Momentum investing is the go-to strategy for investors looking to benefit from ongoing trends in the market.
However, some professionals consider momentum an anomaly. They claim momentum-driven market movement is due to cognitive biases towards stocks that have performed well. This leads to more investors choosing those stocks, driving prices further upward and leaving low-return stocks in the dust. In essence, herd mentality powers the continuous increase or decrease in stock prices and makes it a self-fulfilling prophecy.
Regardless, momentum investing has its place in investing and finance. The way you take advantage of such an opportunity is the important point. One of the primary ways of looking at momentum is a stock’s price performance, like year-to-date (YTD) or 52-week return.
This post appeared on Dynamic Wealth Report.