Using Momentum Investing and Trend Following
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 28 August 2019
⏱️ 33 minutes
🧾️ Download transcript
Summary
How momentum investing works, what are some of the challenges in implementing it, and how can individuals use momentum in their investment portfolios.
Topics covered in this episode include:
- What is momentum investing and why does it theoretically deliver excess return.
- Why do momentum strategies suffer through periods of horrendous losses.
- Why high trading costs and selling a position can be challenges to successfully implementing momentum strategies.
- What are examples of momentum oriented funds and ETFs.
- How momentum can be used for making asset allocation decisions and adjusting portfolio risk.
Thanks to The Great Courses Plus and Netsuite for sponsoring the episode.
For show notes and more information on this episode click here.
- [0:18] Momentum investing consistently outperforms the market.
- [5:04] Why does momentum investing work?
- [7:31] The three challenges of the momentum investing phenomena.
- [12:50] What happens if investor behavior changes?
- [14:24] Tactics for implementing momentum into your own portfolio.
- [20:02] Using dual momentum to move in and out of asset classes.
- [23:55] Utilizing momentum investing as a swing vote.
- [28:01] How David uses momentum investing in his portfolio.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money. How it works, how to invest it and how to live without worrying about it. |
| 0:10.0 | I'm your host, David Stein. Today's episode 266. It's titled Momentum Investing and Trend Following. Back in episode 261 we discussed value investing, which is the process of buying assets that are selling for |
| 0:26.4 | less than their intrinsic value. |
| 0:29.0 | The intrinsic value is the value today of a future cash flow stream. |
| 0:35.0 | In that episode I mentioned that growth stock investors |
| 0:38.2 | also seek to purchase companies that |
| 0:43.2 | I sell for below their intrinsic value. |
| 0:44.0 | Yet the difference between the two is that growth investors focus on companies |
| 0:48.6 | with very fast earnings growth. |
| 0:50.8 | There's another investment strategy though that I haven't spent much |
| 0:54.7 | time discussing on the podcast and it doesn't care about intrinsic value. It's called |
| 1:01.2 | momentum investing. Here's how Clifford It's called Momentum Investing. |
| 1:03.0 | Here's how Clifford Asnes and his co-authors described it in a paper titled |
| 1:09.0 | Fact, Fiction, and Momentum Investing. |
| 1:12.0 | Momentum is the phenomenon that securities which have performed well relative to peers, |
| 1:18.7 | i.e. winners, on average, continue to outperform, |
| 1:22.5 | and securities that have performed relatively poorly, |
| 1:26.0 | or losers, tend to continue to underperform. |
| 1:30.0 | Another name for momentum investing is Trend Following, or sometimes it's called Time Series Momentum. |
| 1:39.0 | I became an Institutional Investment Advisor in the mid-90 90s and one of my initial clients was a pension plan. |
| 1:47.0 | They had a manager, a small cap stock manager, |
| 1:51.8 | three house capital management. They're based out of Chicago, |
... |
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