Insights

What truly moves an ASX share price? Knowing the unknown

Thinking that you know better than other investors is a major trap. Here are some suggestions for your investment approach in the new financial year.
The post What truly moves an ASX share price? Knowing the unknown appeared first on The Motley Fool Australia. –

Do you think you’re a good investor?

You keep up with ASX company news, read up on economic and social trends, and don’t speculate on penny stocks.

Unfortunately, regardless of how much effort you put in, the chances are you’re no better than anyone else.

The dilemma is that, unless you have illegal insider information, everyone has access to the same company and economic data.

It’s the old efficient market hypothesis.

“Anything that is expected is in the [share] price and the only thing that moves a price is the unexpected,” Marcus Today director Marcus Padley said in a memo to clients.

“It is the Catch-22 of investment. You have to know the unknown, because that’s the only thing that moves a share price — the unexpected.”

Study the numbers as much as you want, it’s useless

In the old days, even basic information like company financials had to be purchased and mailed out to investors.

Now with the internet, it is freely available in a multitude of places. Instantly.

Padley said that this means the advantage that value investors supposedly had has evaporated.

“The ‘edge’ that the ‘intelligent investor’ identified…, as their smarty-pants point of difference, has been arbitraged away.

“When the market goes to hell, ‘value’ becomes a useful reference point again — but in a bull market it is so 1950s.”

So what do we do then?

Because of this market efficiency, Padley reckons investors never make money from smart asset allocation or portfolio optimisation.

“It’s almost always a few simple events, fads and trends that moved prices.”

So instead of combing through company financials, Padley suggested the best way to spend the end-of-financial-year is by developing “an opinion” and not “following the crowds”.

The best place to start is the trends that already have momentum.

“It’s probably best you respect the current themes and not bet against them until proved otherwise,” said Padley.

“Continuation of the trend is the most likely outcome in the stock market.”

 Padley suggested the following 4 themes as the “obvious” starters for the new financial year:

A continuing bull market
Real estate prices are going up, so ASX housing shares are “low-risk”
Interest rates won’t rise significantly, so real estate investment trusts, infrastructure and utility shares will do well
Electric vehicles are coming, so copper and lithium mining shares to rise

Efficient markets can be beaten

The counter-argument to Padley’s view is that markets aren’t completely efficient and that bargains can be found occasionally.

This was the experience of Forager Funds senior analyst Gareth Brown.

“Markets can be surprisingly ignorant from time to time. Especially at the smaller end of the market,” he said on a company blog in March.

Brown took the example of ThinkSmart Limited (LON: TSL), which was a buy now, pay later business in the UK. After Australian giant Afterpay Ltd (ASX: APT) bought out the business, ThinkSmart shares were effectively a stake in the parent.

Yet a huge discrepancy between Afterpay and ThinkSmart shares appeared.

“Here’s what happened over the first 6 months of 2020. Afterpay shares rose 99%. And ThinkSmart shares fell 11%,” said Brown.

“And what about the almost 9 months since 1 July 2020? Afterpay rose a further 73%, ThinkSmart 271%.”

So the market doesn’t always see everything, according to Brown.

“There’s still plenty a diligent investor can do to gain an edge over it. Look hard and think smart.”

The post What truly moves an ASX share price? Knowing the unknown appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

5 things to watch on the ASX 200 on Tuesday

The Zip (ASX:Z1P) share price is down 6%…profit taking, competition or lockdown fears?
Leading brokers name 3 ASX shares to buy today

Why Afterpay, Gold Road, Qantas, & Talga shares are sinking

Afterpay (ASX:APT) share price tumbles nearly 7%

Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!