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Hit the Waves When Surf's Up: 4 Momentum Stocks for Q4

We are all surfers in search of that perfect wave but it keeps eluding us. One rides a wave on the hope that it is the best the ocean has to offer and that it will carry you all the way to shore.

Similarly, momentum investors try to find the perfect stock to ride on the highs. The momentum investment strategy assumes that stocks that have performed well in the past will hold onto that impetus and ensure a smooth ride into the future as well. It also believes that the low-performing stocks have a tendency to be true to their name. Basically, it means that trends exist and they persist.

As such, momentum stocks tend to be the high-performing ones that have delivered gains in the past and continue to hold promise.

It is true that finding a momentum stock is a much easy task in a raging bull market but rough tides often have more thrills in the offing. The challenge is to sail on the crest of one wave and jump onto the next before it crashes. Momentum investing can be profitable but timing is of utmost importance here.

However, nothing comes easily in life. Momentum investing generally involves more risk as it deals in high-return stocks. Some investors are also of the opinion that past performance does not guarantee future growth. Even Warren Buffet had once said, “The investor of today does not profit from yesterday's growth.”

Is momentum investing risky? Yes. Should you avoid this strategy then? No. Momentum investment is not necessarily for everyone but cautious investments are likely to deliver desired results. Betting on stocks just based on their price movement would be foolhardy. But when the filter of fundamentals is added to this, the risk level is somewhat checked.

Finding the Right Wave

There is no perfect way to ride a wave. But...