The (temporary) triumph of momentum over value

As I’ve mentioned before, momentum investments have been out-performing value investments over the last couple of years.

If you had just picked what had gone up in the past, it continued to go up.

Value investing, instead, focuses on understanding the value of a business and trying to buy below that value, thus providing a margin of safety (like building a bridge to handle more than you think it will bear over time).

Value has been, over the long run, one of the (if not the) smartest ways to invest.

Just because it hasn’t done well lately doesn’t mean it won’t do well in the future. In fact, quite the opposite is true–value investing is VERY likely to out-perform momentum investing in the near future.

As additional support for this contention, take a look at a recent Motley Fool article by Andrew Sullivan, CFA. In it, he gives you a flavor of the returns that are possible for value after it has under-performed.

Trying to time when momentum will out-perform value and vice versa is a fools errand, but, at times like this, it’s very easy to be patient and wait for value to begin out-performing again.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s