Easy money? No doubt about it. The simplest cash to be made in the stock market comes from running winning investments. Stock markets have a tendency to overshoot, both on the upside and downside, so for nimble investors who have identified some positive momentum there are good profits to be made from riding it. And, with good charts available cheaply or even for free these days, it is so much easier than it used to be: identify the shares heading in the right direction, then pick those that cover their upside ground the fastest.
As with greyhound racing, many of the candidates that are fastest out of the traps have no legs for the longer run; it is all about the short-distance sprint – over weeks or months – not a long-distance lope year after year.
In stock market terms, a sprinter is summed up by its beta, a sensitivity to the broader market's movement. But this, unlike Chris Dillow's no-thought portfolios, isn't the entire basis for selection. In practice, we're looking for something more; an appealing fundamental story to put some alpha with the beta. Momentum plays without an obvious driver are as likely to take you down as up. Besides, if the catalysts for the share price performance are not clear, then spotting them when they go awry is tough.
Decent timing and some frequent monitoring are certainly required. You don't want to go piling into debt-laden pub companies or property firms when the economy is making a sudden dive; when their prices are likely to tumble much faster than your typical stock. These are investments for a good news environment.
