Isaac Newton and the Power of FOMO

Even the greatest of minds can succumb to market euphoria… Published By Money & Markets, LLC. May 29, 2024 Published By Money & Markets, LLC. May 29, 2024 [Turn Your Images On] [Turn Your Images On] From The Desk of [Michael Carr]( Editor, [Money & Markets Daily]( Isaac Newton and the Power of FOMO Money & Markets Daily, In physics, Isaac Newton's laws of motion laid the foundation for classical mechanics, explaining how objects move and interact. His first law — the law of inertia — states that an object will remain at rest or in uniform motion unless acted upon by an external force. This principle revolutionized our understanding of physical forces — and offers a compelling analogy for momentum investing. In the stock market, a stock in motion — one that is already trending — tends to continue its trajectory unless significant external factors disrupt it. This concept of financial inertia is at the heart of momentum investing, where investors seek to identify and invest in stocks that are in strong, sustainable uptrends. But the best investment strategies don't rely on momentum alone. Newton’s own investment experience shows the pitfalls of this approach. One of the greatest minds in history couldn’t avoid the euphoria of the world’s second stock market bubble… And with markets hitting fresh highs now (the Nasdaq just crossed 17,000 for the first time during intraday trading yesterday), it's the perfect time to see what we can glean from Newton's experience. --------------------------------------------------------------- [Turn Your Images On]( [The Next Big Leap in AI: "IMPERIUM"]( Bill Gates, Jeff Bezos, and Mark Zuckerberg are pouring millions into it. (Gates even tweeted it’s “one of the most powerful technologies of the 21st century!”) And you can invest in this new technology, which we call Imperium, right alongside them … starting with just $10. [Find out more.]( --------------------------------------------------------------- How Newton Lost His Fortune The South Sea Bubble of 1720 was one of the most infamous financial bubbles in history. The South Sea Company got a monopoly on trade with South America, and its stock price soared on rampant speculation and overly optimistic expectations of profits. Newton was initially cautious, but he still invested early and wisely and made a substantial profit before succumbing to a feeling you may be familiar with in your own investing pursuits. Newton caught FOMO (Fear of Missing Out) and reinvested as the bubble peaked. When the bubble inevitably burst, Newton suffered heavy financial losses. Here’s a look at the timeline over which Newton lost his fortune: [Turn Your Images On] Source: [Business Insider]( After that, he supposedly said: “I can calculate the motions of the heavenly bodies, but not the madness of men.” The South Sea Bubble summarizes momentum investing. Investors buy on the way up, expecting to sell at even higher prices. As the chart above shows, the strategy works until it doesn’t. The Key to Momentum Momentum strategies perform well. In the long run, they beat the market. Academic research proves this, with the first [paper]( dating back to 1967. Since then, dozens of researchers have shown that momentum strategies work in markets around the world. One [study]( applied the strategy to more than 200 years of data and found it has been effective for centuries. Researchers have also identified a [problem]( with these strategies: “…the strong positive average returns and Sharpe ratios of momentum strategies are punctuated with occasional crashes … momentum returns are negatively skewed, and the negative returns can be pronounced and persistent.” Many investors don’t like to experience these “momentum crashes,” even if they expect a recovery in the long run. My colleague Adam O’Dell certainly doesn’t. That’s why he doesn't rely on momentum alone… In his [Green Zone Power Ratings]( system, Adam combines Momentum with five other factors — Size, Volatility, Value, Quality and Growth —  to help him uncover the best stocks. In this way, he captures the benefit of momentum while minimizing the worst qualities of the strategy. You can use Green Zone Power Ratings, too, by entering the company name or ticker in the [search bar here]( to see both its Momentum rating as well as how it stacks up in the current market: - "Strong Bullish" and "Bullish" stocks (rated 61 to 100) are expected to beat the broader S&P 500 over the next 12 months. - "Neutral" stocks (rated 41 to 60) should track the broader market's ups and downs. - "High-Risk" and "Bearish" stocks (rated 0 to 40) are expected to underperform. [Click here]( or on the image below to try it out now… [Turn Your Images On]( Until next time, [Michael Carr]( Editor, [Money & Markets Daily]( --------------------------------------------------------------- [Turn Your Images On] Real-Time Data Shows Unemployment Is Set to Rise Unemployment is low by historical standards. April's 3.9% reading is already 0.5% above last year's low. Economists have long believed a recession is inevitable when the unemployment rate rises that much. Now, real-time data adds to the bearishness of the jobs market. Indeed.com provides a weekly update on job listings. This indicator peaked in January 2022 and is now more than 30% below its high. As job postings (the blue line in the chart below) fell, the unemployment rate (the red line) moved higher. This is an obvious link. The trend in job postings remains down, which points to higher unemployment in the coming months. The data continues to tell us that the Federal Reserve will be forced to cut rates this year. — Mike Carr, Chief Market Technician, Money & Markets Job Postings Fell as Unemployment Rate Rose Higher [Turn Your Images On] [(Click here to view larger image.)]( --------------------------------------------------------------- Check Out More From Money & Markets Daily: - [NVDA’S RATINGS JOURNEY: HOW AI TRIGGERED ITS 6X RUN]( - [SUMMER TRAVEL STOCK UPDATE: HOW 4 STOCKS RATE]( - [THIS STRONG BULLISH GAS STOCK IS KEY TO ARGENTINA'S FUTURE]( --------------------------------------------------------------- [Turn Your Images On]( Privacy Policy The Money & Markets, P.O. Box 8378, Delray Beach, FL 33482. To ensure that you receive future issues of Money & Markets, please add info@mb.moneyandmarkets.com to your address book or [whitelist]( within your spam settings. For customer service questions or issues, please contact us for assistance. 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Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments carry large potential rewards but also large potential risk. Don't trade in these markets with money you can't afford to lose. Money & Markets permits editors of a publication to recommend a security to subscribers that they own themselves. However, in no circumstance may an editor sell a security before our subscribers have a fair opportunity to exit. Any exit after a buy recommendation is made and prior to issuing a sell notification is forbidden. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. (c) 2024 Money & Markets, LLC. All Rights Reserved. Protected by copyright laws of the United States and treaties. This Newsletter may only be used pursuant to the subscription agreement. 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