Include - Momentum Stocks - To Boost Portfolio Returns

Momentum investing strategy is touted by some to be the best investing strategy ever. Yogesh Supekar discusses the strategy in detail and tests whether the strategy indeed helps achieving alpha while Karan Bhojwani comes up with couple of stock ideas based on this unique strategy

- Yogesh Supekar

Buy low and sell high is the mantra that we have been taught by experts in the stock market – something that we have been chanting and practicing regularly in order to make profits in the market. While this is an ideal strategy to make profits there are some who believe in ‘buying high and selling higher’ strategy. Investment professionals call it ‘momentum investing’. Momentum investing is a popular investing strategy adopted by investors and traders and there is enough evidence available that suggests market-beating returns are possible to achieve by adopting this strategy that bets on trending stocks.

Defining Momentum Investing

Momentum investing strategy is different in a way that it believes in ‘buy high sell higher’ strategy, thus contradicting the much popular strategy of ‘buy low and sell high’. Richard Driehaus is one of the earliest proponents of the momentum investing strategy who successfully adopted this strategy to run his funds. His investment philosophy was always based on the belief that more money could be made by buying high and selling higher rather than ‘buying underpriced stocks and waiting for the market to re-evaluate them.

Driehaus successfully explored options of selling the losers and letting the winners ride while re-investing the money from the losers in other companies that showed promise and are trending. The techniques used by Driehaus slowly but surely became the basics of what is now called momentum investing. Driehaus believed strong earnings surprises, upward earnings revisions, and both accelerating and sustained earnings growth is what pushes the stock prices higher.