Momentum + FOMO = Profit Potential
Is it often said that only two things are guaranteed in this life; death and taxes. To that, I’d offer this near-certainty that can be added to this list:
by George Schneider, M.A.
source: created by author with Bing Image Creator
Is it often said that only two things are guaranteed in this life; death and taxes.
To that, I’d offer this near-certainty that can be added to this list:
Momentum + FOMO = Profit Potential
That is, in the investment world, a formula that can often be counted upon to yield good results combines the momentum exhibited by a stock’s price movement with investor fears of missing out. This relationship normally translates to a great deal of capital gain, or potential profit.
The Trend is Your Friend
Momentum in the stock market can be exhibited in the overall market’s price movement as well as an individual stock price. Generally, when a trend is visible, you can count on it to continue in the same direction, up or down, until it stops.
If you’ve been tracking a stock’s price movement to determine a good entry point and you detect a discernible change in its trend, you can assume this trend will last until it no longer does. In essence, this translates to entering a market or limit order to accumulate shares to profit from this change in trend.
What Does FOMO Have to Do With It?
You might then wonder what does FOMO (fear of missing out) have to do with a change in trend, and why does it amplify a stock price’s movement.
Plainly put, behavioral economics dictates that when investors as a whole (the herd) are monitoring a stock’s price movement along with you, they begin to develop a fear of missing out as the stock’s price begins to change direction. The faster and greater the change in price, the greater the fear of missing out intensifies.
> Price change = > fear of missing out
Eventually, more and more investors are moved off the sidelines in order to dissipate and vanquish their fears. They buy the stock in greater numbers, buy greater amounts of shares and are increasingly willing to increase the price they are willing to pay.
Of course, the increasing intensification of demand and willingness to pay higher and higher prices reinforces the momentum and pushes the stock price higher and higher, thereby increasing the potential for capital gain.
> Demand= >Willingness to buy > Willing to pay higher prices > Greater momentum=>Higher Prices => Potential for Capital Gain
This becomes a cycle, a closed loop if you will, that continues to push prices higher until the trend finally stops.
The earlier an investor detects this change in momentum and acts upon it, the greater the profit potential becomes.
Your Takeaway
If you allow yourself to buy dividend stocks at artificially depressed prices, you can easily increase your passive income and benefit from accidentally high dividend yields plus enormous capital gains if you incorporate this stratagem into your portfolio strategies.
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George Schneider
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Retirement: One Dividend At A Time
Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am long all RODAT Portfolio names. The Portfolio continues to build dividend income with reliable, dependable equities which have long histories of increasing the dividend.
Copyright ©2024, George Schneider