Momentum sans hindsight

By Felix Salmon
September 20, 2010

Here’s a great way of making money in the market. At the end of every month, look to see whether stocks went up or whether they went down. If they went up, then buy stocks at the average price for the month. And if they went down, then sell stocks at the average price for the month. Follow that strategy for 130 years, and you can turn $1 into $50,000!

Of course, it’s impossible to go back in time, armed with your 20-20 hindsight, and buy stocks in retrospect. So the strategy is not exactly a very useful one. But it turns out that it’s exactly the strategy that Andrew Haldane used in his value vs momentum chart.

Michael Stokes has run the numbers, and shows what Haldane’s momentum strategy would look like if you buy and sell at month-end prices, rather than retrospectively at the average price for the month:


Given that the momentum strategy wasn’t very good at outperforming a simple buy-and-hold strategy in the first place, this latest insight I think does a great job of burying it completely.

7 comments so far

Many thanks to you for writing this up and to Michael Stokes for crunching the numbers.

Theodore Wong’s research, which has been used by many to “prove” that moving averages are effective timing signals, used the Shiller data as well: etters09/Moving_Average-Holy_Grail_or_Fa iry_Tale-Part3.php

I pointed this flaw to my clients, and now we know how large the difference is …. well done!

Teresa Lo

Posted by Teresa_Lo | Report as abusive

Oh. My. God.

I knew that study stank to heaven, not least because it tried to pass off something that might be called “counter-momentum” as a “value” strategy for its strawman. (No value strategy in the history of time has ever been based on a one-month technical analysis of price movement. So you know you’re dealing with an idiot or a con man right out of the gage.) But this….this just defies all belief.

A model that cheats the numbers by letting you buy or sell on the 15th based on the price as of the 30th…what is the word for that? No one should ever listen to this jerk Haldane about anything, ever again. He should be drummed out of his profession.

Posted by ckbryant | Report as abusive

Ah, I tried to do it with the monthly closings of the SP 500
from Jan 2008 till August 2010 and didn’t see out performance so now we know why. I tried long then out (on neg) as well.

Thanks, Callistenes

Posted by callistenes | Report as abusive

Shedding no tiers, tranche-ing no wounds

Posted by callistenes | Report as abusive

This makes perfect sense. If this has been an up month, would I like to go back in time and buy 15 days before the end of the month? Why yes, I would!

Posted by DanHess | Report as abusive

DanHess, didn’t the mutual fund industry get in trouble for something like that? Though this “study” takes it to a whole new level! :)

Posted by TFF | Report as abusive

I think this is how Steve Jobs asks for his options allocation.

Unfortunately, not a strategy particularly available to the man on the street.

Posted by TinyTim1 | Report as abusive
Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see