For years, I've based my decisions primarily on valuation, seeking out opportunities where a stock's price doesn't reflect its intrinsic value. Yet, recently, I've realized that something has changed in the environment we operate in, and ignoring these changes can be costly.
I'm experiencing an evolution in my investment approach, and I think it's important to share it with you. It's the classic value approach, the one that theoretically should lead to market outperformance in the medium to long term. But my education and work have always pushed me to systematize, to look for recurring patterns in market history to project them into the future. And it's precisely this approach that has made me understand when it's time to adapt.
Today I want to explain why, more and more often, I wait for a stock to show signs of positive momentum and the formation of a technical bottom before entering, even when the valuation already seems attractive.
January 2022: The Turning Point
It all started in January 2022. I remember that period vividly because it was then that I began to clearly see what was about to happen. The COVID-related economic stimulus was running out, the money that had been pumped into the economy was drying up, yet the market continued to price as if nothing would change. I made the decision to offload many cyclical positions, and that decision proved to be the right one.
Meta: Profits plummeted 38%. Google: nearly 20% decline, despite massive cost cuts and the closure of numerous projects. Companies that seemed unstoppable during the 2021 boom.
Russia's invasion of Ukraine: not just an isolated geopolitical crisis, but the beginning of a reshuffling of the world order we had taken for granted for the past 60-70 years.
It took the market two years to reclaim those highs. Those who tried to catch the famous "falling knife" found themselves stuck with capital tied up and significant losses.
When Americans spent their government checks, everything seemed to be working. But when the music stopped, many investors who had bought on the dip found themselves with huge losses.
A New World Order
If you follow Ray Dalio, and I recommend you do, you'll understand what I mean when I talk about a changing world order. His recent interviews perfectly illustrate the dangers and transformations underway. It's not just about economics or trade, but also military aspects, cyber warfare, and social media propaganda. All of this makes projections based solely on historical data much less reliable.
That international trading order, that stability that allowed you to look at a company's history and say, "Yes, this business model will work for the next ten years," has begun to crumble.
If you look at their earnings, you'll notice they've been virtually flat since 2018, excluding the temporary bump in the tax cuts. Then came the major reset of their cable TV industry, a decline the market had completely underestimated during the pandemic. Those who held Disney shares for ten years not only gained nothing, but also lost purchasing power, considering inflation rose 30% during that period. And we're talking about one of the most recognizable names in the American market.
The Age of Executive Orders
We then come to the current situation, with an administration governing primarily through executive orders. I checked the numbers a while ago: over 300 executive orders versus fewer than twenty laws actually passed. This means the rules of the game can change overnight, without the lengthy legislative process that once allowed changes to be seen.
Consider the government's recent decisions to acquire significant stakes in companies like Intel, or lithium and rare earth mining companies. This isn't something we've often seen in the postwar American economy, except during the 2008 financial crisis with the bailouts of several banks and automakers. To find precedents for such massive and direct government intervention in the economy, we have to go back to World War II.
If you're a competitor to a company that suddenly receives an injection of government capital, your competitive landscape changes dramatically. And these are just the first-order effects. The second- and third-order effects, those that unfold over time, are virtually impossible to predict for those of us without privileged access to information.
Information Asymmetry Has Become Extreme
This brings me to a crucial point: information asymmetry has become extreme . Insiders, both corporate and political, have access to information long before it becomes public, and at this moment in history they can exploit this advantage more clearly than ever.
For eleven years, it returned about 7% annually, a total return of around 100% for more than a decade. Then, in the last three years, it rose 400%, with most of this gain concentrated in the last six months thanks to favorable government announcements. In six months, it returned more than it had in the previous eleven years. If you base your decisions on history, as I primarily do, you can't predict a move like that.
But the key point is this: the same mechanism works in reverse. There are people who know in advance what government announcements are coming, which sectors will be affected, which companies will be pressured. And they will act on this information before you and I know it.
The pharmaceutical industry is another prime example. Entire business models are upended by government decisions. If you look at Johnson & Johnson's history, it seemed as predictable as the S&P 500. But when the government decides to target one of your key products or the entire industry, all that predictability evaporates. And someone knows it before you do, sending the stock price into a tailspin weeks before the official announcement arrives.
The AI Factor: A Silent Disruption
Then there's AI. We can't ignore the fact that there are companies that will be disrupted by artificial intelligence, and that the people who work in those sectors, who see the data before it's published, who participate in the internal discussions, will see these changes coming long before the average investor.
My investment style, as you know, doesn't involve digging extremely deep into every single company. I try to cover a broad, diversified portfolio and focus on key metrics and valuations. But this means I don't have a direct pulse on what's happening inside companies. The people who work in those sectors, however, do. They'll see the numbers deteriorate before they're announced, they'll understand which products are being replaced by AI solutions, and which processes are becoming obsolete.
They could also be wrong about the ultimate extent of the disruption, or underestimate a specific company's ability to adapt. But in a market where everything amplifies rapidly, especially on the downside, waiting for a clear bottom to form is more prudent than trying to gauge from the outside how deep the fall will be.
The Danger of High Valuations
Then there is one aspect that I have seen repeated in a worrying way: the starting valuations are often very high.
For years, it traded at a P/E of 30 with a 12% increase. Absurd numbers, if you think about it. When it started to decline, many people saw a P/E of 30 on the decline and thought, "Wow, it's at the same multiple as always, it's a bargain." And then they found themselves down 60%, because that 30 multiple had never been justified.
Stable earnings, a solid company, but valued at 50 times earnings. It's now trading at 15 times, which is probably where it should have been all along. If you'd used the "normal P/E" of 26 to value it, you'd have paid far too much, because that multiple was inflated by the post-stimulus boom that never should have happened.
