21st May 2024

T. Rowe Price: Momentum: Don’t fear the reapers (of high profit)

Are YOLO and FOMO driving MOMO?

I don’t like acronyms, but I can’t help it in this case. The momentum factor (MOMO) has been performing better than during any rolling 12-month period since at least the early 1990s. Over the last several months, you would have done very well if you had picked the top-performing stocks based on past performance. What goes up keeps going up, it seems.

It’s not supposed to work that way. Finance theory—and every money manager pitch book—says that past returns aren’t indicative of future returns. Besides, trees don’t grow to the sky. 

Or do they? What if they bear fruit in the form of high-performing computer chips for artificial intelligence? Will you risk missing out on what may be a once-in?a?lifetime opportunity in a new technology?

Therefore, the question at hand (IMHO): 

Is this momentum-oriented market being driven by “you only live once” and “fear of missing out?”

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