Traditionally, we bought stocks because we believed the companies were undervalued with solid growth potential, and we hoped other investors would eventually recognize the same to drive demand & prices higher together. Or we invested in companies trading at fair value where dividends provided steady, long-term returns.
But recently, the dynamics seem to have shifted. It feels like we’re buying simply because we expect prices will always go up - fueled by the endless cycle of liquidity and “cash printing.” This creates a circular loop that price going up is both the cause and effect! It gives me some ponzi-like vibes and makes me nervous.
On top of that, modern markets are heavily influenced by algo trading. These systems aren’t evaluating fundamentals at all but reacting to price action, volatility, order flow, and momentum. When algos chase momentum, they basically accelerate both rallies and selloffs, further disconnecting prices from underlying company performance.
To conclude my question, fundamentals seem to matter lesser and lesser. Looking ahead, I see two possible futures:
1. The market corrects and shifts back toward fundamentals-driven, conventional trading. I could see Michael Burry and other big shorts betting on this
2. We accept a new normal where fundamentals are permanently down-weighted, and liquidity flows + momentum dominate price action. Honestly it feels like we’re drifting here already because analysts keep using higher and higher P/E targets, and people seem to just accept it.
What are your thoughts?