What Momentum Actually Is — And Why It Works

The most mocked idea in investing is also one of the most empirically supported. Buying stocks because they have recently gone up — and selling stocks because they have recently gone down — sounds like pure speculation. Decades of academic research and real-world performance data say otherwise.

Why This Matters

For most of investing history, momentum was dismissed as unsophisticated. Serious investors, in the Graham-Buffett tradition, bought beaten-down stocks and waited for the market to recognise their value. Buying strength rather than weakness looked, philosophically, like doing the opposite of everything the value tradition had established. Richard Driehaus changed this conversation. A practitioner, not an academic, he built his investment approach around a simple but heretical premise: "buy high, sell higher." His results — consistently exceptional over decades of managing capital — forced the investment community to take momentum seriously as a systematic investment strategy. The academic community caught up in the 1990s, when Jegadeesh and Titman published their landmark research showing that stocks that had outperformed over the previous 3–12 months continued to outperform over the following 3–12 months, on average, at rates that could not be explained by risk alone. This "momentum effect" has since been replicated across multiple asset classes, time periods, and geographies. It is one of the most robust documented anomalies in financial markets.