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Is it important to know the economic explanations of a profitable investment strategy? In other words,...

Is it important to know the economic explanations of a profitable investment strategy?

In other words, why not just simply invest in some ideas like momentum and make

money without caring too much about its underlying reasons?

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Answer #1

Momentum style traders believe that these trends will continue to head in the same direction because of the momentum that is already behind them.

Momentum trading carries with it a higher degree of volatility than most other strategies. Momentum trading attempts to capitalize on market volatility. If buys and sells are not timed correctly, they may result in significant losses.

So, YES it is important to know the economic explanations of a profitable investment strategy because when it stops working, you will not know if it's temporary or has been permanently been arbitraged away.

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