A momentum investor likes to invest only when there's either high relative strength in the stock, or when the underlying business has been showing positive financial performance.
Momentum and inertia are terms from physics. A body at rest will remain at rest; a body in motion will remain in motion until acted on by another force.
Momentum investing borrows from that idea. A stock whose price is rising will continue rising. Hence, momentum investors often pick their stocks from the new high list. They differ from growth investors, in that growth investors believe that stock price follows earnings. They believe a stock can become overvalued when its share price far exceeds projected earnings growth. Conversely, momentum investors believe a stock price will continue to rise without limit.
Related Fool Articles
Related Community Blogs
Recent Mentions on Fool.com
- Should Investors Steer Clear of Arista Networks?
- T-Mobile Offers Sprint Users $200 To Switch
- McDonald's Is Finally Fixing the Things That Matter Most
- You Didn't Have to Wait Until Cyber Monday to Start Your Online Holiday Sales Shopping
- 3 Stock Buys This Billionaire Hedge-Fund Guru Just Made
- Profits for These 3 Growth Stocks Could Quadruple by 2018