Momentum Investment Course
- Pick the strongest market sectors to be positioned for maximum growth.
- Be amongst the first to act during buying and selling surges.
- Never be surprised by a market correction.
- Learn to use Exchange Traded Products for extra yield.
- Outsmart your own emotions and lean to make reliable decisions.
How is your portfolio performing?
If you have invested in shares with the aim to grow the value of your share portfolio, you need to be more active in selling stocks which will drag your performance down, and buying those which will be performing strongly.
How do you do that, I hear you ask?
Stock Market Cycles vs. Sector Rotation
We have all heard about stock market cycles. The prices for just about anything in the market rise and fall continuously. They do so on a daily, weekly, or longer cycle.
We would like to point out another way that markets are "cycling". It's a bigger picture cycle:
As an economy moves through different stages of the business cycle, the different sectors and/or industries continually cycle between dominance and weakness. This shifting between dominance and weakness of sectors in time as money flows from one sector to the other is called Sector Rotation.
The performance of sectors and industries can be a factor of the stage of the business cycle, the time of year, or attributed to the fact that they are members of specific economic regions in different parts of the world, e.g. USA, Asia Pacific or Europe. Interestingly, we don't really need to know the "why" and can make good use of the cycles just by observing what specific industries have been doing in the past weeks or months.
Combining Sector Rotation with Relative Performance
At Momentum Investing we quantify the positive rotation of sectors, and rank them based on their Comparative Relative Strength. In other words, our primary focus is on those sectors which show strong relative strength when compared to the index. In addition we seek sectors whose relative strength is increasing in momentum. This means that the chosen sector(s) are capable of outperforming the "general market".
To understand why a momentum investment strategy can work, we need to accept that generally speaking stocks in the same sector tend to move together. This movement is driven by similar economic factors from which the particular industry derives its growth. A negative but good example of this is the collective decline in finance related stocks during the Global Financial Crisis due to the collapse of the sub-prime mortgage market and following credit crisis. Stocks in the same industry from specific sectors will be affected together by the over-arching industry related factors current at a specific point in time.
Why implement a Sector Rotation Strategy?
Managers of Self Managed Superannuation Funds (SMSF) or Individual Retirement Accounts (IRA), as well as self-directed investors can use sector rotation to assess which sectors and which industries hold the most potential for growth in the near term.
Once they have identified the strongest sectors and industry groups, they can then select those companies to buy which are within the strongest sectors and industry groups. This may include overseas exposure through trading a variety of Exchange Traded Funds (ETF). Such ETFs are readily available on exchanges in the USA, representing all GICS Level 1 sectors and most GICS Level 2 industry groups.
As we can observe in the table shown here, there are 11 sectors of economic activity and 24 industry groups which are the shifting focus of your investment research as sectors move from weakness to strength. At Momentum Investing we use these concepts extensively.
Sector rotation strategies require an active management role on the part of the investor, mixing a long-term investment horizon with the short-term ability in selecting dominant and growing sectors at the right time. The skill required is more than just a buy and hold approach. The manager needs to actively identify and buy sectors coming into favour (accumulation phases) and sell sectors that are showing signs of exhaustion (distribution phases).
Mentoring active managers is a role that we take great pride in at Momentum Investing!
So, all this time we have been talking about sectors, industries, and something called the GICS. Let's quickly explain what we are talking about...
The "Global Industry Classification Standard" (GICS) was developed back in 1999 to be able to classify the ever increasing number of share companies into 4 levels of categories: sectors, industry groups, industries, and finally sub-industries. Every stock on US and Australian markets is classified and coded for each of these different levels of categories.
Why is this helpful? Generally speaking, stocks in the same GICS category have the tendency to move together. So if you are able to determine that a particular industry is about to grow strongly, then you know where to look for the better stocks to buy. Although it's not quite that simple, or we didn't have to come up with a 12 Module course...
Founder, Director & Analyst
Momentum Investing provides education and software for share market investors and operates under the Australian Financial Services License (AFSL) Number 247412.
