In this article, I want to walk you through the magic of momentum investing using a real-life example of a strategy that has been successfully implemented for over seven years. Known as the HNI wealth builder, this strategy has delivered impressive results and can serve as a valuable learning tool for investors. Please note that while I will discuss the strategy, I will not disclose the specific stocks held in the portfolio to maintain confidentiality for existing users.
At first glance, the current portfolio snapshot shows a list of 44 stocks. What immediately catches the eye is the remarkable performance of these stocks.
The top stock has experienced a staggering 258% increase, followed by seven stocks recording gains between 150% and 250%. In fact, 14 stocks in the portfolio have seen gains of over 100%, while an additional 11 have gained between 50% and 100%. This demonstrates the power of momentum investing – being able to identify stocks with upward momentum and ride the wave of their success.
Analysing the past transactions of the HNI wealth builder strategy further solidifies the effectiveness of momentum investing. Looking at the closed transactions, it is evident that many stocks have yielded substantial returns.
TANLA has been a monster yielding 811% gains followed by ALKYLAMINE and GRAPHITE clocking 462% and 411% gains respectively.
Of course, not every investment will be a winner, and there are stocks in the portfolio that have experienced losses. But the main point we would like to highlight is that the biggest losers are much smaller compared to biggest winners
However, it’s important to note that despite 54% of the transactions being losers, the average gain on winning trades outweighs the average loss. On average, winning trades have yielded a gain of 53%, while losses have been limited to an average of 11.4%. This means that even with a success rate of only 45%, the strategy still yields significant overall gains.
The results of the HNI wealth builder strategy are truly impressive. Using the compound annual growth rate (CAGR) as a measure, this strategy has achieved an outstanding 30% CAGR since 2016. This highlights the power of consistently applying a winning strategy and allowing the winners to run while cutting losses short.
The key to momentum investing lies in discipline. There is no need for rocket science or exceptional tactics. By following the simple principle of allowing winners to run and cutting losses short, investors can replicate the success of the HNI wealth builder strategy. The example serves as a powerful testament to the potential rewards of sticking to a proven strategy over the long term.
It’s essential to understand that consistently following a winning strategy can have a snowball effect on returns. The 30% CAGR achieved over seven years may seem impressive, but it is crucial to recognize the compounding effect over time.
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