funds experience momentum—meaning that recent performance tends to persist. A stock or a fund that is doing well lately tends to continue to well in the coming months or even years.

Momentum investing strategies, like our own Upgrading approach, attempt to take advantage of this by investing in funds that have strong recent returns and avoiding funds with weak returns.

Many investors like the idea of momentum investing, but they let common misconceptions hold them back.

They assume that momentum hasn’t been around long enough, or that trading costs and taxes will eat into any potential gains. But a May 2014 paper, “Fact, Fiction, and Momentum Investing” by a group from AQR Capital and the University of Chicago, as well as our own nearly 50-year experience, debunk these common myths.

Myth #1: Momentum investing is new.

Fact: Momentum has a much longer history than most investors realize. 

Momentum investing may be unconventional, but it’s not new.

The study, “Fact, Fiction, and Momentum Investing”, noted that

“The existence of momentum is a well-established empirical fact. The return premium is evident in 212 years (yes, this is not a typo, two hundred and twelve years of data from 1801 to 2012) of U.S. equity data….Some of this evidence predates academic research in financial economics, suggesting that the momentum premium has been a part of markets since their very existence, well before researchers studied them as a science.”

Momentum doesn’t only work in studies. Our own Upgrading approach has an independently verified, real world track record that goes back to 1980.

Myth #2: Any gains from momentum will be eaten up by trading costs.

Fact: Momentum investing overcomes trading costs.

All investors have to consider trading costs because these costs eat into their returns. But today, these costs are often nominal. Many funds are available without transaction fees and fewer funds charge redemption fees.

“Fact, Fiction and Momentum Investing” found that costs could be overcome by excess returns.

The authors put this to the test “using a unique dataset containing more than a trillion dollars of live trades from 1998-2013 across 19 developed equity markets.” they found that “per dollar trading costs for momentum are quite low, and thus, despite higher turnover, momentum easily survives transaction costs.”

Myth #3: Momentum investing isn’t tax efficient.

Continue reading “4 Myths of Momentum Investing” »


The Best Performing Momentum Strategy

February 11, 2017

Did you see Mark Hulbert’s recent Marketwatch article about momentum investing, How to bet on stock market momentum? It’s focused on momentum investing strategies, like our Upgrading approach. Not all momentum strategies have a good track record, Hulbert noted. But NoLoad FundX’s strategy was an exception: “The best-performing momentum strategy over the long term, among the […]

Click here for More

4 Myths of Sustainable Investing (video)

January 31, 2017

Most investors today are interested sustainable responsible impact investing (SRI). But they let common misconceptions hold them back. They’re still thinking about the way sustainable investing used to be. They don’t realize how much has changed. Sustainable investing has really evolved since we first started managing sustainable portfolios for clients more than 20 years ago, […]

Click here for More

Set Yourself up for Investing Success in 2017

January 4, 2017

What are you trying to accomplish this year? What do you NEED to know to make that happen? Maybe you’re out of the market, and you need to get invested again if you hope to grow your portfolio. Or perhaps your bond positions lost money last year when interest rates rose, and you want to […]

Click here for More

Tap into Your Power as a Shareholder (video)

December 21, 2016

How can your investment choices actually make a difference in the world? In the past, it usually meant avoiding certain investments, such as tobacco or firearms. But another way is to tap into your power as a shareholder. As an investor, you have more power than you might think. You can vote at shareholder meetings […]

Click here for More

Find Funds That Build Wealth & Support Your Values, Too (video)

December 13, 2016

Here’s a simple thing you can do to support the issues that matter to you: Invest in a way that has a positive impact. There are funds that can help you build wealth and support your values, too. They’re called sustainable responsible impact (SRI) funds, and they’re one of the fastest growing areas of the mutual […]

Click here for More

5 Things Every Investor Needs to Know about Year-end Distributions

December 7, 2016

Year-end mutual fund distributions can be a common source of confusion for fund investors, but learning some of the basics can really pay off. It can help you avoid buying into an unexpected tax liability, and it can also help you better understand your fund’s performance since distributions can make it seem like your fund […]

Click here for More

How to Build Wealth and a Better World (video)

December 2, 2016

Many people today want to invest in a way that helps them get ahead and also supports the issues that matter to them. Too often, it feels like they’re forced to choose between their investments and their values—and that’s a tough choice to make. FundX President Janet Brown struggled with this for years. She spent her work […]

Click here for More

Get a Head Start on 2016 Year-end Mutual Fund Distributions

November 17, 2016

Now is the time to start preparing for mutual fund year-end distributions. Nearly all stock funds distribute capital gains and income to shareholders at the end of the year, and if you own funds in a taxable account, these distributions are taxable to you whether you take them in cash or reinvest them in new […]

Click here for More