- Social media has become a powerful market force, disconnecting prices from fundamentals.
- Meme rallies often persist, distorting benchmarks and testing traditional valuation models.
- Combining fundamental conviction with technical discipline helps active managers manage risk and stay adaptable in volatile markets.
A company beats earnings expectations, yet its stock falls. Another misses, yet the stock rallies. Why?
Seasoned investors know this paradox well. Fundamentals point one way, but markets often move in the opposite direction. The hard truth is simple: price is reality. It reflects the collective judgment of millions of participants, condensing information, fear, and expectation into a single number.
This is why experienced professionals do not rely solely on fundamentals or technicals. Fundamentals give conviction; technicals give confirmation. Conviction without confirmation is fragile. Together, they create a more disciplined and durable process than either alone.
Fundamentals explain what should happen
Fundamentals remain the foundation of investing. They answer critical questions: What is the business worth? Does it have a competitive moat? How durable are its cash flows? Over time, these factors reassert themselves. Without them, investing becomes speculation.
Benjamin Graham’s metaphor still applies: in the long run, the market is a weighing machine. Earnings, balance sheet strength, and competitive position determine value. But in the short run, the voting machine dominates -sentiment and positioning push prices away from intrinsic worth.
That gap can last for years. Amazon in its early days is a classic case. Amazon was building the “everything store.” The market understood it early, whilst analysts still benchmarking against global book sales clung to dated models and took years to catch up contrast that with Nokia. For years, it looked cheap on traditional measures, but the fundamentals masked a business in structural decline. Investors clinging to the “value” label watched the stock collapse as smartphones displaced its franchise. Fundamentals without price discipline turned into a trap.
Being early can be as costly as being wrong. Conviction must be paired with a signal that the market agrees.
Technical analysis reveals what is happening now
Technicals are often misunderstood. They are not about predicting the future; they measure the present. By tracking price behaviour – trend, momentum, and participation – they capture how the market is voting right now.
This discipline matters because investors are vulnerable to bias. It is easy to double down on a falling stock that looks “cheap.” Technicals impose humility. They say: stop adding, cut losses, and preserve capital. As Paul Tudor Jones put it, “Losers add to losers.”
The Nokia example shows why this matters. Fundamentals seemed attractive, but price told the truth: the market was leaving. By listening to price, investors could have avoided years of value destruction.
In short, fundamentals anchor conviction; technicals confirm or challenge it. When both point in the same direction, uncertainty falls and costly mistakes become far less likely.
The real edge: avoiding losers
Investors often obsess over finding the next big winner. Yet history shows the real danger lies elsewhere. Hendrik Bessembinder’s research reveals that since 1926, just 4% of U.S. stocks created all the net wealth in the market. Most stocks either lagged or quietly destroyed value.
This is why risk management is the true edge. Avoiding losers does more for long-term performance than catching every winner. Technical discipline helps investors cut positions early, before losses compound.
One way to systematise this discipline is through scoring tools that translate price action into simple signals. The specifics vary, but the principle remains the same: strip away emotion, highlight what the market rewards, and avoid what it punishes.
The 2008 financial crisis illustrates the point. Many banks looked cheap on earnings multiples, yet prices kept sliding. A disciplined, price-aware process would have kept exposure minimal, sparing investors catastrophic drawdowns. By contrast, in 2020 Tesla divided opinion on fundamentals, but price momentum was undeniable. Those who respected the signal captured one of the most powerful runs in modern equity history.
Right stock, right time, right size
All investors will be wrong at times. What separates professionals is not perfect foresight but consistent discipline. Fundamentals provide the anchor of business value. Technicals reveal when conviction is unsupported by price. Together, they force humility, prevent destructive habits like averaging down, and protect capital for the opportunities that matter.
Price is the final arbiter. Ignoring it means fighting the market’s collective judgment. By combining rigorous fundamental research with disciplined technical signals, investors can avoid costly mistakes, allocate capital more effectively, and build portfolios that endure – even when markets behave irrationally.
The aim is simple: own the right stock, at the right time, in the right size.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Global Equities team:
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares.
- May have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
- May invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of a fund over the short term.
- Certain countries have a higher risk of the imposition of financial and economic sanctions on them which may have a significant economic impact on any company operating, or based, in these countries and their ability to trade as normal. Any such sanctions may cause the value of the investments in the fund to fall significantly and may result in liquidity issues which could prevent the fund from meeting redemptions.
- May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
- May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay.
- May, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
The risks detailed above are reflective of the full range of Funds managed by the Global Equities team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
David Goodman
David Goodman is a fund manager in the Global Equities team. David joined Liontrust in 2024 from GAM, where he was responsible for applying technical analysis to assist with portfolio construction and risk management.