This is the danger when starting at high valuations: even if a company seems "reasonably priced" compared to its recent history, that history may have been an anomaly. And when the reset occurs, those who bought on the dip find themselves with losses of 70-80%.
How to Identify Positive Momentum
I know many of you will ask, "But what exactly do you mean by positive momentum?" Let's use something simple and accessible to everyone: the 200-day moving average .
When a stock rises above the 200-day moving average and stays there, not just for a day or two but for at least a week, or even better, a month, that is generally a sign of positive momentum.
I'm not a pure technical expert, and I don't pretend to be. But this indicator is robust enough that anyone with a trading account can access it without the need for special software. You can also use tools like Seeking Alpha's momentum score, or ask an AI to analyze whether a stock has formed a technical bottom based on the consensus of various technical analysts. The important thing is to have some form of confirmation that the worst is over.
Yes, this approach means that almost by definition, you'll never buy at the bottom. If you wait for the stock to rise above the 200-day moving average, you'll inevitably pay more than the absolute bottom. Some opportunities will slip through your fingers completely because they'll rise so quickly that by the time they signal, they'll already be much more expensive.
The Mathematics of the Wallet
But this is where risk management and portfolio math come into play. In my case, with a diversified, non-concentrated portfolio, avoiding even two or three 60-70% losses per year makes a huge difference in overall returns. Much more than trying to hit every single perfect low.
I started applying this approach systematically with growth stocks a couple of years ago, precisely because the declines in those early-stage companies can be particularly sharp. A bad earnings report, a disappointing quarter, and they can plummet 50% before you even realize what's happened. Waiting for a bottom to form and for momentum to return to positive territory will certainly cause you to miss the bottom, but it also prevents you from tying up capital in something that will continue to decline for months as increasingly negative news emerges.
I'm now convinced that alpha, true outperformance versus the market, doesn't come from basic strategies. Any relatively solid strategy, if you understand it and apply it with discipline, will likely lead to market-level performance. Outperformance is built on edge cases: those three stocks a year that would have fallen 80% but that you avoided at the last minute, those two or three situations where you were tempted to wait for a technical bottom but decided to enter anyway based on valuation, and it turned out to be the right choice.
Sure, with a concentrated portfolio, you can get lucky and do very well with just a few successful bets. But you can also be very unlucky. What I'm describing is a more systematic approach, designed to work over the long term through hundreds of decisions.
Know Your Place in the Information Hierarchy
The underlying theme of this whole discussion is simple: you need to understand where you fit in the information hierarchy . And the answer is: you're at the bottom.
Corporate insiders know what's happening in their company before it's announced. Political insiders know what decisions are about to be made. Large institutional traders have models and data you don't. People who work in a specific industry see signals before they turn into quarterly numbers.
When you buy a stock with a value approach, you're essentially saying, "The market is wrong, I'm right, this stock is worth more than its current price." And often, in the medium to long term, you're right. But in the short term, in this context, the market knows much more than you do.
That's why I say: respect the market. Don't try to outsmart the market in the short term, especially in this complex and rapidly changing historical moment. If you have firsthand knowledge of an industry because you work there, that's a different story; it's a huge advantage in times of rapid change. But if, like most of us, you get your information from public sources, the internet, or quarterly reports, then you're at an information disadvantage.
A Necessary Adaptation
What I'm proposing isn't revolutionary, but it's a necessary adjustment to the current environment. Wait for the stock to bottom. Wait for positive momentum to emerge. Yes, you'll pay a little more. Yes, occasionally you'll miss an opportunity that would have immediately rebounded. But in most cases—and I've seen this happen in 90% of situations where I've been cautious—you'll avoid significant losses.
Look at Estée Lauder: throughout its entire decline, there was never a true technical bottom until very recently. Never a moment when you could say, "Okay, momentum is back in the black, the stock has broken above the 200-day moving average and is staying there." If you had waited for that signal, you would have avoided a 75% drawdown from the peak. Even paying 20-30% more than the all-time low, you would be infinitely better off.
There's a paradox in investing that I've come to recognize over time: the more you study, the more informed you become, the more you realize how little you really know. My education taught me to systematize, to look for patterns, to use history as a guide. But history is only a reliable guide when the context remains relatively stable.
When the environment changes radically, as is happening now with geopolitical realignment, government intervention, AI disruption, and inflated valuations that need to normalize, you need to adapt your approach. This doesn't mean abandoning fundamental analysis or the pursuit of value. It simply means adding a prudential filter to protect you in a riskier and more unpredictable environment.
This shift in my approach wasn't born from a moment of enlightenment, but from observing recurring patterns over the past few years. I noticed I was becoming increasingly cautious with certain stocks, instinctively waiting for technical signals before entering, even when the valuation seemed attractive. It took me some time to formalize this instinct into a more structured guideline.
Now, when I tell you in my content "wait for positive momentum" or "wait for a technical bottom to form," you know why. It's not because I don't believe in fundamental analysis. It's not because valuation isn't important. It's because I've learned to respect what I don't know, to recognize when I'm at an information disadvantage, and to protect myself accordingly.
In the long term, the goal remains the same: buy good companies at reasonable prices and let them grow. But in the short term, in this specific context, I add a layer of technical discipline that helps me avoid the most obvious pitfalls. And if that means paying a little more and missing out on some opportunities, well, that's a price I'm willing to pay to sleep better at night and protect my capital over the long term.
Remember: investing isn't a race to see who buys lowest. It's a marathon where the winner is the one who avoids costly mistakes and compounds returns over time. And in this historic moment, a little patience and humility can make the difference between a good return and a devastating loss.
