Stocks on the Move

221 Pages·2015·2.97 MB·English

by  Clenow, Andreas

Stocks on the Move
Beating the Market with Hedge Fund Momentum Strategies

Andreas F. Clenow
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Copyright © 2015 Andreas F. Clenow
Registered Office: Equilateral Capital Management GmbH, Talacker 50, 8001 Zurich, Switzerland
For details of editorial policies and information for how to apply for permission to reuse the copyright material in
this book please see our website at www.StocksOnTheMove.net.
The right of the author to be identified as the author of this work has been asserted in accordance with the
Copyright, Designs and Patents act 1998. All rights reserved. No part of this publication may be reproduced, stored
in a retrieval system, or transmitted, in any form by any means, electronic, mechanical, photocopying,
teleportation, recording or otherwise except as permitted by the UK Copyright, Designs and Patents Act 1998,
without the prior permission of the publisher. Doing so would make you a very naughty boy and you don’t want
that, do you.
Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and
product names used in this book are trade names, service marks, trademarks or registered trademarks of their
respective owners. The publisher is not associated with any product or vendor mentioned in this book except if
expressly stated.
Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their best efforts in
preparing this book, they make no representations or warranties with the respect to the accuracy or completeness
of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a
particular purpose. It is sold on the understanding that the publisher is not engaged in rendering professional services
and neither the publisher nor the author shall be liable for damages arising herefrom. If professional advice or
other expert assistance is required, the services of a competent professional should be sought.
ISBN: 1511466146
ISBN-13: 978-1511466141
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To my brother, Mathias

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It’s been a lot of fun writing this book and I had plenty of help from some great people. The support, inspiration,
comments and suggestions have been invaluable in completing the book. In no particular order, I’d like to especially
thank Frederick Barnard, Julian Cohen, Philippe Hänggi, Jon Boorman, Riccardo Ronco, Didier Abato, Patrick Tan,
Tom Rollinger, Erk Subasi, Kathryn Kaminksi, Raphael Rutz, Michael Bennett, Francois Lucas, Yves Balcer,
Mebane Faber, Nigol Koulajian, Greg Morris, Nitin Gupta, Nick Radge, Thomas Hackl and Larisa Sascenkova.

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On Image Quality

Kindle format isn’t optimal for detailed financial graphs. My apologies in advance in case some images are hard to
read on your screen. I’ve put all images from the book online though.

Higher quality versions of all images are available on www.StocksOnTheMove.Net

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Preface
This is an entire book about a single trading strategy which can be summarized with the simple statement ‘buy
stocks that move up’. The idea is very simple and it’s certainly not anything new. As a concept, this is old news.
What this book tries to offer is a clear and systematic way of managing a portfolio of momentum stocks.
The ideas presented here are based on my own experience as a quantitative hedge fund manager. I’ve been
managing institutional portfolios based on this concept, as well as other strategies, for the past decade or so. The
simple ideas are usually the ones that stand the test of time. That doesn’t necessarily mean that it’s simple to
implement them, but the underlying concept should preferably be very simple. In this case, it’s really simple. A
stock that has been moving up strongly for a while is likely to continue doing so a little bit longer. That’s the core
idea. The rest is details.
I wrote a book a few years ago based on another type of trading strategy that I’ve been using for many years. That
book was called Following the Trend and the entire book was about a very simple trend following strategy for the
futures market. When writing that book, I was quite sure that few would even notice it and I expected mixed
reviews at best. The main concern that I expected would be raised was that the book was essentially a 300 page
research paper. That’s absolutely valid. That’s exactly what that book was.
Much to my surprise, no one raised that concern. I didn’t hear it once. Instead, my book took off in a way that
surprised both me and my publisher. After two years my publisher tells me that I, against all odds, ended up in the
top 5% of finance book authors. It was a fun ride and I learnt a lot along the way.
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Momentum Investing
This book is about systematic equity momentum. Momentum investing is a rational way to manage your money,
as long as you’ve got a protection from bear markets in place. The problem is that it’s complicated to construct a
solid set of rules for how to pick your stocks, when to buy them, how much to buy, when to sell etc. If you like to
construct realistic simulations of your trading strategies before deploying them, which I really do recommend,
momentum strategies are very complex to model.
It’s a simple concept, but constructing a solid simulation is very difficult. The data is both expensive and difficult to
use. You need to take cash dividends, historical index membership, delisted stocks and other issues into account.
Then you need a simulation platform powerful enough to handle the vast amount of data needed. I’ve already done
that work for you. I’ll present the result to you and my analysis of it.
Of course, I’ll give you enough details so that those who do have access to the necessary tools and data can verify
my work. If I didn’t do that, I wouldn’t have much credibility. Anyone can claim anything if it can’t be verified.
What I’ll do is to present a complete set of rules for managing a stock momentum portfolio. It has performed very
well in the past and it’s very likely to continue to do so. Feel free to use it.
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Why Write a Book?
This question always comes up. Why would I write a book and reveal my super-secret methods to the world? The
question itself is based in a common misunderstanding that is often found in the retail trading community. I’m not
revealing anything that hurts me or my business. A trading methodology like this doesn’t work that way.
There are many multi-billion dollar players in the equity momentum game. They trade according to similar
principles that I outline in this book. Not the same, but similar. They have large research staff and they have
massive budgets. There’s nothing in this book that these firms don’t know or can figure out on their own. So who
should I keep these secrets from?
If a few thousand people read this book and start managing their own money according to these ideas, that’s great.
It certainly wouldn’t destroy the profitability or take away money from me. It just won’t make a difference,
considering how much money is already managed in momentum strategies.
If anything, I’m hoping that some who read this don’t have the time or patience to implement the strategy, and
instead lets my asset management firm manage their money. I’m happy to explain how everything works, but
many people still need a professional investment manager.
So why am I writing a book? First, it’s quite fun. I enjoy writing and I very much enjoyed the contact I had with
countless readers after my first book. Second, there’s nothing really to lose. No secrets to give away. Hopefully
my ideas are slightly better than what others have published, but we’re dealing in details. Third, there’s the potential
of finding new interesting clients for the actual business, asset management.
And if you thought that I write for the glorious revenues you get from book sales, you’ve obviously never written a
book.
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