Pacific Park Financial Inc. | Oct 11, 2013 02:45AM ET
In my previous article, “What Apple Can Teach ETF Investors About Performance Chasing,” I addressed a familiar market phenomenon. Specifically, the larger the momentum-based price appreciation, the more pronounced the fall from grace. There is also a tendency for the opposite to hold true. In fact, the essence of value-based investing is to acquire massively beaten down shares of “good companies” and allow for the inevitable recovery of sanity.
Right now, though, most do not care as much about the dominant theme that transfixes markets at a given point in time. Few non-professional investors care whether it is the greed of performance chasing that is succeeding or the “buy fear” approach that value-oriented money managers use to profit. Most just want to know what works today.
I provided a glimpse of the probable answer in the aforementioned column. I wrote:
“Assuming the government gets its act together (enough so that there are no more cliffs/crises/showdowns in 2013), pay extra close attention to the best performing sectors. If they are the same groups (e.g., biotech, “new tech,” small-cap growth, etc.,), you’ll know that the investment community returned to momentum-based performance chasing. In contrast, if the hottest areas struggle in spite of a debt agreement, a rotation into “risk-sort-of-on” assets might be transpiring.”
The market activity following a proposal to raise the debt ceiling for six weeks — a proposition that is meant to buy time for a larger and more substantive agreement on both the budget as well as borrowing limitations — demonstrated that momentum-based investing is still the most popular. Specifically, the previous 5 days witnessed an exodus from many of the biggest price appreciators of 2013:
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