Momentum Investing

Simply put, momentum investing means buying the strongest-performing stocks—the ones that are already going up—and selling them as soon as they lose steam.

Here’s an easy analogy:

Rakesh goes to a horse race and wants to bet on the winner. As the race starts, horse number 3 takes the lead. Rakesh bets on it. But halfway through, horse number 3 starts slowing down and horse number 4 surges ahead.

Without hesitation, Rakesh pulls his money from horse 3 and places it on horse 4. Horse 4 goes on to win, and Rakesh walks away with big money.

What can we learn from this?

1. Rakesh bet after seeing who was winning, not before.

2. He moved his money once he realized his original pick was falling behind.

That’s the essence of momentum investing.

You ride the winners and drop the losers. You keep holding what’s performing, and ditch what’s not—replacing it with stronger picks.

Also, notice what Rakesh didn’t care about: the horse’s color, height, health, or backstory. All that mattered was who was in the lead.

Similarly, momentum investing doesn’t obsess over a stock’s fundamentals—like ROE, ROCE, PAT, PE ratio, or PB ratio. While some strategies may mix in those metrics, the momentum strategy I use (and share with you) is purely based on performance. No fundamentals.

Now that you know how momentum investing works, make sure you check out what stocks my momentum strategy picks up every Monday.

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