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Can
Momentum Investing make you money?
Maybe
If you
get in the right stock in the right industry. And you get
in early enough to sell at a profit! Despite the fact that
the market has fallen on hard times Momentum Investing still
exists within specific industries. Industries that are receiving
a great deal of media attention based on investor driven
momentum which then feeds on the media attention until it
most likely burns itself out.
Where
do Momentum Stocks come from?
Momentum
in any stock, industry, or sector is driven by a combination
of factors but one thing and only one thing creates
actual momentum and that is simply a matter of supply and
demand. When market orders to purchase any stock handily
outweigh sell orders that stock will rise rapidly. When
whole groups of stocks rise in this fashion they are being
subjected to Momentum Investing. Even in a Bear Market stocks
can and do rise rapidly. Momentum Investing can be a great
way to capitalize on this phenomenon for savvy investors.
At the Bull Sector you will find lists are being created
as soon as we notice momentum in specific industries.
Examples?
Earlier
this year we saw the California Energy Crisis and rising
energy prices drive not only Oil
Stocks higher but also those stocks associated with
Alternative
Energy and Fuel Cells. Oil prices began to decline,
as we expected they would do, and Fuel
Cell Stocks lost investor focus. Not long ago Stem
Cell Stocks were an investor favorite as we awaited
President Bush's decision on funding. Once that decision
was made the stocks fell back to earth. Today the war against
terrorism is focusing attention on the stocks on our growing
Anti-Terrorism
and Anti
Bio-warfare Lists. Like other stocks in the former Momentum
Stocks groups these stocks will only continue to move higher
if fundamentals show long-term improvement. This is still
a Bear Market waiting for a reason to become a Bull Market
again. We hope that our readers are taking advantage of
our lists by anticipating moves in stocks rather than just
reacting when the moves come.
Although
Momentum Investing in general has fallen out of vogue we
believe it will return again when strength returns to technology
stocks in general. It is still important today to find stocks
that have the ability to capture other investors imaginations
with new exciting technologies, rapid revenue growth and
hopefully rapid earnings growth. We hope you will find these
kinds of stocks using comparative analysis while looking
through our Bull Sector Lists.
Momentum investing certainly can be seen as a sector wide
phenomenon. We believe momentum investing will definitely
return when interest rate declines lead to a new Bull Market.
Read on to discover some of the rules put out by Technology
Investor Magazine before the bubble burst in 2000. Please
keep in mind that these rules do not apply today. Technology
Investor Magazine even began to recommend shorting of certain
technology stocks this year. So far that tactic has proven
to be as good a method to make money in this market as any.
Still it would should be interesting to look back on Momentum
Investing when Momentum Investing was KING.
The
Momentum in Momentum Stocks - February, 2000
Momentum
investing is king today. Today's winner's keep going
up. Today's losers get pummeled. Do not assume because today's
technology stock valuations are absurd they won't get more
absurd. Momentum investing actually has logic.
1. The stock must have a great story of great potential
demand. You and your friends will get high-speed access
to the Internet. Bingo, DSL and
Cable Modem stocks. The Internet
is revolutionizing business. Bingo,
B2B stocks. The Internet is being hacked. Bingo,
security software stocks. Kids are carrying cell phones.
Bingo, wireless stocks.
2. Companies must have products to change the way the
world works. There must be a mystique to the technology
- enough so a few gurus can emerge to explain it to us techno-ignoramuses.
The gurus should speak profound and semi-comprehensible
jargon. All the great books that changed the world were
open to being misinterpreted.
3. There must be an industry. One company won't do.
One company is a nut case. Two is a movement. Three is an
industry. Bingo, Wall Street analysts, learned conferences
and appearances on CNBC. And buzz. Lots of buzz.
4. When the buzz gets going all the stocks in that industry
get buzzed and go up together. Momentum doesn't discriminate
based on management, cash flow or EPS.
5. Forget everything you learned about valuing stocks.
Traditional ways of valuating stocks don't work for today's
hot stocks. Current financial results tell you nothing about
the company's potential. Predicting sales for the next five
years (or even the next five minutes) is impossible. Estimating
earnings in 2003? Most analysts won't get this year right.
Predicting what someone else desperate for technology might
pay for companies is insane. Or maybe not?
6. Wall Street can't pick momentum stocks. Wall Street
reports are organized by earnings, cash flows, assets and
hard logic. Momentum stocks are emotion. No one can write
logically about emotion. You've just got to feel it.
7. Smaller is better. Momentum rallies aren't caused
by explosive financial results. They're all about supply
and demand of stock. There must be more buyers than sellers.
Small companies have fewer shares. Small float is critical.
Low supply and great emotion gives you $20 a day price leaps.
Three lessons to momentum investing:
1. Let the stock run. Don't sell the stock after
it goes up 50%. The biggest mistake everyone makes is selling
too early. Don't listen to your broker. He'll usually sell
too early. It's met his analyst's "target". Don't let lofty
prices scare you. Enjoy the ride.
2. Watch like a hawk for disappointments. If the
company exceeds Wall Street's estimates (of revenues or
losses) by the requisite tiny amount, the stock will keep
soaring. If it misses by even the tiniest amount, investors
will pound the stock into the ground. Get out when the going
gets rough.
3. Constantly search for new momentums.
Biotech stocks were dead for five years. They exploded
last November. The media discovered the Human Genome Project.
Bingo, the stocks shot up.
Today Technology Investor Magazine is about Momentum
Investing - because that's what works today. Enjoy our third
issue, continuing our Voyage of Discovery.
Harry
Newton
[email protected]
More
Momentum Stock Sectors.
New
stocks and new stock lists are being added to the Bull Sector
site virtually every single day. Momentum investing certainly
has been a terrific method of investing in individual stocks
lately but it is not the only successful methodology. Sticking
with that theme however there are a few other micro sectors
that investors might want to keep an eye on. Some to sectors
to watch carefully for good buys would be
Fiber Optics, Fuel Cells,
Superconductors and
Semiconductors.
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