Momentum Fund

See: Momentum Investing.

The ethos of the fund is to just find where there's momentum and invest ahead of it...then get out.

So a given tech company was supposed to have $85 million in revenues this quarter and a dollar a share in earnings. But then the print comes in after trading hours of $110 million and $1.32. A quick scan of the balance sheet also surfaces the fact that the company is actively trying to defer recognizing revenues, so the real numbers, had the company wanted, could have shown more like $1.40 or more.

Now the stock has popped from $23 to $30 in the aftermarket, and this is the time for the momentum investors to dive in. Simple, straight line arithmetic would draw a line to earn $2 this year, $4.50 next, and $8 the next...and at 30x earnings (cheap, were this growth rate sustainable), the stock would be trading for $240 a share.

So yes, it's way more expensive now at $30 than it was an hour ago at $23, but so what? If it's really going to $240 and you're a mojo investor guy, you have to "be there" and invest. On the momentum from those investors coming into the stock, it probably closes the following day on massive volume at $35 or more.

Welcome to the world of momentum funds. They work great...until they don't. So they have a lot of canaries in mineshafts, analyzing companies and taking breaths...cautiously.