April 16th, 2012 | Add a Comment
If you don’t get momentum investing, aren’t good at it, or just don’t believe in it… I have a question for you. Do you use twitter, stocktwits, or any other social media tool? Do you leverage the power of the people to filter the best news ideas, comments, and links and still don’t get why momentum investing works?
I am a value investor 90% of the time. I love picking through SEC filings, CEO comments, competitive strategies, and business models to search for businesses that are selling for pennies on the dollar. Occasionally I jump on a momentum play and lose my shirt because I am just crappy at timing those things. I get the fact that momentum investing is jumping on the bandwagon for as long as the bandwagon is hot and trying to jump off when it is not, or slowly exiting while it is still hot. Recently this was really brought home for me, I had a post on my blog that spread a bit like wild fire and I realized that the quality of posts had been building as you can see in the stats below… there were some larger hitting posts and then suddenly one really popular post.
This is the exact same behavior as momentum in stock!! Look at this chart – same behavior – but it is a stock and not a blog.
You see the same jumps out of the baseline, the same doubling, nearly tripling in a short timeframe, etc. Perhaps this is why so many people who are on stocktwits love momentum investing. Perhaps I have some things to learn about momentum investing from my endeavors in social media and blogging. Granted the upper chart is volume and the lower chart is market value, but the principle that when a lot of people presume there is value the upward volume will go up in an increasing fashion is the same. If you can convince people that your twitter feed, blog, or social brand is valuable it will increase in a rapidly increasing fashion. The same is for momentum stocks in that as more people see the potential of the products the more rapidly the stock value skyrockets and thus the stock follows a relatively predictable behavior of market value growth.
Based on what I have seen in social media, I am re-writing my momentum rules…
- Look for volume that is at least twice the average daily volume
- Only commit if the volume continues
- Exit slowly as the value becomes obvious
Thing about these statements in relation to TechCrunch, Pinterest, etc. They are the same truths as investing in Apple, Google, etc. If you think about the concept of how these are discovered and how people get excited about the two things they are very similar.
Small disclaimer – this was written on 4/4 and set to be published while I am on vacation exploring the new history of Greece – I hope you enjoy the post and the blog – let me know what types of posts or information you’d like to see more or less of on the blog.
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