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indeed, a certain aesthetic elegance in watching a stock surge straight up on a graph without pause that can be appreciated only by those who indulge in this kind of investment minutiae. |
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The preceding story of Redback shooting for the moon is an example of the power of price momentum. Traditionally, price momentum trading was the province of day traders, who, as we have mentioned, would jump in and out of fast-moving stocks without caring what the ticker symbol stood for or what the company did. But price momentum trading is no longer just for day traders. It has become quite the fashion. And online investors have contributed to the life of the investing party. |
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Bob Pisani, CNBC commentator on the floor of the New York Stock Exchange, in reflecting at the end of 1999 on the most significant events of the year, believed that the popularity of price momentum investing was the biggest investment story of the year. He ranked it to be even more important than the rise of ECNs, the explosion of popularity in IPOs, or even the astonishing performance of technology stocks for the year. His point was that mutual fund managers, hedge fund managers, and, most significantly for our purposes, individual online investors, had become more taken by the price momentum approach than by value investing or the buy-and-hold approach. Perhaps not so surprising that momentum investing would become popular when everything is going up! |
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Stocks like Redback and other fast-moving Internet infrastructure and business-to-business plays are not the only ones upon which Pisani was commenting. He made the point that in all sectors, not just technology high fliers, the move toward momentum investing had dramatically increased. |
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For the online investor who chooses to be a part of momentum investing, the requirement is to be able to jump in relatively quickly to what is moving and to see these plays as great until their steam runs out and then to move on. The change in thinking is that more trading in and out of positions is necessary, since by definition, momentum doesn't last forever. Another change in thinking is realizing that the traditional fundamentals that investors have typically used to make their decisions may have little or nothing to offer when it comes to a momentum play. |
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