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Investment Strategies
Categories
- Value Investing
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Growth Investing
|- Income Investing
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Market Capitalization
- Momentum Investing
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Technical Investing
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Buy and Hold Strategy
- Buy What You Know
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Contrarian Investing
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Turnaround Investing
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Tobin’s Q
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Responsible Investing
- ADR's
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Global Investing
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The Dow Theory
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Odd-Lot Theory
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Election Cycle Theory
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Dow Dividend Theory
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Penny Stocks
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Initial Public Offerings
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Dollar Cost Averaging
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Drips
- Risk Tolerance
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Momentum Investing
Momentum investing is a stock price timing strategy of purchasing a security
while its price movement is on an upward trend. The momentum investor waits
and looks for a bullish market, an industry that is timely, companies with
very favorable earnings releases, companies that are beating Wall Street
analysts’ earnings estimates, and companies whose earnings growth is
accelerating. They are also involved with turnaround companies that have
already hit bottom and are making solid strides in their recovery. These
investors focus on companies and stock prices where all the news is
positive. Investors are betting that the stock will beat its previous high.
If any factors affecting the company’s stock price,
performance or expectations turn negative, the investor sells immediately.
Momentum players take positions for a few days to
a year; they are not “buy and hold” investors. While this technique has been
proven to work, and many smart investors use it, they are generally
purchasing a high priced security, and are relying on future investors to
bid the price up, in order to make a profit.
Momentum investors
utilize timing techniques. Some pay little attention to the actual company
and perform limited fundamental analysis; they just follow the upward
momentum of the security. It’s not that they don’t want to do a complete
check on the company, it’s that they must move fast to buy or sell at the
right price. If they stopped to thoroughly research a company, they would
have already missed the price opportunity on the stock. I give momentum
investors a lot of credit, since they are practicing a technique that is
hard to master: timing the stock market. Momentum investors mostly deal with
price movements and leading indicators; to a lesser degree, sales, profits
and P/E ratios. Momentum investors invest in timely securities.
Today’s TV shows focuses
on momentum investing to make crazy and quick money. Some of the young
mothers in Japan are making more money trading stocks, using momentum
investing techniques, than their husbands are through their regular jobs.
Momentum investing is a profitable and popular investment/trading tool used
by many seasoned professionals.
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