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Why Institutional Investors Believe Bad News Can be Good News?
Movement in the stock market does not always correlate with economic news. That’s the message from Michael Wang on this week’s episode of The MarketBeat Podcast. His exact message is, “Do not conflate the market today with the economy today.”
Wang is the founder of Prometheus Alternative Investments. And he says once investors understand that the market and the economy frequently move in opposite directions, they can think about their investment decisions the same way institutional investors think about the market.
Specifically, that means the market is a discounting mechanism. Simply put, the price of a stock today typically reflects what institutional investors believe about the economy's health several months from now.
This also gives investors a lesson about market timing. For example, as your host, Kate Stalter and Wang discuss, many investors who pulled their cash to the sidelines missed the most significant gains in 2009 and 2020 as the market recovered from the financial crisis and the onset of the Covid-19 pandemic, respectively.
Other topics discussed in this episode include:
Why do investors need to pay attention to what institutional investors do more than what they say? What does Wang mean when he says that some companies benefit from “kitchen sinking”? Its bad news? What are the best practices of the professionals that retail investors can follow? What risk/reward calculation should investors use as part of their process?Wang believes every investor should have access to information and investment opportunities that have only been accessible to a select few. And so you’ll want to listen to the end of the podcast, Wang offers a special offer for his invitation-only financial website.
And while you’re at it, be sure to subscribe to The MarketBeat Podcast if you haven’t already done so. This is a once-weekly 30-minute podcast in which you get insight from financial professionals to help give you direction in this volatile market.
Subscribe to the MarketBeat Podcast today.
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Don Miller
Editor-In-Chief, MarketBeat
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