Home Investment The Lindy Effect: How it Improves Investment Skills

The Lindy Effect: How it Improves Investment Skills

The Lindy Effect: How it Improves Investment Skills

Broadway, known for its long-running hits and flops, was also home to Lindy’s Delicatessen, a popular spot for actors, writers, and Broadway enthusiasts for nearly a century. The Lindy Effect, named after Lindy’s, suggests that if a Broadway show lasts 100 performances, it is likely to continue for another 100 shows. This concept, popularized by economist Nassim Nicholas Taleb, applies not only to Broadway but also to nonperishable things such as books and ancient technologies like the wheel. However, there are exceptions to this rule, as Lindy’s Delicatessen closed after 96 years in business.

The idea of momentum investing, which aligns with the Lindy Effect, has a long history. While a study from 1993 is often considered the first study in the field, a paper published in 1967 actually predates it. Traders were aware of momentum even earlier, with its origins traced back to a floor trader in the 1910s. The Lindy Effect suggests that since momentum has worked for 100 years, it is likely to continue working for another 100 years. In fact, a study covering two centuries of price return momentum confirmed its consistency and significance throughout history.

Momentum strategies rely on stocks with long price histories, indicating their ability to withstand market downturns and economic challenges. The fact that these stocks have momentum and are experiencing price increases is crucial, as institutional investors tend to buy stocks that are trending upward. This demand helps sustain the uptrend in prices, and as a stock rises, it becomes a larger part of major market indexes. Index investors then need to buy more to maintain the appropriate weighting in their portfolios.

Given its historical success and the Lindy Effect, momentum is likely to continue working in the future. Investors should consider following this strategy, and a research service called Infinite Momentum Alert, led by Adam O’Dell, focuses on 10 stocks with strong momentum and high potential for gains in the next 30 days. The service aims to outperform the S&P 500 by 300-to-1 over the long term. To learn more about this strategy and access the list of recommended stocks, viewers can watch Adam’s presentation through a provided link.

On another note, home affordability has been impacted by mortgage rates remaining high. The National Association of Realtors Housing Affordability Index, which measures the ability of a typical family to afford mortgage payments, sits at 87.8, indicating decreased affordability. The index reached its peak in 2020, reflecting extremely affordable housing due to low mortgage rates. However, the recent collapse in affordability can be attributed to the rise in home prices during the COVID-19 pandemic and the high mortgage rates. It is unlikely that mortgage rates will drop until long-term bond yields decrease, and without an increase in new housing supply, it is challenging to see significant improvements in home affordability. Despite this, homeowners may find comfort in the fact that a major drop in home prices is unlikely in the near future.


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