Does Momentum Work with Value Investing?

Does “Momentum” Investing work with “Value” Investing?

See the research paper by Nicholas Barberis below. Barberis concludes that value and momentum are driven by biases that mirror one another. Value is driven by an overreaction problem in which humans are too quick to draw conclusions from a small amount of recent data. In contrast, momentum is driven by an underreaction issue, which is the opposite of verreaction. With underreaction, humans are slow to update their views based on new evidence, which could be due to a systematic behavior bias and/or due to the fact human beings simply have limited cognitive power.

A lot to ponder.  I recommend Quantitative Investing by Wesley Gray. Momentum investing is NOT growth investing (buying price at high multiples to underlying fundamentals), because momenum investing is strictly based on recent price movements not fundamentals.

a model of investor sentiment or under and over reaction

Value and momentum everywhere

http://blog.alphaarchitect.com/2016/03/22/why-investors-should-combine-value-and-momentum/#gs.FlrDk6A

and http://blog.alphaarchitect.com/2017/06/06/the-value-momentum-trend-philosophy/#gs.7NtEcq4

Can we control our emotions and emotional responses?

http://bigthink.com/stephen-johnson/everyones-thinking-about-emotions-wrong-says-psychologist-lisa-feldman-barrett

2 responses to “Does Momentum Work with Value Investing?

  1. I think the two complement each other very nicely. One could make the case that it is an efficient use of capital to focus on the stocks that have both momentum and value characteristics – i.e., a single stock gives you two factor exposures, rather than having to buy two separate stocks.

    Nick de Peyster
    http://undervaluedstocks.info/

  2. Pingback: This Week's Best Investing Reads From Our Top 50 Investing Blogs 2017 | The Acquirer's Multiple®

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