No. of Recommendations: 9
AI summary: The strategy analyzed selects stocks from the Nasdaq-100 based on intermediate-term price momentum and holds them for short periods. The most robust configuration ranks stocks by approximately 9–10 month returns, buys the top 10 names, re-balances monthly, and shifts to cash when the S&P 500 falls below its 325-day moving average. Using historical data beginning in October 1993 and including modest trading friction, this approach historically produced approximately 29–30% annualized returns with Sharpe ratios near 1.0, substantially higher than broad equity indices over the same period. Importantly, roughly three-quarters of rolling one-year periods were profitable, meaning the strategy would have felt positive to investors in most one-year evaluation windows.
Extensive robustness tests suggest the results are not driven by a few exceptional trades or by the largest technology stocks. Performance remains strong after removing the biggest individual winners, excluding the “Magnificent 7,” delaying trade execution several days, or forcing the strategy away from the largest Nasdaq100 constituents. Diversified portfolios holding 5–10 stocks appear especially stable: they maintain strong returns while spreading gains across many positions rather than relying on a single extraordinary stock. In contrast, the most concentrated variant (holding only the top-ranked stock) produces higher theoretical growth but is far more dependent on rare outlier winners and is psychologically harder to follow.
The simple market-timing filter—investing only when the S&P 500 is above its long-term trend—meaningfully improves behavior in major bear markets such as the 2000–2002 dot-com collapse, the 2008 financial crisis, and the 2022 decline, reducing draw-downs and accelerating recovery. While it cannot eliminate losses during short, sharp corrections, it substantially improves worst-case outcomes over full market cycles. Taken together, the tests suggest that a diversified Nasdaq-100 momentum portfolio combined with a broad market trend filter captures a persistent momentum effect rather than merely riding a handful of mega-cap winners, producing unusually strong historical growth with relatively simple rules.
