Momentum investing

Momentum investing means picking stocks that have already been doing well and are expected to keep doing well in the future.

Does that make sense, kiddo?

Let me give you an example. Imagine you love playing soccer and you notice that your friend always seems to win every game they play because they have a really powerful kick. You might pick them to be on your team more often, right? That's because you noticed a pattern: your friend's strong kick leads to wins.

Well, momentum investing is kind of like that. Investors look for patterns in how well a stock is doing over time. If the stock has been consistently doing well, then it’s more likely to keep doing well in the future, and investors might want to buy it.

But just like soccer, there are some risks involved. Sometimes the teammate with the strong kick gets tired or injured, and their performance suffers. Similarly, a stock that's been doing well might suddenly start doing poorly for reasons that investors didn’t predict.

That's why momentum investing isn't the only strategy out there. Some investors prefer to buy stocks that are undervalued (meaning they think they'll go up in value soon even though they've been doing poorly recently), or stocks that pay high dividends (which are a portion of a company's profits that are paid back to shareholders). It all depends on the investor's goals and how much risk they're willing to take.

Hope that helps explain momentum investing to you, kiddo!