Physics of the Stock Market: 5 Laws Explaining Price Movements
TL;DR
The article uses five physics-inspired laws to explain stock market price movements, including inertia, trajectory, equilibrium, resistance, and lift, helping investors understand market behavior for better decision-making.
The article from Ambit Capital explains how stock market behavior can be understood through five laws inspired by classical physics. The laws include Newton's inertia, where cheap stocks stay cheap unless acted on by external earnings forces; trajectory, where momentum trades require a vector; equilibrium, where prices revert to mean levels; resistance, where growth pushes through valuation; and lift, where valuation multiples are sustained by RoE vs CoE altitude. By understanding these laws, investors can better understand market behavior and make informed decisions.