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Rhett Fox of Redig, South Dakota, gets bucked off the horse C Z8 in the novice saddle bronc event during the Calgary Stampede rodeo.Reuters

The last time I remember this many investors using the momentum investment style was 1997. That's not necessarily a bad thing, but it does come with risks.

Momentum investing emphasizes stocks with rising prices (duh), technical analysis, and analyst earnings upgrades to choose stocks. What it doesn't do is focus on attractive valuations. That's the reason portfolios consisting entirely of momentum stocks often suffer huge reductions in value during sell-offs – momentum stocks tend to have high price earnings ratios and there's no valuation buffer to minimize the downside.

Momentum investing has been proven to work over time but presents extreme psychological challenges to investors. During one the inevitable declines in portfolio value, investors often panic and sell their holdings to prevent more losses and do not benefit from the recovery. Momentum stocks tend to rise quickly, but investors often join the rally late, getting little of the performance benefit and all of the losses.

At the Report on Business we have daily proof of the popularity of momentum investing. The daily "Analysts upgrades and downgrades" post, "Breakouts," and my own weekly "Most oversold stocks on the TSX" column are consistently all among the most widely read pieces on the website.

It's usually a bad idea to do what everyone else is doing in the market, so I suggest domestic investors begin to add value stocks to their portfolio. Admittedly this won't be easy – the value style has underperformed for a long time. But given the disparate characteristics of the momentum and value investing styles, it's better to be early than late.

-- Scott Barlow

Stocks to ponder

Yangarra Resources Ltd. This junior oil and gas company recently said it was planning to resume drilling activity after suspending drilling activity in October, 2015, due to low commodity prices, writes Jennifer Dowty. There are seven "buy" recommendations by analysts on this stock with an average 30 per cent upside potential in the share price.  The stock is up 109 per cent year to date, and its shares have been trading sideways just above the $1 level.

Canadian Pacific Railway Ltd. From a technical perspective, earlier this month CP Rail experienced a "Golden Cross," which is a bullish technical signal and occurs when a  a short-term moving average, in this case the 50-day moving average, crosses above a longer-term moving average, in this case the 200-day moving average. When this occurs, it marks a potentially positive signal suggesting the upward price momentum may have traction, writes Jennifer Dowty. There are 18 "buy" recommendations on the stock, nine "hold" and one "sell." The average one-year price target for the stock is $212.47.

The Rundown

A pessimistic outlook

Investors following North American economic data on a day-to-day basis likely get the impression reports are mixed – some good, like June's Canadian report on domestic manufacturing activity, and some bad, like Friday's release of weak Canadian on retail sales growth data, writes Scott Barlow. A step back to look at the overall outlook however, shows a steady, significant increase in economic pessimism.

When will rates rise?

That's the magic question as investors tune into what U.S. Federal Reserve Chair Janet Yellen speaks later this week, writes Larry Berman. "I have suggested for several years that interest rates may need to stay near zero for decades to help the world grow out of this debt-fuelled, demographically challenged conundrum. I have written in recent weeks about the challenges to monetary and fiscal policies against the headwind of debt and demographics as to why I'm defensive in my client portfolios. This question of interest-rate "normalization" will probably be an ongoing narrative in markets for the foreseeable future."

Contrarian investment ideas

While the market consensus view can often be right, it is also just as capable of producing popular lunacies, writes Tim Shufelt. But a BMO Nesbitt Burns report offers up 11 selected contrarian investment ideas. One Canadian recommendation is Genworth MI Canada Inc.

An international fund bucking the trend

It has been a mixed year for international investors. New York, Hong Kong, and, surprisingly, London have all posted healthy gains so far in 2016. However, most of the other major world indexes are in the red. One international mutual fund that's bucking the trend is the Trimark International Companies Fund, writes Gordon Pape.

35 U.S. stocks picked by Merrill Lynch

The central bank put is giving way to the "Keynesian put," according to Merrill Lynch, writes Bloomberg reporter Luke Kawa. Merrill Lynch's list includes 35 firms listed in the United States that span a dozen industries. These companies have exposure to public construction projects, traditional government spending priorities like defence and 21st-century infrastructure options like Barack Obama's "broadband stimulus fund" or renewable energy tax credits.

Websites to answer your financial questions

There are common financial questions everyone has, writes Rob Carrick, so he dug up websites that answer some of the most common financial and investing questions you'll lilkely have.

Yield on cost and other answers

John Heinzl answered four investing questions from readers about yield on cost, how to determined adjusted-cost base, and high distributions.

Watch for warning signs

When there's warning signs about a company's accounting and financials, it's time to pay close attention to whether those signs mean it's time to sell a stock on hold on tight, writes David Milstead. He looks at two stocks that hit Veritas Investment Research's list.

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What's up in the days ahead

Scott Barlow will be looking a volatility and the VIX, and David Milstead will be looking at engineering firm Stantec.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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