momentum investing

ICM employs versions of absolute momentum investing strategies in its investment management process

momentum investingIt is important, when discussing momentum investing to define exactly what kind of momentum we are talking about. For the fundamental investor, momentum investing is a strategy based on the growth rate, or the momentum, of earnings per share of a particular company. This is often termed ‘earnings momentum investing’ and should not be confused with absolute and relative momentum investing. Inukshuk Capital Management employs versions of absolute momentum investing strategies in its investment management process.

Inukshuk Capital Management’s momentum investing philosophy is based on evidence going back more than two hundred years. It is based on price, not on fundamentals such as earnings per share or book value. It is our opinion that measuring those fundamentals is a difficult game and those in the prediction business will eventually suffer unnecessary losses due to misplaced convictions. Instead we believe price is the most important guide in investing and momentum investing is a proven strategy that captures the rewards of investing while mitigating its inherent risks.

One of the often cited first mentions of momentum investing is attributed to David Ricardo, an influential economist and successful investor, in the early 1800s, who stated two of his “golden rules” of investing were: “Cut short your losses – Let your profits run on”. It wasn’t until 1993 that the academic world formally acknowledged that momentum strategies “…generate significant positive returns.” (Jegadeesh and Titman)
This of course, was something that investors and speculators have known for hundreds of years.

Ricardo’s golden rules are a simple description of momentum investing. It’s a little more complicated in practice but the basis of the idea is straightforward – markets that have been going up tend to continue to go up and markets that are going down tend to continue to go down. So you want to own what is going up and sell what is going down. The tricky part is how you identify what is going up, when you buy, how much and when you sell.

Inukshuk Capital Management uses quantitative research and proprietary systems to determine the answers to those key momentum investing questions. We then implement those strategies to manage portfolios of exchange traded funds systematically, in our dynamic asset allocation portfolios and absolute return fund. We think this is the best way to invest in order to manage cost-effective portfolios built to maximize risk-adjusted returns.

Inukshuk Capital Management Inc. is incorporated under the laws of Canada and is registered as an Investment Fund Manager, Portfolio Manager and Exempt Market Dealer in Ontario. ICM’s office is located in Toronto, Ontario.