While there are a number of specific strategies that can be considered to be momentum investing, the simple definition can be summarized as, buying stocks that have been going up and selling/shorting stocks that have been going down on the assumption that the existing trend will continue. It’s a little like being famous for being famous.
Investors should be aware that there has been a recent increase in interest in the concept of momentum investing, perhaps because of some share price actions that seem to be increasingly removed from changes in the company’s operating outlook.
Most professional investment managers tend to be focused on the strength of the overall economy and on company and industry fundamentals, such as, discounted cash flows and other company specific factors.
Investors are more likely to achieve positive investment results by building a portfolio based on investments that have the potential to provide long-term growth, rather than chasing past performance or the latest fad.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA