Happy Sunday

Unless you've been in a bunker lately, you've seen the markets bleeding red. Many of us love trading stocks while also doing the long-term thing. I found this cool paper about how regular folks predict stocks on Motley Fool CAPS. While they may not be Wall Street pros, there's still stuff we can learn here.


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Lets dig in…

Short vs Long-Term Investing: Who Wins

If you've been around the stock market, you know short-term and long-term investors think very differently. Short-term folks care a lot about charts and price patterns. Long-term investors care more about the actual business. When these two groups really disagree, markets get crazy.

Anthony Cookson and his team looked at how regular folks predict stocks on the Motley Fool CAPS website. CAPS is a stock picking game; users rate stocks as either "outperform" or "underperform" the market and set time frames for their predictions.

It's basically a social platform where everyday investors share their stock picks and compete to see who makes the best predictions. The system tracks everyone's performance and assigns ratings based on accuracy.

First, let's look at how positive or negative investors feel (with 0 meaning super negative and 1 meaning super positive). Short-term investors focus on weeks or months, while long-term investors think in years. What you'll notice right away is that long-term investors are usually more positive. They also don't change their minds as quickly as short-term investors do.

This happens even during market crashes. During Covid in 2020 and the 2008 financial crisis (the gray bars on the chart), long-term investors stayed calm. Their outlook barely changed. But short-term investors? Their mood dropped fast. In 2022, when prices went up like crazy after Russia invaded Ukraine, both groups felt worse about the market, but short-term investors panicked way more.

We see the same thing happen with company earnings reports. The chart shows how investors react when companies report earnings that are better or worse than expected. Once again, short-term investors overreact, always following whatever the earnings news says. Long-term investors barely change their minds after one earnings report. They care more about if the stock is cheap and what might happen years from now.

Without even trying to, long-term investors often end up doing the opposite of what short-term investors do after earnings news or during scary times like the financial crisis or Covid or perhaps trade war uncertainty….