Can Momentum Investing make you money?

Maybe

If you get in the right stock in the right industry. And you get in early enough to sell at a profit! Despite the fact that the market has fallen on hard times Momentum Investing still exists within specific industries. Industries that are receiving a great deal of media attention based on investor driven momentum which then feeds on the media attention until it most likely burns itself out.

Where do Momentum Stocks come from?

Momentum in any stock, industry, or sector is driven by a combination of factors but one thing and only one thing creates actual momentum and that is simply a matter of supply and demand. When market orders to purchase any stock handily outweigh sell orders that stock will rise rapidly. When whole groups of stocks rise in this fashion they are being subjected to Momentum Investing. Even in a Bear Market stocks can and do rise rapidly. Momentum Investing can be a great way to capitalize on this phenomenon for savvy investors. At the Bull Sector you will find lists are being created as soon as we notice momentum in specific industries.

Examples?

Earlier this year we saw the California Energy Crisis and rising energy prices drive not only Oil Stocks higher but also those stocks associated with Alternative Energy and Fuel Cells. Oil prices began to decline, as we expected they would do, and Fuel Cell Stocks lost investor focus. Not long ago Stem Cell Stocks were an investor favorite as we awaited President Bush's decision on funding. Once that decision was made the stocks fell back to earth. Today the war against terrorism is focusing attention on the stocks on our growing Anti-Terrorism and Anti Bio-warfare Lists. Like other stocks in the former Momentum Stocks groups these stocks will only continue to move higher if fundamentals show long-term improvement. This is still a Bear Market waiting for a reason to become a Bull Market again. We hope that our readers are taking advantage of our lists by anticipating moves in stocks rather than just reacting when the moves come.

Although Momentum Investing in general has fallen out of vogue we believe it will return again when strength returns to technology stocks in general. It is still important today to find stocks that have the ability to capture other investors imaginations with new exciting technologies, rapid revenue growth and hopefully rapid earnings growth. We hope you will find these kinds of stocks using comparative analysis while looking through our Bull Sector Lists. Momentum investing certainly can be seen as a sector wide phenomenon. We believe momentum investing will definitely return when interest rate declines lead to a new Bull Market. Read on to discover some of the rules put out by Technology Investor Magazine before the bubble burst in 2000. Please keep in mind that these rules do not apply today. Technology Investor Magazine even began to recommend shorting of certain technology stocks this year. So far that tactic has proven to be as good a method to make money in this market as any. Still it would should be interesting to look back on Momentum Investing when Momentum Investing was KING.

The Momentum in Momentum Stocks - February, 2000

Momentum investing is king today. Today's winner's keep going up. Today's losers get pummeled. Do not assume because today's technology stock valuations are absurd they won't get more absurd. Momentum investing actually has logic.
1. The stock must have a great story of great potential demand. You and your friends will get high-speed access to the Internet. Bingo, DSL and Cable Modem stocks. The Internet is revolutionizing business. Bingo, B2B stocks. The Internet is being hacked. Bingo, security software stocks. Kids are carrying cell phones. Bingo, wireless stocks.
2. Companies must have products to change the way the world works. There must be a mystique to the technology - enough so a few gurus can emerge to explain it to us techno-ignoramuses. The gurus should speak profound and semi-comprehensible jargon. All the great books that changed the world were open to being misinterpreted.
3. There must be an industry. One company won't do. One company is a nut case. Two is a movement. Three is an industry. Bingo, Wall Street analysts, learned conferences and appearances on CNBC. And buzz. Lots of buzz.
4. When the buzz gets going all the stocks in that industry get buzzed and go up together. Momentum doesn't discriminate based on management, cash flow or EPS.
5. Forget everything you learned about valuing stocks. Traditional ways of valuating stocks don't work for today's hot stocks. Current financial results tell you nothing about the company's potential. Predicting sales for the next five years (or even the next five minutes) is impossible. Estimating earnings in 2003? Most analysts won't get this year right. Predicting what someone else desperate for technology might pay for companies is insane. Or maybe not?
6. Wall Street can't pick momentum stocks. Wall Street reports are organized by earnings, cash flows, assets and hard logic. Momentum stocks are emotion. No one can write logically about emotion. You've just got to feel it.
7. Smaller is better. Momentum rallies aren't caused by explosive financial results. They're all about supply and demand of stock. There must be more buyers than sellers. Small companies have fewer shares. Small float is critical. Low supply and great emotion gives you $20 a day price leaps.
Three lessons to momentum investing:
1. Let the stock run. Don't sell the stock after it goes up 50%. The biggest mistake everyone makes is selling too early. Don't listen to your broker. He'll usually sell too early. It's met his analyst's "target". Don't let lofty prices scare you. Enjoy the ride.
2. Watch like a hawk for disappointments. If the company exceeds Wall Street's estimates (of revenues or losses) by the requisite tiny amount, the stock will keep soaring. If it misses by even the tiniest amount, investors will pound the stock into the ground. Get out when the going gets rough.
3. Constantly search for new momentums. Biotech stocks were dead for five years. They exploded last November. The media discovered the Human Genome Project. Bingo, the stocks shot up.
Today Technology Investor Magazine is about Momentum Investing - because that's what works today. Enjoy our third issue, continuing our Voyage of Discovery.

Harry Newton

Harry_Newton@TechnologyInvestor.com


More Momentum Stock Sectors.

New stocks and new stock lists are being added to the Bull Sector site virtually every single day. Momentum investing certainly has been a terrific method of investing in individual stocks lately but it is not the only successful methodology. Sticking with that theme however there are a few other micro sectors that investors might want to keep an eye on. Some to sectors to watch carefully for good buys would be Fiber Optics, Fuel Cells, Superconductors and Semiconductors.

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No warranty or guarantee is given as to the completeness or thoroughness of these lists.
Please do your own due diligence.