Are We Near the Top Yet? Momentum Investing and the Anne Hathaway Effect

Today, on the same day that the New York Times published a piece that asked if investors were investing like it was 1999, Herb Greenberg produced a piece on CNBC that questioned the same thing. Make no mistake, this is a momentum driven market where valuation considerations for many companies are secondary at best. Clearly, that cannot last forever; it never has.

It may be that many momentum purchases are being made by the computers of high-frequency investors with machine-reading software. The software searches for key words in hundreds of news sources and when those words pop up, the software automatically triggers trades. That may explain what some investigators have noticed: whenever Anne Hathaway is in the news, Berkshire Hathaway’s stock price jumps. It is trading without thinking; it reminds me of tulip bulb investing, the South Sea, the Nifty Fifty, TMTs, and residential investment property.

The NY Times:

…Mr. Weisel, who has also been tracking hedge fund activity, finds the numbers dizzying. Countless hedge funds are investing in private placements — “dozens and dozens of hedge funds are doing the same thing,” he said.

As cash continues to pile up, the fear is that all this money cannot be put to work responsibly. With only a few perceived “winners,” some investors must be choosing losers or paying too much, Mr. Meeks said.

When you see the valuations being bandied about — I do think, boy, these better be really special companies.”

CNBC: “It’s so 1999.”

The Anne Hathaway Effect:

These movies rarely end well.

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