The Momentum Investing education services are aimed at coaching any level investor to a professional level. Our proprietary momentum investment methodology uses a documented specific approach to the analysis, execution and management of a stock portfolio, suitable for both Australian and US markets. Our approach brings together elements of psychology and technical & quantitative analysis. In addition students understand risk adjusted returns, calculation of time weighted returns and when and how to hedge their portfolio.
Exclusive by Paul Wise from Momentum Investing
Momentum Investment Course Outline
Understanding Your Investment Style
Financial markets are grouped into 11 economic areas of activity, as defined by the Global Industry Classification Standard (GICS). Different groupings of activity dominate the economy at different times of the business cycle. We will be analysing the GICS groupings when looking at the beginning of the analysis process. While looking for investments we want to be aware of the cognitive biases that are influencing the quality and timing of our investment decisions.
The section on cognitive biases is probably the most important section in the course, but is often given little weight by retail investors.
Rebalancing Your Portfolio in Accumulation
The first stage of an upward market move in a bull market is referred to as the "accumulation phase". This is also considered the point at which informed investors start to enter the market. All investors are looking for a well timed entry.
Investment entry may be triggered by the price pattern and volume behaviour of the underlying stock. This Module will look at the three primary patterns. The "W" pattern, the Inverted Head and Shoulders pattern, and the "V" shaped reversal pattern. To increase our confidence levels at entry, we should identify a specific pattern in the daily price chart of the stock, and enter the investment after a set of simple, yet rigorous, entry criteria are met.
Rebalancing Your Portfolio in Distribution
The ups and downs of the market tend to run in cycles. As an uptrend finishes, it is followed by a distribution phase, where stock holders sell (distribute) their stock into an overbought market. Not everyone is busy selling. There is still some optimism in the market, with people who are hoping that the uptrend will continue.
It is important to recognise distribution as it occurs, because it is at this time the market is at risk of falling. This will be the time to go to cash or hedge your portfolio. Distribution is defined by pattern and driven by volume.
Timing Investments Basis S&P500
Identifying the primary trend of the overall market is the starting point before seeking out individual investments. This section is about developing a broad overview of the market, using the S&P 500 Index.
Your decision to invest (BUY) will be triggered by the pattern and volume behaviour of the underlying stock or index. In addition we will closely examine the behaviour of the VIX index around market bottoms and how it influences your decision making.
Your decision to hedge or (SELL) will be triggered by the pattern and volume behaviour of the underlying stock or index. In addition we will closely examine the behaviour of the VIX index around market tops and how it influences your decision making.
Sector Rotation and Relative Rotation Graphs
In this module we will be looking at identifying the strongest and weakest sectors of the economy through an understanding of the architecture of a "Relative Rotation Graph". We will use this identification process to make forecasts of future strength or weakness in the 11 sectors, as we compare each sector against the benchmark index. We then use this information to construct portfolios which are forecast to equal or outperform a predefined benchmark.
Relative Rotation Applications
As we are now aware, financial markets are grouped into 11 sectors of economic activity. In this module we are going to observe the power of the top-down approach. We will be starting with sector level analysis, and then drilling down to the industry and stock level analysis, to unearth the stocks with the highest potential for growth. You will also be introduced to the potential of other asset classes and the use of Relative Rotation Graphs that may be considered part of your strategic asset allocation.
Active Portfolio Management - In Search of Alpha
We want to develop a feel for the active management of our portfolio. In the previous modules we have demonstrated in absolute performance terms that we can extract a higher level of return than a benchmark.
In this module we want to demonstrate the potential for extracting even higher levels of return by actively managing our portfolio.
USA & Australian Markets Exercise 2012
In the following module we present you with a set of exercises to build your experience before building a portfolio for real.
Relative Rotation Graphs, combined with the knowledge of when to re-balance your portfolio, are essential steps forward in developing a structured framework in which to make measured and high quality decisions. That said, knowledge is only one side of the story. The key to success is practice to build up experience. The investor who becomes an experienced practitioner of their craft is the individual who will find the most success.
