That is the title of a recent post on Eddy Elfenbein’s Crossing Wall Street blog. He has a nice reprise of the momentum data from the Ken French database. (Momentum is the academic name for the phenomenon that was known as relative strength more than 100 years before the academics re-discovered it.) His description is admirably concise:
The chart below shows the historical performance of stocks ranked by momentum decile (meaning 10% slices).
It turns out that stocks that are in motion have a very long record of continuing to stay in motion. Just to be clear, momentum is defined by performance over the 11-month period starting 12 months ago and ending one month ago.
The deciles are perfectly ranked by momentum. The portfolio with the highest momentum did the best. The second-best came in second and so on, all the way down to the worst momentum which came in last.
(click on chart to enlarge)
| Decile | Gain |
| Low | -1.58% |
| 2 | 4.73% |
| 3 | 5.85% |
| 4 | 8.09% |
| 5 | 8.46% |
| 6 | 9.38% |
| 7 | 10.68% |
| 8 | 12.35% |
| 9 | 13.11% |
| High | 16.72% |
Source: Crossing Wall Street
It’s hard to argue with data like that. It pays to stay with strong stocks over the long run.
[...] power of relative strength as a return factor has been well documented and that evidence is the reason that relative strength drives all of our investment strategies. [...]