The core material states that When sentiment is low one would expect high future returns on small stocks , highly volatile stocks, the stocks of unprofitable company , Non Dividend Paying stocks while if sentiments are high we tend to see reverse pattern. But my understanding says that when sentiments are low investor tend to move their funds to more valued stocks and Dividend Paying shares ( irrespective of small or mid or large cap stock). When sentiments are high , due to high momentum effect and heard behavior of retail traders - more penny stocks ( small stocks ) and companies whose profits are volatile jumps on high sentiment bandwagon and generally give higher returns than those company's stocks which are more valued and market leader in their respective sector. With consideration to real world scenario and observation , Please helps me to understand the core reading material para as mentioned above?
Hi, I don't think your understanding there contradicts with the core reading. In simple terms we can make high returns from buying low and selling high. If market sentiment is low, demand for the stocks mentioned there in the core reading will be low and so they can be picked up relatively cheaply. Once investment sentiment changes, prices will rise and profits/returns will be made. So, as I say, I think your thinking here is absolutely fine. However, you are considering what investors will do ie what they will go out a buy when sentiment is low. The Core Reading is considering the returns that can be made in the future. Hope this helps. Joe
