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Ocado lays bare the problem with momentum investing

Stock screen: our quarterly blue-chip momentum screen is up against its index again – just
September 26, 2023
  • Momentum screen works, again
  • This quarter’s top stock looks iffy

Once upon a time, the consensus among financial academics (along with many investors) was that markets were efficient. It’s easy to see why the theory had lots of fans. After all, the idea that prices follow a random walk – driven by the push and pull of buyers and sellers digesting new information – feels like a sound description of reality. When the facts change, so do buyers’ and sellers’ minds, and prices. Just because the constant absorption of new data gives the impression of price randomness doesn’t mean that it is random, or inefficient, or wrong.

In a reversal of Benjamin Graham’s famous adage, the efficient market hypothesis essentially argues that the stock market can be a weighing machine in the short term, too.

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