Comments on: Value vs momentum chart of the day A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: MarketSci Mon, 20 Sep 2010 13:08:15 +0000 Felix – FYI…posted a follow up to Haldane’s strategy here: 0/re-the-power-of-momentum/

In a nutshell, it’s a dud because Shiller’s S&P 500 price represents the AVERAGE price for the month, not the month-end.

That means it’s not reproducible (and completely falls apart when applied to actual prices).

Just my small contribution to the discussion.


By: Jake103 Mon, 13 Sep 2010 16:46:49 +0000 Felix- charts on EconomPic were updated based on feedback from a reader (I wasn’t properly accounting for dividends).

By: DavidMerkel Mon, 13 Sep 2010 14:55:30 +0000 Valuation does not work as a short-term strategy — it is a 2-5 year phenomenon. Momentum is a short-run strategy — it is a <1 year phenomenon.

BTW, the paper really needed to put more meat on the bones for the DDM analysis; I can’t tell what it is doing. DDMs are GIGO most of the time, though there are a few firms that know how to use them under very strict rules.

By: Bfuruta Mon, 13 Sep 2010 09:37:42 +0000 Why do so many smart people like Haldane‘s study? Confirmation bias, or what?

I don’t think John Templeton or Peter Lynch or Warren Buffett would consider this study a test of the value strategy. What this study shows is that if you ignore the central concept of a strategy and naively employ a tool that is typically used with the strategy, the market will crush you. The “value” in “value investing” doesn’t mean you buy “cheap,” which too often is junk near fair value. It means you establish a “margin of safety” through research, buying a solid company with good long-term growth prospects for much less than it is worth. The rules used in the study don’t do justice to the principle on the long side, and grossly violate the principle on the short side.

If momentum trading outperforms value investing to the extent found in the study, then there would be hoards of people who accumulated more money through momentum trading than Warren Buffett accumulated through value investing. How many such people can you name?

By: jrmlal Sun, 12 Sep 2010 16:35:30 +0000 Are dividends taken into account ? Value Investing is a lot about dividends whereas momentum is not. And in the long run, dividends are a big share of returns.

By: rich_c Sun, 12 Sep 2010 15:19:17 +0000 Also, the dividend share of earnings in the S&P 500 dropped sharply over the 20th century, such that dividends ceased to be a useful proxy for earnings. A value investor would presumably have noticed this, and shifted toward a strategy using a PE ratio or Q ratio, rather than the classic DDM.

By: ikitov Sun, 12 Sep 2010 09:55:02 +0000 Still, the best strategy is to gather the returns from all fluctuations around known trend of the S&P 500. Teh trend can be foreseen years ahead. We have been demonstrating an excellent prediction of the S&P 500 since March 2009 on Seeking Alpha ( the-s-p-500-in-september-2010-back-on-tr ack ).

By: TFF Sat, 11 Sep 2010 21:44:57 +0000 Agreed with TWS… I consider myself pretty much a pure “value” investor (my emotional bias is counter-momentum), yet the stocks I end up with are often described by others as “growth” stocks or sometimes “dividend growth” stocks. I rarely find myself buying anything with a TTM P/E under 12 or a dividend yield over 4% (other than regulated utilities) for the simple reason that companies trading at those valuations usually have a pretty dismal outlook. Building a quant model to describe a sensible value approach is HARD, as the essential question isn’t “how cheap is this stock” but “how cheap is this stock relative to its risk profile and growth prospects”.

Nor would I ever consider using a “value” approach to short the market. I’ve been tempted occasionally to try a long/short pairing of similar stocks, when I think I’ve identified a serious mis-pricing, but even that would be risky. Rather, I stay fully invested at all times, using “value” assessments to select individual stocks within sectors and slant the weighting between sectors.

I’m pretty sure my approach would lag in an extended bull market, but it holds up nicely in a bear market and has been turning a positive return in our present peripatetic trading. My guess is that this portfolio behavior increases my chances of hitting my modest investment goals over a 30 year period, even if it might (or might not?) lag a momentum-based strategy over a 150 year period.

By: TWSInvestments Sat, 11 Sep 2010 16:53:17 +0000 Not to get indignant but there’s a lot wrong with this analysis:

1) Value has been academically proven on a multi-year horizon in terms of reversion to the mean. Momentum has been proven on a multi-month basis. Applying value to multi-month entirely misuses the concept.

2) What value investor uses DDM as their sole measurement? Momentum guys really do buy just because it’s going up.

3) Value investors, on the whole, do not short stocks. Stocks can become exponentially overpriced and can only go to zero. They would be much more likely to sit out of the market than short.

Anyways, there’s my backlash :)

By: Danny_Black Sat, 11 Sep 2010 05:32:55 +0000 This was the particularly dubious talk he gave where he praised the Eastern propensity for patience and the Chinese model? One can only assume he hasn’t taken a look at the turnover on the KOSPI futures.

Also I wonder what the drawdown is on the momentum strategy…