September 15, 2021
Cryptocurrencies, memestocks, and Wall Street disruptors like GME have ushered in new ways of thinking.
And much needed ones at that…
While the fundamentals of evaluating stocks still rest in figures like a P/E Ratio and Betas, there’s been an undeniable shift away from these traditional metrics. In a radically changing marketplace entirely new ways of evaluating stocks have emerged.
And that’s what we’re going to focus on here…
Below is a collection of perspectives that many investors are taking when analyzing stocks in 2021. While there’s always more due diligence to do, you should keep the following in mind when approaching the market in the modern era.
If you remember physics class you’ll recall Isaac Newton’s law of inertia. Objects in motion tend to stay in motion. And it’ll keep it’s motion unless an outside force provides enough resistance to stop it.
It’s the same way with stocks, hence the term ‘momentum stocks’ that keep on moving in a direction due to the inertia it has built up.
These are stocks that have high returns over a short time frame and possess the capacity to keep snowballing up in price as more and more buyers buy.
Blockbuster Video died when movies became digitized via Video On Demand services. Netflix soon became the poster child for disruptive innovation.
Netflix is up 49,283% since its IPO.
However, today things look a bit different. Now decentralized solutions built on blockchain are beginning to disrupt the likes of Netflix.
Stock Picking in 2021 requires staying aware of digital transformation, as more services become automated, and the effect of distributed systems becomes apparent in every industry.
Layers of our global economy are shifting balance and yesterday’s favorite momentum stocks may be tomorrow’s duds.
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But when it comes to momentum investing, watch out…
Just because the stock wants to stay in motion, doesn’t mean it will. Outside forces can provide resistance in opposition to the stock’s momentum. Let’s look at an example of this.
Workhorse Group, Inc. was able to generate a great deal of momentum with its all-electric delivery trucks. They capitalized on the electric-car movement, niche specialization, and a pending contract with the United States Postal Service. As a result, the stock price soared over a very short time period. But when it was announced they didn’t get the contract, it plummeted.
Staying up-to-date on the ongoing events of the market is hugely important. Moreover, so is being part of a community of stock-studying peers. The WSBDapp has such a group.
You can read and take part in our stock conversations here.
Now, how might you detect a potential momentum stock?
What allows an Air Jordan sneaker to command a high price? Is it shock-resistant technology? Memory foam support or stylish, trendy designs? Those certainly help. But really,
It’s the brand that commands.
Look for visionary branding for your stock picks in 2021 and beyond.
There’s a good amount of sneaker price built into that mini Michael Jordan dunking. And in the collared shirt world, it’s a guy playing polo. The point is, with the right logo or celebrity endorsement, a product can become worth a lot more.
And stocks have their own influencers…
One of the things that can start a momentum stock is a company or celebrity endorsement. In fact, there’s a phenomenon in trading known as the “Warren Buffett Effect.” It occurs when Warren Buffett (nicknamed the Oracle of Omaha), says he’s buying or selling a position. Depending on the “Oracle’s” words, prices on a given stock could rise or fall.
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In an era of social media and rapid sharing of information, the influencer effect has only grown in strength. When picking stocks in 2021, one should consider a position’s ties to highly influential voices.
For example, those in cryptocurrencies may consider the impact of voices like Elon Musk’s on their coin selection. His backing was enormously influential in rebounding the price of Dogecoin at one point.
And since we’re talking about Elon Musk, let’s go….
Another trend to look for in stocks in this day and age is staying power. And Elon Musk is the head of Tesla, which arguably has a great deal of staying power.
What do you mean?
Staying power translates to a stock’s ability to endure natural market volatility in the long run. The more rooted a stock is in the reality of the future the higher staying power it has.
Using our example of Tesla, let’s run through a few questions.
These are staying power questions. They’re questions regarding the future and their answers point towards whether or not a company or product can continue to thrive. The more a stock can meet the perceived expectations of the future, the greater its durability. And the greater its price can soar.
In fact, in the case of Tesla, we’ve seen that stock can get completely detached from traditional metrics.
The number of cars Tesla actually sells is WAY lower than the majority of its competitors. Purely on the amount of product it moves, Tesla isn’t even close to the Hondas or Toyotas of the world. And yet, its market valuation is infinitely higher than that of ANY automaker competition. This undoubtedly influenced by the fact that Tesla is seen as leading the way of the future.
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Remember, when picking stocks in 2021, it’s important to consider the staying power. Do research on a company’s industry and see where the technology and social demands are pointing towards.
But sometimes, strength can come from volume alone…
GameStop’s stock currently sits at about $200.00 at the time of this article. This is amazing for a variety of reasons, but especially considering its staying power.
In a world of digital streaming, and digital game releases, it’s obvious that the future of video game sales doesn’t rest in the traditional brick and mortar retail outlets (i.e. a GameStop).
So how did we get here? What caused GameStop’s ticker (GME) to make one the most historically significant leaps?
The people of Wall Street Bets.
The SubReddit of Wall Street Bets (WSB) quickly grew from a seed of hundreds of users to one of millions as its arm wrestle with Wall Street garnered attention. Users of the SubReddit identified GME as a stock being overly shorted (betted against) by Wall Street elites.
Rallying together, WSB encouraged its members to begin buying up shares of GME. This buy-up coupled with Wall Street’s overexposed short positions drove the price up further as hedge funds bought more of GME to cover themselves.
All this to say, that with the right community’s support, even the direst of odds can be overcome.
WSBDapp looks to continue this legacy forward. And to do that, we need to see the 2021 marketplace and the factors currently shaping it. We see the power of momentum stocks, influential voices, and stocks aligned with the values of a better future. And…
The power of a collaborative community.
We aim to continue educating traders on the market while embracing the deregulated finance of cryptocurrency. Don’t miss out on the revolution. Join our community today.