One of the most common questions I hear from clients is: “How can I stay invested for growth but manage my downside risk??”
It’s a great question, which I asked after living through the Dot-Com bubble burst of 2000-2002 and the bear market caused by the Great Recession (2007-2009). My research led me to the best answer I could find – Momentum Investing as practiced by Gary Antonacci.
The good news is that Momentum Investing isn’t new, nor is it unproven. In fact, a century’s worth of data from global markets and academic research over the last 30 years has only confirmed its effectiveness as a strategy.
Yet for many investors the strategy is not well-understood, compared to the traditional “buy and hold” approach.
Let me explain what momentum investing is, why it matters, and who can benefit from it.
The Basics of Momentum Investing
The old axiom of investing is “buy low and sell high.” That’s easier said than done! Momentum takes a different approach: buy what’s already going up, because there is a higher probability it will continue to go up.
This isn’t about guessing, forecasting, or gut feelings. It’s based on data and years of research. Financial markets move in trends. That’s why you may have heard the phrase: “The trend is your friend”.
Trending exists in stocks, bonds, commodities, and even gold. The reasons are multi-faceted, but they are rooted in human behavior and supply and demand, which is why trends persist and why the strategy has shown value over time.
Instead of trying to predict exactly when a trend will change, momentum investors observe what’s happening, ride the trend, and then step aside when the trend weakens.
The Surfing Analogy
The way I often explain momentum investing is by using a surfing analogy.
If you are a surfer, you want to be on the biggest wave out there. If a stronger wave builds nearby, you move. If the waves subside or the surf becomes dangerous, you paddle in toward safety, waiting for the next set of waves.
Momentum investing works the same way. It’s about moving with, and taking advantage of, strength. It’s about reacting to what you see, not what you predict. Why sit in the water waiting for waves when they are breaking somewhere else nearby?
Why Momentum Matters
Conventional wisdom says that if you want to cushion the impact of stock market drops, you should add bonds. But that can create one problem while trying to address another. Bonds can reduce volatility, but, over the long-term, their returns have been much lower than stocks. What’s worse, bonds are often correlated with stocks at the worst possible time – when the market is dropping quickly.
Momentum offers a different approach. Instead of holding a diversified portfolio of investments regardless of current conditions, momentum moves between asset classes, depending on which ones are showing strength. That may mean U.S. stocks at one time, international stocks at another time, or bonds and gold when safety matters most.
By moving between trends as the data warrants, momentum investing is designed to provide less volatility and fewer large drawdowns than “buy and hold.” And growth is still the primary objective.
Who Should Consider Momentum Investing?
Momentum isn’t for everyone, but it can be especially powerful for:
- Investors who trust systematic, evidence-based strategies – Momentum doesn’t rely on forecasts—it relies on observable trends and operates under data rules for what to buy and when to buy or sell
- Those seeking a unique way to diversify – Momentum isn’t a replacement for traditional approaches—it’s a complement. Blending styles can improve resilience and performance
- People skeptical of a full commitment to a “buy and hold” strategy – if a strict buy-and-hold approach doesn’t quite fit your intuition or personality, Momentum could be a complement. Momentum offers a rules-based way to step aside, rather than enduring every market storm.
- People who want to minimize the effects of large drawdowns in their equity portfolios – this speaks directly to one of my 10 Rules of Investing – Win by Not Losing. Any mitigation of portfolio losses can have a profoundly positive effect on your long term returns, especially if you are often invested in stocks.
Offering my Clients my Favorite Version of Momentum Investing
I first discovered Momentum Investing years ago when I read Gary Antonacci’s award-winning book Dual Momentum Investing. His research showed that momentum strategies had the potential to deliver stronger returns with less risk than traditional portfolios. I applied those principles to my own accounts and saw their power firsthand.
More recently, I’ve gotten to know Gary personally, and I’m excited to bring his refined models to my clients. They can now access a momentum strategy that was once limited to hedge funds, family offices, and a select group of advisors.
Final Thought
Momentum investing isn’t about timing the market or chasing fads. It’s one of the most researched strategies in finance, rooted in both data and human behavior.
For tech professionals navigating equity compensation, career volatility, and the desire for smarter diversification, momentum investing can be a valuable way to pursue growth while managing risk.
Interested in learning more about Momentum Investing? Schedule a consultation to see how these might help in your financial life and sign up for my newsletter to gain more insights.
