Investors and financial advisors would have a much less complicated time of it if they could follow what we will call the Tao of Dee, as described by Gary Antonacci in his absorbing new book, Dual Momentum Investing. . Gary Antonacci has over 30 years experience as an investment professional focusing on under exploited investment opportunities. This approach dictates that every month, we compare two related sectors or two parts of a single sector and select the better performer over the formation period the prior twelve months. I consider Dual Momentum Investing as an essential reference for system designers, money managers, and investors. It is possible for an asset to have positive relative momentum and negative absolute momentum.
After all, the goal of strategy research is to discover robust strategies that perform well in the future, not to create the best backtests. This was proven in a 2012 paper called by Tobias J. If you look at enough different strategies, almost certainly a few of them will look attractive. Using momentum with individual stocks also results in substantially higher transaction costs than applying momentum to broad asset classes and indexes. You can read more about the best strategies here:. Antonacci clearly shows a number of different methods that anyone who is serious about a long-term strategy will find easy to implement.
If the share price return minus the return of a short term government bond, called excess return, is greater than zero, then the company has positive absolute momentum. Whether you're an independent investor, investment professional, or money manager, Dual Momentum Investing enables you to consistently profit on major changes in relative strength and market trend. French, 2008, , The Journal of Finance, 63, pg. Markets don't just fall off a cliff. Additional periods of superior performance tend to follow initial periods of superior performance.
This is a good investment book. And it is a very good strategy to follow even if you use or am planning on using one to the best performing investment we have tested. A simple one is the three-fund-approach by the bogleheads on the related forum. Yet momentum is still largely undiscovered by most mainstream investors. Momentum means persistence in performance.
The first few chapters are a tour of the academic theory of efficient markets, of behavioural finance and of momentum investing but also of the history of momentum practitioners. That is, it might have lost less than its peers. When the trend disappears dual momentum will move your investments to cash before the change can do too much damage to your portfolio. He also writes a blog on his website. He also looked at the absolute momentum of an asset — that is, the momentum of the asset relative to itself — and found that by combining the two types of momentum, he could reap the rewards of relative momentum investing while vastly reducing the volatility of the approach.
How you can use it Dual momentum investing can be used in any market environment due to its adaptable nature. Likewise, an asset might be going up and have positive absolute momentum, but if other assets performed better, it would have negative relative momentum. What look back period to use? His methodology is designed to pick up on major changes in relative strength and market trend. We would love to have you in the community —. If it is positive, it means its trend is up, and you invest in the asset. In summary, investors will find Dual Momentum Investing a useful synthesis of the stream of research on relative and absolute or time series or intrinsic momentum applied simply in combination to a few asset classes. Each author that I read had his own way of calculating relative momentum and having a filter criteria which some defined as a Moving Average or in this case absolute momentum.
However, if everybody did switch it would destabilize the financial markets - but this is clearly true of any investment strategy. An Innovative Strategy for Higher Returns With Lower Risk. His methodology is designed to pick up on major changes in relative strength and market trend. His research introduced the investment world to dual momentum, which combines relative strength price momentum with trend-following absolute momentum. At the same time the author is extremely learned. How well does dual momentum perform? However, most mainstream investors haven't had a way to fully discover and implement the benefits of momentum investing.
It is like being on a train, then hopping on to a faster one that comes along. See for a summary of the paper that appears as Appendix B of the book. The strategy and concept is very interesting and relevant in the practical world. I'll wrap with the key concept, and the reason I love momentum algorithms. Give it a try; you'll be hooked! This book presents some clear ideas on how to use momentum to minimize risk in investing however, it stops short of providing the practical details needed to really implement it. The second part is the actual strategy to follow.