During almost any sports broadcast, you hear the word “momentum”, which psychologists define as psychological momentum. Of course, the key question is, does it exist, is it just a temporary shift in confidence or mood, or does it actually change the outcome of a game or a season? “The Oxford Dictionary of Sport Science” defines psychological momentum as, “the positive or negative change in cognition, affect, physiology and behavior caused by an event or series of events that affects either the perceptions of the competitors or, perhaps, the quality of performance and the outcome of the competition.”
Analogies are generally only partly applicable. However, the importance of participant reaction to current situations, whether in sports or stock market decisions, may lend some validity to the perception that, over the immediate near term, momentum may be an important factor.
Clearly, in the case of the stock market, long term results are more likely to reflect anticipated operating results, projected growth rates, economic activity and other financial metrics.
Never-the-less, as the Dow climbs through 20,000, don’t entirely dismiss the possible contribution of momentum, at least for near term.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®