Context:
Many academic studies have shown that momentum investing can generate high returns that comfortably beat the benchmark indices.
Relevance:
GS III: Indian Economy
Momentum Investing: Key Characteristics
Definition:
- Momentum investing involves purchasing assets, like stocks or bonds, that exhibit a consistent uptrend in prices while divesting assets experiencing a downtrend.
Strategy Basis:
- Investors following this strategy anticipate that assets with current upward momentum will continue their ascent, enabling profitable selling in the future.
Trend Recognition:
- Rooted in the belief that discernible trends exist in asset prices and that these trends have a tendency to persist over time.
Profit Objective:
- Investors aim to capitalize on the continuation of established trends, either upward or downward, to generate substantial profits.
Analytical Approach:
- Momentum investors typically do not conduct in-depth analyses of fundamental or intrinsic asset values. Decisions are primarily based on observable price trends.
Buy High, Sell Higher:
- This strategy contradicts the conventional advice of “buy low, sell high.” Momentum investors follow a “buy high, sell higher” approach.
Philosophical Contrast:
- Highlights a departure from traditional investment wisdom, emphasizing the exploitation of existing price trends rather than seeking undervalued assets.
-Source: The Hindu
