One definition of Momentum Investing is the buying of stocks that have had good returns over a period of time (for example: three to twelve months). Conversely, it can mean selling stocks that have had poor returns over the same period.
It is of interest that Warren Buffett does have much faith in such short-termism. That should flag up a BIG warning sign to the rest of us.
It has also been suggested that a lot of so-called success using this technique is down to nothing more than seasonal effects.
Sure, a lot of investors will claim high success rates using this strategy but it is with a high risk. Also known as - speculating.
Speculating with your retirement nest egg is not recommended.
However, risk can be managed and Momentum Investing is a technique that can be managed very well if dealt with conservatively.
A very simple way to describe Momentum Investing is to take a look at at a major index, say the FTSE-100 index, and take note of how it has fared over the previous three to six months.
What stocks were the best performing?
Buy the top five or six stocks and review again in three to six months.
Which stocks are now the leading five or six? If they have changed from those previously then sell those and buy the ones that have replaced them.
Repeat this process every three to six months. Or, as they say, rinse and repeat.
Momentum Investing is reported as being a fairly new Stock Trading technique but in fact has been around for quite some time.
Sounds great in theory, but what about in practice?
It's easy to see it being effective in a rising market. But what about in any market?
Furthermore, it requires no more investment skill than sticking a pin in the financial section of a newspaper. It boils down to trading mechanically.
That again begs the question - does it work?
Apparently it does. But not always.
If we put our Warren Buffett hat on, we would not touch it with a bargepole.
Warren Buffett does not like losing money. It is his number one rule. Do not lose money (His number two rule is: Don't forget Rule #1).
It is not surprising that there are funds that are dedicated to Momentum Investing.
If you have read about Exchange Traded Products on this website you will know what that means. There is an Exchange Traded Fund (ETF) for almost anything, and the market for ETFs is still growing.
If you want to keep track of the FTSE-100 Index best performing shares on your own account it might prove difficult. However, times have moved on.
Such informatioin is readily available online.
Go to Google and search for "best performing FTSE-100 stocks" or something similar. You will get a good selection to choose from. Most with near real-time data.
And, as mentioned above, a good UK based ETP would take all the hassle out of doing it yourself. Again, go to your favourite search engine and search for: "Momentum Exchange Traded Productss" or something similar.
Like any other sector or category, there will be a good selection from which to choose from, for example: the iShares USA Momentum ETF (LSE ticker: IUMF) is UK based and there is also: the iShares Edge MSCI World Momentum ETF (LSE ticker: IWFM).
There is also a European Momentum ETP: the iShares Edge MSCI Europe Momentum ETP (LSE ticker: IEFM)
iShares seems to be the most popular ETP provider, it is part of the Black Rock Group.
As always, there are plenty of books available if you are interested. And you should be interested in Momentum Investing, it is one of the three most recommended strategies.
Sadly, it is not one of Warren Buffett's.
If you want to get involved then go into it deeply enough to know what you are doing. If Warren Buffett says: "Be cautious" then take heed.
For our strategy, we like it, but with a good sprinkling of safety. We don't like stupidity tax anymore than the next man.
Momentum Explained - Volume 1 by Martin Pring
This resource is another smash hit from Martin Pring. It is not just a book. It is a book, a workbook, and a CD-ROM (6 hours) all rolled into one.
Momentum is a popular tool for spotting trends and turning points and the author uses it to good effect for both equities and index trading.
The CD-ROM makes this resource different from all the rest giving the reader some hands-on interactive experience.
Click the link below to reserve your copy:
Momentum Explained - Volume 2 by Martin Pring
Martin Pring's Volum 2 on Mometum Investing is the sixth book in a series by him.
Every one being accompanied with a CD-ROM for interaction. This one being no exception again.
This volume covering the concept of relative strength finding low-risk buying opportunities. Finally, the book concludes with a practical guide to rotating industrial groups.
Order your copy by clicking the link below:
Momentum Indicators by Martin Pring
Martin Pring likes the use of interaction with his books and this one is no exception including, as he does with most of his resources, an interactive CD-ROM.
The book is dividedinto two parts - Part 1 covers what he would call the basics and in Part 2 he introduces 25 powerful oscillators explaining how each can be used to improve trading accuracy.
Just click below to reserve your copy:
How To Make Money in Stocks by William J. O'Neil
In this circa 450 page 'box of tricks' William O'Neill has made a study of stock market winners from 1880 thru 2009.
Surely, over 2 million private investors who have read this book can't be wrong.
In this volume he explains his CAN SLIM system of investing, a tried and tested seven step process of reducing risk and maximising gains.
The book also outlines:
To order yourself a copy, simply click the link below:
The ETF Book by Richard A. Ferri
Since ETFs were first introduced to the markets in 1993, they have grown exponenitally.
This book, by the veteran financial guru Richard Ferris has been up-dated several times in order to keep up with the ever changing and expanding world of Exchange Traded Funds.
New jargon has emerged as a result. The term Exchange Traded Product, or ETP, has become popular as ETPs are avaialbe in their hundreds on such diverse vehicles as commodities, stocks, indices, currencies, sectors, momentum, and many, many others. And more to come.
This resource is divided into four parts and addresses everything from basics through to portfolio management.
Of all the resources available on the subject of Exchange Traded Products, his is the Bible.
Click below to reserve your copy:
The Ultimate ETF Guidebook by David Stevenson nd David Tuckwell
Exchange Traded Funds (ETFs) or Exchange Traded Products (ETPs) have revolutionised investing as we all knew it.
They are an ideal vehicle for those that want to run their own portfolios but do not have the time to do it themselves.
This resource not only covers the basics of ETF investing but goes into how portfolios can be constructed. In fact, the final section of the book details a series of model ETF portfolios and rounds it all off with the "Top 101" - a selection, by the authors, of what they think are the top ETFs in all categories.
To sum up - a very informative resource.
Get your copy now by clicking the link below:
Of course, a lot of money has been, and still will be, made with Momentum Investing techniques. However, such techniques are not recommended for investments within a Self Invested Personal Pension - for the ordinary ivestor.
It is too risky.
But, if you have made "substantial" profits elsewhere and fancy getting your feet wet, then you could invest, say, 10% of any profits, but an eagle eye should be kept such an investment.
The strategies we like for Retirement Investing are Value Investing (80% of your portfolio at least) and Growth Investing (10-20%). We err on the side of 100% Value Investing. But there are exceptions to everything (in extreme cases).
Our thoughts are that if you are hell-bent on having Momentum Investing in your retirement investing portfolio then opt for a suitable ETF in order to spread the risk.
Divide your Retirement Investing in such a case into 70% Value Investing, 20% Growth Investing, and 10% Momentum Investing.
And, of course, a lot will depend on how the market is reacting.