Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Momentum investing drags you down
Fri, 10 Dec Pre-Open

In very simple words momentum investing means investing in the current trend. So if a particular stock has been going up in the past few days /weeks, the investor buys the stock. And if a particular stock has been going down in the past few days/ weeks, the investor sells the stock. The basic idea is that the current trend will continue. Sounds simple and correct. Just buy a stock that is seeing its price go up and sell it when it starts to come down. It is quick and simple. Why go through the financials? Why go though fundamentals? At the end of it, it's all about the stock price. So once a trend has been established why bother to study more. It would just waste precious time. Why wait for years to get wealthy when one can become wealthy in a matter of a few days.

And the best part about this type of investing is that it is exciting. When investors discuss this with their friends, they too get excited. Talks like, "buy stock X, price will double in 10 days", or "I bought stock Y. Prices have gone up 30% in 5 days". These are exciting statements. They would give anyone an adrenaline rush.

But do these stocks actually represent great performance? In recent times, a lot of small cap and mid cap stocks were being touted by brokers as ‘multibaggers'. These were stocks that were running up like crazy in matter of days and weeks. No one cared if they were financially sound. Innocent investors were buying them just because their peers were who were in turn buying them just because their peers were. In short, everyone was following the momentum. But the recent bad news of SEBI cracking down the erring promoters for indulging in insider trading practices, has reversed this momentum. Some of these stocks have crashed down by almost 50%. All the gains made earlier were wiped out in a time period that was so short that investors could not even recover their principal investments.

This is exactly what happens in momentum investing. When the going is good, there are gains. But when the going gets bad, the pain is way more severe. So it is important to look at a company's fundamentals before investing in a stock. It may translate to slow returns but it is good to remember that the slow and steady always wins the race.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Momentum investing drags you down". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Agora Research Private Limited.

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Agora Research Private Limited (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.