Trading Salience in a Hyperconnected Marketplace (Part 2)

Blockbuster’s back!
We all collectively decided to go to the movies.
A bad year to try for your 2/20.

Theme and the Trend

  • The pandemic is out of control — This would happen largely when a new lockdown or some boogeyman news (e.g. the new COVID variant discovered in late December 2020) happened. This narrative would largely bolster tech (specifically stay-at-home) stocks at the expense of small caps (specifically travel and recreation), with a high chance of spiking volatility as well.
  • Vaccine optimism — This was most dramatically demonstrated by the blistering rally in mid-November of IWM in response to the vaccine news by Pfizer. This narrative dictated lower volatility and rallying of small cap stocks, largely at the expense of stay-at-home (and tech in general).

Hyper-connectivity and the Reflexivity

  1. Greed
  2. Fear — Fear of losing money, or more commonly, fear of missing out.

Part 3

  • Investing in a hyper-connected world tends to follow the power of the narrative, especially with the advent of low-information investing and trading.
  • The impulses and groupthink of investors in reaction to news and catalysts tends to lead to reflexivity, which is a major component of stock boom-bust cycles.
  • In a hyper-connected world, trends (time periods dictated by themes) tend to be more dominant and also shift quicker.
  • Trends tend to coincide with simple ideas appealing at some level to fear (fear of loss, FOMO) and greed.

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