A new year brings with it new beginnings and hopes. It's also an exciting moment for you and most people to set your new year's resolutions. Unfortunately, sometimes all the energy and charisma you put into the activity starts to wane as the year goes on. This can be discouraging if you hope to secure your financial freedom.
That aside, it is never too late to plan an investing strategy that enhances the growth and value of your investments. You also have what it takes to gain momentum during the year to achieve your financial goals.
Long-term investing is a great way to start and maintain momentum because it is incremental in how it works. This brings us to the four popular types of investing strategies to earn returns.
One of them is momentum investing, which involves investors analyzing and understanding the market trends and not company performance. Here, the investor buys securities that show a continually rising trend while selling those that are showing low returns.
The second is growth investing, which is common among high-risk investors as the stocks are not safe from market volatility. Growth investors look into companies with higher-priced stocks hoping they will further gain higher value.
The third is value investing, which is picking stocks that are below book value or intrinsic value with the expectation they will rise in value in the future. It's generally a long-term, buy-and-hold strategy. Warren Buffett asserts that intrinsic value is a logical way to determine how attractive investments and businesses are.
The fourth is dollar-cost averaging, which helps to temper the impulse of selling shares when markets drop. Instead of buying a lump sum of shares from a tech company, you can slowly and over time buy stocks using a fixed amount of funds. A good example is investing in a 401k for retirement wealth.
However, before you start, you need to be clear on factors such as your investment goals, financial situation, type of returns to earn, and risk profile.
Every investor hopes to beat market volatility, which is a culprit in undercutting the value of assets. With momentum investing, you get to buy stocks as they rise in value and sell them when they start to drop. It's like jumping off a ship before it sinks. While it involves considering some technical aspects such as entry and exit strategies, and equity selection, it helps preserve capital. It's also important to choose liquid securities as they are easily converted to cash.
Traders and analysts also rely on momentum indicators, which are tools used to follow up on the speed or rate of stock price changes. These are moving averages, trend lines, and average directional index.
Brown Investors' definition is "a stock that is outpacing other stocks within the peer group as well as the index, and continuing to rise higher over a shorter period."
These stocks tend to show high performance through a rise in stock prices over 3 to 12 months. They are also those stocks that perform beyond analysts' expectations, indicating potentially high momentum returns in the coming weeks or months. In addition, momentum stocks have a low float, which is a small number of shares that are being publicly traded. This can range from 10 to 20 million shares.
Momentum investors continue to buy more from companies as they arise. They seek to take advantage of the upward and downward trends of stock prices. In the first place, it can be very risky, but with an effective strategy, you stand to gain great returns. Here are steps to take to increase chances of success:
● The type of stocks or securities you choose matters. It involves screening the performance of shares such as those trading in the highs.
● Do not ignore the trends as they indicate the strength of stock prices. This involves applying technical tools referred to as technical analysis, such as moving averages, to point out the current trend of securities. If the stock is at or above the moving average, then it's an upward trend.
● Timing is also critical during buys and sells to avoid losses. This calls for coming up with an exit strategy where you time when to trade to make profits.
Several momentum stocks in the market have performed well. These types of stocks tend to show better than expected returns, and some experts view them as suitable for long-term investing.
One of the top companies Brown Investors has recommended in the past is Sally Beauty Holding, which is gearing up for a strong performance in the next year. Reporting revenues of over $3.5 billion yearly, the company's stocks promise a profitable portfolio. Despite being low-key in the stock market, it recently showed a double-digit share price of over 10% at the NYSE.
Another candidate is Party City, which, based on recent trends, is a promising stock pick. The party goods retailer had a share price rise of 6.2%, where 14,410 shares traded at $5.62 from $5.29.
It's possible to make money with momentum stocks. However, it's better to be cautious as it can be momentary. Make sure you get your timing right to avoid losses. If you want to discover the next momentum stock, check out what companies will help drive momentum in your investment portfolio for the New Year.