My Methodology: Momentum, Concentration, and Timing

“The big money is not in the buying or the selling, but in the waiting.”

- Jesse Livermore


In this post, I want to go deep into my methodology—how I approach the markets, what I prioritize, and why I built a strategy that fits both my lifestyle and my long-term wealth goals.


The core objective is simple: maximize Internal Rate of Return (IRR). A high IRR is one of the most powerful levers in wealth building, especially when compared to the compounding effect of a consistent savings rate. [More on that here → Formula of Wealth]


While I continue to contribute to standard retirement accounts, this strategy is meant to run alongside them—not replace them. It’s built on top of a solid foundation and serves as a way to accelerate my path toward financial goals. It’s more speculative, and intentionally so. I’m not building this portfolio to pay my bills—I’m building it to chase high raw returns, even if that means accepting volatility and occasional drawdowns. [Related: Rethinking Risk; Investing,Speculation and Gambling]


I’m not a fan of day trading or short-term swing trading. These approaches come with serious opportunity costs, require constant screen time, and have highly unpredictable success rates. They demand that you monitor markets nonstop, which doesn’t align with my life or priorities. I work a regular 9–5 job, and I wanted a strategy that allows me to do just that—work, save, and invest intelligently without living in front of a trading terminal.


That’s also part of my edge: I save a meaningful portion of my income. For example, if you save $10,000 while already having $10,000 invested, you’ve essentially achieved a 100% return on capital—with no market risk. That’s hard to beat through pure trading alone.


So, with all that in mind, I designed a strategy that focuses on three key elements:


You’ll also notice that this framework pulls together some of the key edges I discussed in the post: [Understand Your Edge].



Let’s break it down.



Momentum

Momentum is one of the most well-documented and reliable phenomena in the world of investing. At its core, momentum investing is about buying assets that have recently performed well and avoiding those that have underperformed. [More on how I think about this → Understanding Your Edge]


The academic foundation for momentum is strong. In fact, Jegadeesh and Titman's 1993 study was one of the first to show that stocks with strong performance over the prior 3–12 months tend to continue outperforming in the near term. Later, Asness, Moskowitz, and Pedersen (2013) expanded the concept, showing that momentum works not only in equities but also across asset classes, countries, and sectors.


In my approach, I focus on liquid, large-cap stocks within the Nasdaq 100 (QQQ). This automatically filters for a minimum level of size, liquidity, and institutional interest, which helps reduce noise and slippage in execution.


After testing various lookback periods, I’ve found that a dual momentum filter—using both 12-month and 6-month performance—strikes the best balance. 


I used to experiment with shorter-term momentum signals, but backtesting taught me something important: holding onto big winners longer pays off. I don’t want a short-term spike in another stock to push a long-term winner out of the portfolio too early.


Unlike traders who chase momentum in real-time with tight stops and constant monitoring, I’m focused on the space between passive investing and active trading—capturing outsized returns with minimal time commitment. It’s about getting the majority of the move without obsessing over every tick. I rebalance the portfolio on a monthly basis, striking a balance between responsiveness and simplicity. This allows me to lean into strength while keeping the system easy to manage and consistent.


Concentration

As I touched on in my post regarding Risk [Rethink Risk], I don’t equate volatility with risk. Volatility is part of the game, especially when you’re aiming for meaningful outperformance. What truly matters is avoiding ruin—not smoothing every bump in the road. Concentration naturally brings more volatility, but for me, that’s a trade-off worth making.


Traditional diversification reduces idiosyncratic risk—the risk tied to a specific company—but it doesn’t eliminate market risk. During major downturns, like 2008 or the COVID crash in 2020, correlations between assets spike. Most things sell off together. So while diversification may lower portfolio volatility in calm markets, it doesn’t always save you when it matters most. [Graph: Distribution of Correlation Coefficient]


A concentrated portfolio, on the other hand, gives luck a chance to work in your favor. In strong bull markets—when the tide lifts all boats—holding high-momentum names can make a huge impact. Think of Tesla in 2020 or Nvidia in 2023/24. Owning just one or two of those in a focused portfolio can drive incredible returns—something much harder to replicate in a highly diversified basket of stocks.


I’m not afraid to hold only 3–5 stocks. My selection process begins with Nasdaq 100 components, so I'm not dipping into sketchy penny stocks or small caps with questionable fundamentals. There’s a built-in layer of quality and liquidity right from the start.

