A simple investment strategy that assumes price will continue any strong current trends.... more on: Momentum Investing
A momentum investor is an investor who buys a security with an accelerating price; i.e. an investor who buys into a rapidly increasing price. Momentum investors fall under an investment style called growth investing; a style which can be contrasted with value investing, where the investor is looking for undervalued stocks.
An investment style that is currently popular among investors. It involves targeting companies with rapidly growing earnings - ie a history of positive quarterly earning surprises. The strategy inevitably involves buying stocks with extremely high P/E ratios and carries a great deal of risk. Momentum investing is favored by aggressive managers of aggressive growth and capital appreciation mutual funds.
Momentum investing is essentially the opposite of contrarian investing. A momentum investor focuses on stocks that are rising in price, and avoids stocks that are falling in price or that are perceived to be undervalued. The logic is that when a pattern of growth has been established, the growth will continue.
Momentum investing is a system of buying stocks or other equities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period. It has been reported that this strategy yields average returns of 1% per month for the following 3-12 months (Jegadeesh and Titman).