Should You Hop On The Momentum Stock Ride?

Herb Greenberg, of Pacific Square Research, discusses whether investors should take a closer look at momentum stocks. A momentum stock is a system of buying stocks that have had high returns over the past 3 to 12 months and to sell the stocks that have had poor returns over the same amount of time period. Greenberg discusses about how analysts take a look at each stock individually in order to make a proper assessment of whether they think they will make money.

If the research they do on the fundamentals, the numbers and what is going on in the field does not reflect reality and the risk that they see, an investor might be disappointed in a buying decision they make. An example of this is Tesla, whose stock has gone up despite what the realistic numbers might suggest. However, one of its competitors GM, suggests that these numbers could indicate that the stock will top out soon. Stocks like this might be moving up higher and higher, but will eventually top out and end up coming down in a vacuum.

The lure of these stocks is that some people make a lot of money on them because they get out at the right time. People don’t like to miss “the next big thing”. However, not all stocks will end up like Amazon and surpass everyone’s expectations. The bottom line is that getting back to the fundamentals and doing the proper research is very important.

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7 years ago
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