Interestingly, academic research continues to support this approach. The paper “Less Is More: A Case for Concentrated Portfolios” lays the foundation, arguing that concentrated portfolios—when built on a strong, repeatable selection process—can outperform broadly diversified strategies. It highlights that many top-performing active managers derive most of their excess returns from a small number of high-conviction positions, suggesting that over-diversification can dilute performance.

Reinforcing this, the 2012 study “Diversification versus Concentration… and the Winner is?” by Danny Yeung, Paolo Pellizzari, Ron Bird, and Sazali Abidin provides empirical evidence that concentrated portfolios consistently deliver superior risk-adjusted returns across a range of investment styles—including value, growth, and style-neutral strategies. While higher short-term volatility is a tradeoff, disciplined risk management can transform that volatility into a source of long-term alpha.

This aligns with my philosophy: I’m comfortable accepting extra swings if it gives a few standout positions the room to deliver. With a sound process, concentration isn't a weakness—it's a strategic advantage.

In addition to being concentrated, my strategy is also performance-adaptive. Just because I rebalance monthly doesn’t mean I automatically trim my winners back to equal weights. In fact, if a stock continues to show strong momentum, I allow its allocation to increase proportionally. This is very different from traditional rebalancing methods that mechanically sell outperformers and buy underperformers to maintain balance. Through my own backtesting, I found that letting strong names grow their position size—rather than capping their upside—can actually improve overall portfolio performance. This way, the strategy not only rides momentum but leans into strength, giving the best-performing names more room to contribute meaningfully to returns. It's a simple adjustment, but one that aligns perfectly with the goal of capturing big trends and amplifying them over time.


One thing to understand about concentration is that it also makes your portfolio less correlated to the general market. That’s not always easy to sit with. You might underperform during a broad rally and outperform in a pullback, which can feel counterintuitive. This can test your psychology, so it’s important to be mentally prepared for how different the ride can feel.


Timing

Ah yes—timing the market, the one thing everyone warns you not to do.


And they’re not wrong—in my long-term investment accounts, I don’t time the market at all. I just keep buying. Dollar-cost averaging into broad index funds is a great strategy for building wealth steadily over time. But the strategy I’m outlining here is different. It’s more aggressive, more concentrated, and comes with higher risk. Because of that, I believe it needs some form of protection—especially in extreme downturns like the dot-com crash in 2001 or the financial crisis in 2008.


Momentum strategies work best in bull markets. They rely on trends and follow-through. But in sharp bear markets, momentum breaks down, and concentration becomes a major liability. In those conditions, your biggest winners can turn into your biggest drawdowns—fast.


I’m not trying to pick market tops or bottoms. That’s a fool’s game. Instead, I use a simple, rules-based filter to avoid the worst market environments. My filter of choice? The 200-day moving average (200MA).


As Paul Tudor Jones famously said, 


“My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: ‘How do I keep from losing everything?’ If you use the 200-day moving average rule, then you get out. ” 


While that might sound dramatic, the logic is simple: when the market is trending below its 200MA, odds of further downside increase. It’s not perfect, but it’s a reasonable proxy for long-term trend direction.

This kind of filter isn’t ideal for broad index investing—you’ll often end up selling low and buying back in at higher prices. But for a high-risk, high-reward strategy like mine, the 200MA does something far more valuable:


Drawdowns will still happen. Nothing eliminates risk. But this timing filter helps me avoid the worst stretches, and when combined with momentum and concentration, it helps build a system that can survive—and thrive—over time.


Combining It All: The Strategy


What I’ve built is a strategy that leverages multiple types of edge, especially those available to retail investors.


[More on this → Understand Your Edge]


The strategy is simple in structure, but powerful in what it targets. It combines:


I run this system once per month, rebalancing the portfolio on the first trading day. That’s it. There’s no daily screen-watching, no breaking news alerts, no chasing headlines. The entire process takes about 10 minutes per month, which allows me to stay focused on my career and life while still putting capital to work in a strategic way.


And despite the simplicity and low time commitment, the strategy still holds the potential for massive outperformance—especially during strong bull markets where momentum and concentration really shine.


Below, you can see a backtesting result that illustrates how the strategy behaves in different market conditions. These aren’t predictions—they’re simply a way to validate that the rules and structure behind the system have historically held up and delivered meaningful performance.