We've spent four articles showing that popular rules — buying the dip, the golden cross, dollar-cost averaging, and 225 backtests looking for a winner — mostly lose to simply buying and holding. That earns a fair reply: maybe you tested the wrong rules.
So we tested the one rule with decades of academic backing behind it: momentum. And for once, the honest answer is yes — it beat the market, clearly and repeatedly. Here's the whole thing, including the parts that should give you pause.
What we actually tested
Not a single-stock signal — relative strength. Every month we:
- Rank a fixed basket of 59 big US companies by their return over the past year (skipping the most recent month, which tends to reverse);
- Buy the strongest handful, equal-weighted;
- Hold them until the next month's re-rank, and repeat.
Winners that keep winning stay in; laggards drop out. We ran it over 15 years (2011–2026) in three flavours, always against buying and holding the S&P 500. No per-stock tuning — the same rule for everyone.
The result: it beat the S&P, and it wasn't close
| Setup | CAGR (after costs) | 15-yr total | Worst drawdown |
|---|---|---|---|
| Classic — top 10, monthly | 24.0% | +2,930% | −20.7% |
| Low-maintenance — top 10, quarterly | 22.3% | +2,168% | −25.1% |
| Aggressive — top 5, monthly | 33.7% | +9,609% | −24.4% |
| S&P 500 (buy & hold) | 14.1% | +671% | −23.8% |
CAGR is net of a realistic 10 bps-per-side trading cost (gross Classic is 24.8%). Live Yahoo Finance monthly closes, run July 2026.
The Classic setup roughly compounded at 24% a year versus 14% for the index — and did it with a smaller worst drawdown. Turnover is modest (about a quarter of the book changes each month), so trading costs barely dent it: even at a pessimistic 35 bps per side, Classic still returns 22.2% a year.
It survived every market — including 2022
A win over one long stretch can hide a blow-up. So we split the 15 years into four separate periods. Momentum beat the S&P in every one:
| Period | Momentum | S&P 500 |
|---|---|---|
| 2011–2014 | +102% | +75% |
| 2014–2018 | +131% | +44% |
| 2018–2022 | +86% | +55% |
| 2022–2026 | +250% | +99% |
The 2018–2022 window contains both the 2020 crash and the 2022 bear market, and momentum still came out ahead — because it rotated. When tech rolled over in 2022, the rule quietly moved into energy, which was the year's strongest sector. It's a strategy that follows leadership wherever it goes.
Why this one works when the others didn't
Buying the dip and the golden cross are both "get in, get out" rules — they spend most of their time in cash, missing the market's lumpy best days. Momentum is the opposite: it stays fully invested, just in the strongest names. Trends persist longer than they logically should, so riding the leaders and shedding the laggards compounds faster than owning everything. It's the best-documented anomaly in finance, and it showed up cleanly in our own data.
The honest catch (read this part twice)
This is real, but it is not free money.
- Taxes will hurt. A book that turns over monthly throws off short-term capital gains. In a taxable account that's a serious drag — momentum really shines in a tax-sheltered account (an IRA or its equivalent).
- Survivorship flatters it. Our universe is today's large caps, so the early years get a tailwind from only holding names that survived. Here's the honest control: equal-weighting all 59 names — same survivorship bias, no momentum selection — returned 19% a year. So the fair "momentum edge" is 24% versus that 19%, and momentum beat the equal-weight book in three of the four periods above (it trailed slightly in 2011–2014). Real, but smaller than the headline gap to the S&P.
- Momentum crashes. It has suffered rare, violent reversals (2009 was brutal); a run of them can erase years of edge. Our window happened not to contain one that severe.
We even tested a popular "safety" tweak — go fully to cash whenever the S&P is below its long-term trend. It made things worse (19% a year, deeper drawdown). Sometimes the extra rule just costs you.
See it live — and the names it holds today
The best part: this isn't a static backtest you have to trust. We run all three setups every night, so you can see the current equity curves, the per-era table, and — the fun bit — exactly which stocks each setup holds right now, updated monthly.
See the live momentum setups →
Want to test a rule on one specific stock instead? That's the backtester. Want to track momentum against your own real portfolio? That's what Pulse is for.
Investing Paths builds honest, free tools for retail investors. Backtested results are hypothetical, use monthly closes, ignore taxes above the modelled trading cost, and carry survivorship bias; past results do not predict future returns. Nothing here is investment advice.