The Ultimate Guide for Stock Investing in the Age of Negative Yields: The essential knowledge for seeking returns in different markets by Wong Alpha

Author:Wong, Alpha [Wong, Alpha]
Language: eng
Format: epub
Published: 2019-10-23T16:00:00+00:00

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Stock Momentum

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About the Momentum Factor

If a stock market ‘s price mainly driven by some noise factor (Momentum Factor), value investment or any fundamental investor is very difficult to outperformance the market.

If no one is trading based on fundamental factors, the factors become irrelevant for the market ‘s short to medium-term performance. It will only affect the long-term bottom line of the market. If the fundamental factors are improving, the bottom of the stock market will keep on rising in the long run.

Therefore, trading in such kind of market should focus more on the Momentum Factor, which is the main driving factor in the market instead of the fundamental changes. The rule is very important, especially when you are trading in such a typical “go-go” and “die-hard” market. The investor with an emerging market trading experience will understand what I am talking about.

If some market seems not easy to take profit in the long run, why don’t we ignore it? If you remember what I stated before when too much money will be tracing for too little real asset, the market will be driven by the noise factors. In history, the emerging market will suddenly have a market boom after the developed market started their engines. This is because when the developed market moved to a plateau without further growing momentum, many investors will move their eyes to the emerging markets.

If the age of negative yields happened to the US market, the emerging market might eventually take benefit from it if the emerging market still can provide a certain level of positive yield. The bond market will take the advantage first, you will find that the yields of the emerging market sovereignty bond be significantly lowered. This is a good signal for the market is favor for risky assets and seeking less risk premium. Then the emerging stock market will eventually be improved as well. Now you may know why I use so many chapters to explain the character of different markets.

Trade Volume (Liquidity)

Liquidity level of a stock is a very important concern for any investors. If you would like to invest a stock that lack of liquidity, the first problem will be the bid-ask spread. You can lose money easily by buying and selling the share during a short trading period.

The liquidity level is also an important concern for the ETF trader. If your ETF has poor liquidity, you will find that very hard to find enough buyers or sellers if you want to trade in bulk. You may need to purchase it at a premium price far higher than its Net Asset Value or sell it below its NAV.

If you find the market price is quite good, but you are not able to find buyers or need to sell it at a bargain price. The market price movement is quite meaningless for you. Therefore, most of the institutional investor will not consider stocks with poor liquidity.

Price Trend

The most important thing in momentum analysis is the price trend, is the

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