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Is it important to know the economic explanations of a profitable investment strategy? In other words,...

Is it important to know the economic explanations of a profitable investment strategy? In other words, why not just simply invest in some ideas like momentum and make money without caring too much about its underlying reasons?

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Answer #1

This idea is not at all appropriate as simply investing in a company/sector without caring about the economic aspects would have a significant risk associated.

This has been proved at many instances historically like the great fiancial liquidity crunch or reccession during 2007. No one cared about the creditworthiness before investing in the mortgage securities but when the defaults started happening it all went down.

Hence it is utmost necessary to take into account economic aspects as well before investing.

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