This article is featured in the Q4 2025 Future Strategist newsletter, you can read the rest of the newsletter here.
All seasoned investors will be familiar with the following illogical and exasperating scenario: company A beats earnings expectations but its shares fall, while company B fails to meet predictions and yet rallies. This paradox – an occurrence that is as old as trading itself – is becoming increasingly common in modern markets and reflects a simple truth. This is that fundamentals alone do not move prices; instead, they move on positioning, flows and expectations, often long before valuation models catch up.
The assumption that fundamentals anchor markets in the short term has weakened. Passive funds now account for a majority of US mutual fund assets, buying on index weight rather than valuation. Exchange traded products (ETPs) channel capital into the largest stocks regardless of price. Momentum has become a driver of flows in its own right. What trades higher attracts more capital. What falls is abandoned, cheap or not.
For fundamental investors, this presents a professional hazard. Stocks can remain expensive for years. They can also remain cheap for longer than portfolios and careers can tolerate. Waiting for intrinsic value to reassert itself is no longer a neutral stance, it is an active decision to accept underperformance while markets move on.
Managing losers
The deeper problem is not that investors miss the occasional winner, but that they mismanage losers. The distribution of stock returns is brutally skewed. Research by Hendrik Bessembinder shows that since 1926, most US-listed stocks have delivered lifetime returns below those of Treasury bills, while just 4% account for all net wealth creation. In a market where a handful of giants now dominate index performance, clinging to losers is an expensive way to search for the next big winner.
Price is an unforgiving judge. Markets compress competing views, models and timeframes into a single observable outcome: price. It reveals when the market is voting against a thesis, regardless of how compelling the research appears on paper. Ignoring that signal invites familiar errors. Averaging down feels rational when a stock looks cheap; in practice, it often compounds losses. Being early is frequently as costly as being wrong.
This is where discipline matters more than insight. Predicting tops and bottoms is far harder than recognising when a trend is in place. In time, either the price moves to validate a thesis or the thesis is revised to reflect the price. Extended dislocations between the thesis and market can last for years, quietly eroding returns and exposing the central risk of undisciplined active strategies.
Stay disciplined – analyse the stock
Technical analysis is often dismissed as speculation. In reality, it answers a different question from fundamentals. Fundamentals analyse the company. Technicals analyse the stock. As already noted, the gap between a company’s valuation and its share price can persist for long periods. Technicals focus on market conditions, measuring trend, momentum and participation in much the same way that weather forecasts describe conditions rather than causes. Used alongside fundamental analysis, they help investors navigate periods of dislocation rather than wait for them to resolve.
Such a framework does not ask investors to abandon valuation. Fundamentals explain what a business is worth over time. Price reveals when the market agrees and when it does not. When both point in the same direction, confidence is justified. When they diverge, risk rises and discipline matters most. Combining technicals with fundamental investing is analogous to having guard rails that keep an investor on track when valuation diverges from the market action.
The current market cycle offers a clear illustration. US equities trade at valuation extremes relative to other regions, while index concentration sits near historic highs. Investors who relied on valuation alone have missed the rally so far. Those who chase returns without discipline will struggle when momentum turns.
The implication is not surrender to momentum, but disciplined participation. Markets overshoot and trends persist longer than expected to. Staying invested while price supports a thesis and reducing exposure when momentum breaks is less about precision than avoiding prolonged misalignment.
In modern markets, conviction requires confirmation and prediction needs safeguards. The market can ignore your thesis for longer than you can ignore the market.
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, in 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. 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 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.
