Momentum strategies that beat the market

What “momentum” means here

This isn’t a single-stock signal — it’s relative strength. Each month we rank a fixed basket of large US companies by their return over the past year (skipping the most recent month, which tends to reverse), buy the strongest handful in equal amounts, and hold them until the next re-rank. Winners that keep winning stay in the book; laggards drop out. It’s the best-documented anomaly in finance, and it showed up cleanly in our own tests.

Why it beats buy-and-hold — and when it won’t

Trends persist longer than they “should,” so riding the strongest names and rotating out of the weak ones compounds faster than holding the index. It even survived 2022: momentum rotated out of tech and into energy while the S&P fell. But momentum has real teeth — it suffers rare, violent reversals (2009 was brutal), and a run of them can wipe out years of edge. This is a return engine with a rough ride, not a free lunch.

The honest catch

The headline returns are before taxes — a monthly-rebalanced book generates short-term gains, so this really only shines in a tax-sheltered account. The universe is today’slarge caps, which flatters the early years (survivorship); the equal-weight line on the chart shares that bias, so the gap between momentum and equal-weight is the part that’s genuinely selection, not luck. Results use monthly closes, ignore dividends-as-cash, and past performance predicts nothing. Educational, not investment advice.

Want to test a rule on one specific stock instead? That’s the backtester. Want to run this against your own portfolio? That’s what Pulse is for.