Beyond the chart: factors and news
The strategies with the best evidence don't look at charts at all.
Factor investing
Researchers have found a few traits, called factors, linked to higher long-run returns across decades and countries. The tool's stock screens use them:
Value: cheap prices relative to earnings or assets. Quality: profitable companies with steady results and cash flow. Momentum: stocks that rose over the past 6 to 12 months tend to keep rising for a while. Low volatility: calmer stocks have historically done about as well as wild ones, with smoother rides. Dividends / blue chips: large, steady companies that pay out cash.
But factors come and go
Each factor can lag the market for years. Value, for example, trailed growth stocks for much of the 2010s. Factor funds exist, but they need patience and low costs, and the edge may shrink once everyone knows about it.
News strategies: 'priced in'
Event-driven trading reacts to earnings, mergers, regulations or product launches. The tool's key question is whether the news is already reflected in the price. Good news that everyone expected often moves nothing; the price moves on the surprise (the gap between expectations and reality).
Hot themes (AI, a policy, a new technology) pull in money fast. Real beneficiaries and companies that just mention the theme rise together at first, and the hype fades faster than the business.
Analysts expect earnings of $2.00 a share. The company reports $2.05, a 'beat', and the stock falls 4%.
Why? Many investors had hoped for $2.20, and next quarter's guidance was cautious. The price had already priced in more good news than arrived.
Key terms
- Factor
- A trait (value, quality, momentum, low volatility) linked to long-run returns.
- Momentum (factor)
- The tendency of recent 6 to 12-month winners to keep outperforming for a while.
- Priced in
- Already reflected in the price because investors expected it.
- Event-driven
- Strategies built around company or market events like earnings or mergers.
The best-studied edges (value, quality, momentum, low volatility) are slow, patient and can lag for years; news moves prices only when it surprises.