| Fundamentals Based Investing |
Momentum Investing |
- Takes a long time to deliver returns;
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- Can deliver returns in a short time;
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- Well thought out and researched trade;
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- Opportunistic trade, unlikely to be researched;
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- Based on business fundamentals of the company;
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- Business fundamentals of the company do not matter;
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- Current valuation of the company is relevant to the buy decision;
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- Current market price is not important but the expected rise is;
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- Often the market price goes down before delivering on the upside;
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- A downturn in the market price is a signal to sell;
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- Requires to spend time and effort on research and due diligence;
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- Most of the time is based on insider info or market news or tips;
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- There is close to zero friction in terms of transaction cost or tax;
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- It Is subject to far higher percentage of transaction cost and tax;
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- If the stock is correctly identified the market is sure to reward the performance over the long term;
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- Rewards are purely based on the momentum in the stock and ability to find a buyer at a higher price;
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- A fallacy in the investment basis can take a longtime to be detected and may cause a loss and/or opportunity cost;
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- Any error in investment decision is quickly detected and can be rectified and more likely to cause a loss;
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- Behavioral biases are ironed out over the long term;
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- Highly susceptible to behavioral bias over short term and can make a difference between taking a profit or loss;
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- Does not require close, daily monitoring;
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- Daily monitoring or even hourly monitoring is a necessity to reap rewards;
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- Can seem to be a wrong decision during extreme bullish phases of market;
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- Most rewarding during bullish phase of market;
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- Can seem to be very sensible investment whenever the market is in a downturn;
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- During a downturn can be highly damaging to the portfolio;
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- It can be a long term, prudent investment strategy;
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- Momentum investing cannot be a long term investment strategy and is available only in short bursts;
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- Ability to remain inactive over a long term is very important;
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- Ability to quickly move is very important;
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- Can generate large sums of returns on small investments purely through compounding over long term;
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- Generating large returns requires constant identification of new opportunities and losing substantial sums to tax and transactions costs;
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- Stock price will be dictated by corporate performance rather than market conditions;
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- Stock price is entirely dependent on market volatility;
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