Momentum investing: What is it and is this strategy better than value investing? An explainer

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experts often point out that investors should buy undervalued stocks and sell them later at high prices to earn gains. It is also not considered prudent to buy when the stocks are rising into over-priced territory, or to sell in panic. They are told to stay away from irrational exuberance as well as from widespread panic.

Momentum investing, on the other hand, follows a different strategy and encourages investors to invest in stocks when they are rising, and sell them when they have already peaked or started to fall. Here we explain the concept in detail. This is a principle of investing in which investors are encouraged to ride the market wave instead of making contrarian bets.

Under this, investors invest in the stocks when they are on a rise, and sell them when they are on a decline. The rational behind this is the assumption that the market would, at least for the time being, follow the current trajectory and not reverse the trend. The investing principle was made popular by Richard Driehaus, who is also known as the father of momentum investing.

According to him, one can make far more money by buying high and selling at even higher prices instead of looking for undervalued securities. 1. The principle entails buying a rising stock and selling it even higher when it has peaked or started to fall.

2. The rationale behind the principle is that in the short term, market trajectory remains constant, and a rising stock will rise for some more time, and the falling stock would continue the fall. 3.

The principle was made popular by Richard Driehaus who asserted that instead of looking for undervalued stocks, an investor should focus on buying high and selling even higher. 4. The strategy is applicable in the short term and