@Solvetheriddle that's a great description, and aligns with my own mental model (so, of course I like it!)

Having listened to Ausbiz for several years, I am amazed at how many brokers / fund managers / commentators appear to be momentum/technical "actors". As a fundamental investor with a bias for holding stocks long term, I always try to understand how much of the analysis, recommendations and price action on stocks are being driven by "momentum".

This is a challenge, primarily because I only get to read a small proportion of the equity research out there. Sometimes, you can see it in the headline summaries. For example, the recent Bell Potter increase in TP for $BIO appears to be due to a tweaking of the discount rate. My judgement of that is that the analyst wants to keep the TP ahead of the current momentum and, accordingly, has tweaked a parameter in their "model" to do this. As a result, I put that research clearly in the "momentum" bucket and tend to ignore it.

One observation I have made of equity research is that I believe there is quite a bit out there posing as "fundamental" whereas it is actually "momentum". When you are able to read multiple research reports on a stock by the same author over time, or listen to a talking head comment on the same stock over time, even those that present as "fundamental" reveal their "momentum" spots.

Part of this is behavioural and I suspect even unconscious. For example, when I reflect on my own analysis over the years, I can also see how my "fundamental" projections have been influenced by recent "momentum".

The point of all this is to ask can we truly classify views as "fundamental" or "momentum"? In practice, does both analysis and buying/selling behaviour present a blend of both to varying degrees in each "actor"?

Finally, to use your analogy, I am not holding out fundamentalists as superior to momentum traders. After all, the gazelle that senses the herd twitch when the lion really does emerge from the rushes, and bolts away faster than the herd, gets to live another day.

@mikebrisy fair enough Mike, you have focussed on stock broker research reports, and having read tens of thousands of them in my day, i would say they are variable. stockbrokers' main purpose is to run a profitable business, so who is the important client that pays the bills? It may not be a long-only, long-term investor, it could be a grab bag of momentum, HF's, L/S, traders, investors, and speculators, so you get that "something for everyone" in research which averages to average!

the point i am trying to make here is that stocks are probably semi-efficient most of the time, but that doesn't necessarily mean stable (they move with new info). when trend followers are dominant and you see huge run-ups in SP, that sets the catalysts for crashes in stocks or markets and just to be aware of that. some investors will profit, and most will do their dough, as always. The underlying message is that the SP should not be taken as indicating any information regarding intrinsic value, in these rare (but eye-catching cases) and trying to fit a fundamental story around excess momentum is a mug's game.

@Solvetheriddle I think that is a very apt description of sp swings.

I think this sentence is very true- The worst thing that can happen is when investors adjust their intrinsic values and follow the SP higher with little other evidence. I have seen this, many times, with all its destructive impacts. As if the SP is proving them correct, no matter how high it goes.

There is nothing wrong with momentum as a strategy but I think it is dangerous if you mistake momentum with skill and justify the rising price. Separating out price movements from intrinsic or fair value is one of the hardest parts of investing for me. It is so easy to think you are right when the share price goes up and think you are wrong when it moves down. In reality, price is the most prominent but least relevant, in isolation, indicator of value-- but as a primarily fundamentalist investor I would say that!

You see a lot of talk about the market knows best and the wisdom of crowds, but what is lost is that the crowd is only wise if all of the guesses are independent from each other, without that each guess is influenced by the others and any wisdom is lost. Its very hard for commentary not to shape your view. Even strawman is a bit of an echo chamber at times, but this is largely unavoidable.

@Solvetheriddle @mikebrisy @Slideup I think all these points of view are correct. How many of us who claim to be value investors take no notice of the share price charts? What I mean is, not just the current share price which is what we are comparing our valuation with, but share price support levels and resistance levels, 12 month highs and lows, or trends and momentum in the share price, or what the talkings heads are saying about share prices? If we were true value investors we would shut out everything but the fundamentals and the current share price!

The longer I invest the more I agree with Morgan Housel “Every forecast takes a number from today and multiplies it by a story about tomorrow”, whether that be a story about fundamentals, sentiment and technical charts, the macro etc etc. All of these stories come together in the market place to determine today’s share price.

Take a read of Morgan Housel’s Blog from Sep 2021, and see if any of this rings true for you?https://collabfund.com/blog/numbersandstories/

Here are a few points from the blog:

1. A fact multiplied by a story always equals something less than a fact. So almost all predictions have less than a 100% chance of coming true. That’s not a bold statement, but if you embrace it it always pushes you towards room for error and the ability to endure surprise.

2. The most persuasive stories are what you want to believe are true or are an extension of what you’ve experienced firsthand, which is what makes forecasting so hard.

3. If you’re trying to figure out where something is going next, you have to understand more than its technical possibilities. You have to understand the stories everyone tells themselves about those possibilities, because it’s such a big part of the forecasting equation.

4. When interest rates are low, the story side of the equation becomes more powerful. When short-term results aren’t competing for attention with interest rates, most of a company’s valuation comes from what it might be able to achieve in the future. That, of course, is just a story. And people can come up with some wild stories.

I guess that leads to yet another type of investor - the philosophical investor! :)