Crashless Momentum - An Update
Three months of High-To-Price (HTP) Momentum Strategy
Three months ago, we had setup a momentum strategy that promised to avoid crashes.
Since then, the markets made their all time highs and corrected about 10-12% from there.
Over the same period, the HTP Momentum strategy beat out its peers.
Most of this out-performance is attributable to HTP maintaining a frustratingly high cash level that currently stands at a whopping 64%
There is a risk vs. returns vs. costs tradeoffs here that is worth contemplating:
A “fast” strategy, like Momo Velocity, will react strongly to market downturns and switch to cash at the slightest sign of risk. This increases costs but saves your skin if the market continues to tank. It also allows you to invest in riskier stocks (midcaps, for instance) and reach for higher returns.
A “slow” strategy, like All Stars (ATH), will switch out to cash only after it takes the first downdraft in the markets squarely on the chin. Also, it is unlikely to get back into the market during the initial stages of a recovery. It will, however, avoid long bear markets, preserving capital. The tradeoff here is that costs are low if you stay committed over multiple market cycles.
HTP, with its large cash allocation and slow formation cycles, looks like it is sort of in-between the two. Any strategy that is largely in cash during market drawdowns but is able to ramp back in before durable uptrends is bound to out-perform both high-cost momos and low-speed ATH.
It will be interesting to see how the next few months work out for these strategies.
Markets this Week
Indian indices went nowhere this week. Lots of churn though. US, meanwhile, on another planet.
Links
Why does Red Bull own an F1 team? (Twitter)
Apache Log4j bug: China’s industry ministry pulls support from Alibaba Cloud for not reporting flaw to government first. They had reported it first to the Apache Software Foundation. (SCMP)
House Money - Why our appetite for risk grows with our money. (Substack)
South Africa will stop contract tracing and won’t quarantine people as it shifts focus on Covid-19 mitigation strategies. (Bloomberg)
US Army Creates Single Vaccine Against All COVID & SARS Variants. (DefenseOne)
Meme of the Week
hi thanks for your update on HTP momentum! However I thought that HTP is being used in place of 2-12 momo as a ranking indicator. How does that make it go OW cash?