- Trends can reverse quickly
- Lessons from last year
“Past performance is not a reliable indicator of future returns”. All investors are familiar with this disclaimer – but not everyone believes it.
Momentum investing relies on the theory that winning stocks keep winning and losers keep losing. At its simplest, this involves buying shares that have recently risen and selling those that have recently fallen. Our own momentum screen is slightly more discerning, incorporating earnings forecasts too. Specifically, it selects companies that are expected to grow their earnings per share (EPS) by at least 10 per cent for the next two years and which have prompted analysts to boost their EPS forecasts by the same amount.
