Such strategies lead investors to typically buy the winning stocks over the trailing year and sell the losers. This year the pattern is likely to be particularly strong, for two reasons.
As Sias put it to me: This year there are “lots of gains to offset and lots of stocks to offset those gains.” Regardless of the individual reasons this year, the long-run consequences are evident from the accompanying chart — at the top of this column — of momentum’s monthly pattern. This, in turn, suggests that, if you’re inclined to jump in and out of momentum strategies according to these seasonal tendencies, you should get out before the end of the year. However, you should also know that, given transaction costs and taxes, it might behoove you to simply stick with such strategies through thick and thin.