Viva Volatility! Momentum Investing is High Stakes and High Returns

Buying high and selling higher, and selling at the first sign of weakness are the cornerstones of Momentum Investing. It is not for everyone, but people who are sensitive to herd behavior and who have the time and skills to watch stocks like a hawk can make tons of money. It is a seductive strategy that flies in the face of “buy low and sell high.�

Buying high and selling higher, and selling at the first sign of weakness are the cornerstones of Momentum Investing.  It is not for everyone, but people who are sensitive to herd behavior and who have the time and skills to watch stocks like a hawk can make tons of money.  It is a seductive strategy that flies in the face of “buy low and sell high.”

 

Unlike buy-low-sell-high, it allows investors to make money quickly and not sit around waiting for the stocks to appreciate over time.  It is all about taking short-term positions on stocks as they move up and selling them before they go down.  Sound simple, but it isn’t.  The objective is to build on profits and move capital from one position to another – trying to catch the upward momentum.  It can be very profitable, but it is difficult for the individual investor because of fees and the time lag in the flow of information (people in the business get the information before the individual investor). 

 

Nonetheless, with low discount brokerage fees and the speed with which information now flows on the internet, the individual investor who has the time – and most importantly has an appreciation for group behavior – now can participate in this strategy and now has the opportunity to share in staggering returns if successful.  It is worth a try, but it works best when the market in moving up.  So wait a day or two, and then jump in.

 

There is a good piece on this in Forbes.com

 

http://www.forbes.com/finance/2007/07/25/momentum-volatility-timing-pf-education-in_ab_0725investopedia_inl.html

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Comments

  • Anonymous

    July 28, 2007

    You can make a lot of money just by following market momentum if they get it right, but by the same token, if you get it wrong, you can get it really wrong. If you had been short the last two days, you would have been riding it right. With the benefit of hindsight, it looks as though it was pretty obvious, but the market can always go the other way very fast and burn you hard.

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