I am a retail investor so take this with a grain of salt. The markets have changed but certain things like emotions in investing (greed + fear) are still the same.
A lot of the time, the efficient market hypothesis holds true and the speed at which prices reflect new fundamentals seems to be getting faster and faster. However, I think its…
I am a retail investor so take this with a grain of salt. The markets have changed but certain things like emotions in investing (greed + fear) are still the same.
A lot of the time, the efficient market hypothesis holds true and the speed at which prices reflect new fundamentals seems to be getting faster and faster. However, I think its still possible to make alpha in the markets because of the momentum effect and the fact that many investors still trade on narratives / stories.
Momentum Effect - I believe this effect was first written by Jagadeesh and Titman in 1993 and the basic premise that stocks that do well in the 1-year timeframe tend to continue going up and outperform still holds true today. Investors and traders these days seem to have supercharged the momentum effect which is why you see some stocks going parabolic sometimes. I wouldn't discount this effect and ignore stocks just because they go up. I would use price action as a signal to see which stocks may outperform later.
Narrative / Stories - I think even more than ever, retail and some professional investors rely on narratives to guide their investments. Currently, one of the latest narratives is that nuclear power is back due to AI power demand and so stocks with no fundamentals like SMR and OKLO are having huge rallies. Utilities such as CEG and NRG are also catching a bid. TSLA is overvalued by most fundamental metrics but most short sellers keep getting burned because retail is enamored by Elon Musk.
If you look at the crazy rally NVDA has had since Dec 2023, I think you have to look for stocks that exhibit the above categories to do well. NVDA started going up due to better fundamentals which was quickly reflected in the price on earnings reports. Momentum and the AI narrative helped to caused a huge rally (seems to have died down a bit recently) into 2024.
I am a retail investor so take this with a grain of salt. The markets have changed but certain things like emotions in investing (greed + fear) are still the same.
A lot of the time, the efficient market hypothesis holds true and the speed at which prices reflect new fundamentals seems to be getting faster and faster. However, I think its still possible to make alpha in the markets because of the momentum effect and the fact that many investors still trade on narratives / stories.
Momentum Effect - I believe this effect was first written by Jagadeesh and Titman in 1993 and the basic premise that stocks that do well in the 1-year timeframe tend to continue going up and outperform still holds true today. Investors and traders these days seem to have supercharged the momentum effect which is why you see some stocks going parabolic sometimes. I wouldn't discount this effect and ignore stocks just because they go up. I would use price action as a signal to see which stocks may outperform later.
Narrative / Stories - I think even more than ever, retail and some professional investors rely on narratives to guide their investments. Currently, one of the latest narratives is that nuclear power is back due to AI power demand and so stocks with no fundamentals like SMR and OKLO are having huge rallies. Utilities such as CEG and NRG are also catching a bid. TSLA is overvalued by most fundamental metrics but most short sellers keep getting burned because retail is enamored by Elon Musk.
If you look at the crazy rally NVDA has had since Dec 2023, I think you have to look for stocks that exhibit the above categories to do well. NVDA started going up due to better fundamentals which was quickly reflected in the price on earnings reports. Momentum and the AI narrative helped to caused a huge rally (seems to have died down a bit recently) into 2024.