USA & Australian Markets Exercise 2013
Sector rotation and a tool such as Relative Rotation Graphs, combined with the knowledge of when to re-balance your portfolio, are essential steps forward in developing a structured framework in which to make measured and high quality decisions.
We want to demonstrate the methodology is robust. We have chosen a second date range to show you that outperformance can be found any time within the business cycle. This will be the final exercise.
Building & Weighting Your Own Portfolio
You have now completed many weeks of theory and practice. Before you build your first live portfolio I want you to read the arguments for and against "How many stock should be in your portfolio".
Finally when building a portfolio the weighting of sectors should be considered. I believe to start with the correct way is to evenly weight (allocate money) between sectors. As time passes you may opt to overweight particular sectors due to their forecast strength.
Hedging Your Portfolio & Accounting for Performance
The greatest advantage of a retail investor managing a small portfolio is their ability to defensively protect capital growth by quickly adjusting their portfolio to changing market conditions. One of the best ways to protect capital growth is through hedging. Hedging falls under the banner of "rebalancing" your portfolio. Knowing when and how to hedge, takes away the fear of bear markets or being caught in a major down-draft. This module will discuss the identification of market conditions which would be most suitable to implementing a hedge, and the different instruments which can be used to negate risk in times of distribution.
Investing Using Exchange Traded Products
This module will give you a complete insight into how to invest in Volatility exchange traded products and leveraged exchange traded funds. WARNING - The following is a discussion about leveraged products. If you decide to incorporate leveraged products into your portfolio you should do so with a very small allocation of you funds (say 5%). The following content has the potential to add significant yield to your portfolio.
Our Tools of Trade
Advanced technical and quantitative features to deliver unique insights into securities analysis.
For managers of stock portfolios, Optuma offers a unique set of tools to select and manage your portfolio. For example Relative Rotation Graphs are one of the biggest breakthroughs in financial analysis in the 21st century. The most advanced version of these charts is available in Optuma software! That and lots more!
Do your own research with these
Optuma can produce any style of single security chart, Bar, Line, Candle, and Point & Figure.
Optuma gives you access to advanced charts which allow the comparison of baskets of securities. You will have access to Bubble charts, Relative Rotation Graphs, Column Charts, and Scatter Plots.
The products has all the standard technical analytical tools available: RSI, Stochastics, Moving Averages, Oscillators, MACD’s and many, many more.
Optuma offers a scanning manager that uses complex technical alerts. The software can quickly list securities which meet specific criteria. Alerts will be triggered and you will be notified either end of day or immediately if utilising a live data stream.
In addition to end of day data, Optuma can connect to a number of external data sources. eSignal and Interactive brokers are two of the most common live data providers used by Optuma clients.
Market Forecasts & Client Stories
The Benefits of Momentum Investing
Momentum strategies are centered on the observation that market participants display initial under reactions and lagged overreactions to changing market dynamics. This behavioral bias leads to the core of the momentum strategy – investment decisions are made by assuming past winners indicate future winners and past losers indicate future losers.
Why US Equity Markets Will Continue To Rally
To understand how the equities market will unfold for the rest of 2020 and into 2021 you need to understand the difference between the financial cycle and the economic cycle…
John A., Canberra
If I had not done the Momentum Investment course I would have missed out on the means to have a successful strategy to grow my portfolio like a professional fund manager.
Glenn, Sydney NSW
John, Canberra ACT
Pearl, Perth WA
Past Performance of our
Model Portfolio since 2016
Our philosopy at Momentum Investing is based on carefully selecting growth stocks. Growth stocks often represent new leadership in the equities market, and are frequently linked to new products and/or technologies, and strong consumer demand.
The model portfolio presented here is based on what we teach our students. The portfolio has produced outstanding before-tax results in the past years.
Disclaimer: These are un-audited before-tax profits of my personal account, here to represent what has been possible in the past, with no guarantees for future results.
P.S. we were not able to graphically show "112%" on the graph for the 2019 - 2020 financial year. Our apologies!