The potential efficacy of combining value and momentum factors has always been a consistent theme of my research. Our Trending Value strategy still identifies the best values in the market, with the added twist that it then chooses from that narrow list the stocks that have increased the most in price over the past six [...]
To arrive at an intrinsic value we forecast cash flows out five years, and then discount the first four years back to the present and add to that the present value of the fifth year's cash flow after applying a multiple to it. The setting of that multiple, of course, is very important and is [...]
Models beat human forecasters because they reliably and consistently apply the same criteria time after time. Models never vary. They are never moody, never fight with their spouse, are never hung over from a night on the town, and never get bored. They don't favor vivid, interesting stories over reams of statistical data. They never [...]
With our quantitative and more automated approach to buying, we're just trying to take as many of the behavioral foibles off the table as possible. Think about it in terms of the S&P 500 index, which is actually a not-so-great investing strategy because all it says is “Buy big stocks.” The reason it beats 70 [...]
It's hard for most people to grasp that a great company is not always a great stock, and that a great stock is not always a great company. Value works because you're consistently paying less to get more. Over time that works a lot better than paying more to get less.
When you look back as far as 80 years for which we have data, rather than moving about without rhyme or reason, the stock market methodically rewards certain investment strategies while punishing others. There's no question the value-based strategies that work over long periods of time don't work all the time, but history shows that [...]