The Financial Economics: “The Only Secret for Higher Returns…”
Investors have developed seemingly endless strategies to try and beat the market. Some of those involve finding deeply-discounted value stocks. Or buying growth stocks on the cusp of a new product or service.
Strategies can also relate to trying to trade the market as a whole. That could involve using technical indicators to determine when markets are likely to bounce higher or lower. But there’s another factor at play that can also boost returns.
That factor? Investor sentiment. Investors can be irrational at times.
For instance, those who think that tech stocks are priced too expensively see irrational behavior. But sometimes a company may trade for less than the value of its assets. That represents another aspect of irrational behavior.
Markets are mostly, but not entirely, efficient. Being able to step outside of investor sentiment and look at markets objectively can help find the mispriced opportunities.
Market anomalies can take time to develop. And they won’t be resolved quickly either. That gives patient investors an edge. Especially in today’s world, where professional investors are looking for ways to make increasingly faster trades.
Investors who focus on companies with long-term competitive advantages can see great returns. Particularly if they wait for a period of market irrationality to take hold. While that’s not particularly secret, investors who are patient can earn higher returns.