momentum = the real margin of safety
one of the worst tropes in markets is the idea that "cheap = margin of safety" and low P/B or low P/E stocks reduce downside. I would argue that high momentum, stocks that are trending up, have the MOST downside protection.
Why? first, when markets draw, people come back to them first, so they draw less/snap back more (look at NVDA/LLY). second, if momentum is on your side, your stock will naturally be higher after the initial purchase, so even if it draws in the future the initial momentum protects you. third, it likely means the information flow is positive (i.e. - stocks going up because someone knows some good news)
With this, why do schools/academics/firms not teach to look for figuring out where momentum is going, instead of "cheap" or "good business" (both of which are useless to returns).
If you go on twitter, you see investors like jonah lupton, puru saxena, types do really well because they are finding the next momentum name and selling when chart is weakening. why not take advantage of these resources?
While I agree momentum exists and I think it is good to not overlook it in your investment process (and myself have been using it)
First point is wrong: Momentum is the first to suffer when there is a sudden shift in sentiment. This is well documented. Momentum as its name says like trends, small but steady ones. When market shifts quickly, not good.
Momentum would have make u be super long JPY for exemple, huge loss.
Second point is wrong too, Momentum is not so perfect that u buy and few hours later u have already made a profit. Momentum is very noisy. Even if on the long term u can make money, u could be down for a certain amount of time before making any money
Finally u are probably following the wrong people as most investors look at momentum somehow, especially on the quant side. And a lot of people trade on it
High momentum stocks can destroy you in rotations and unwinds especially at scale. It’s ugly.
This is a joke right?
Margin of safety isn't in p/b or low multiple screens, margin of safety is buying a stock below its fair value (current probability weighted outcome). Lupton and Saxena are ...fake? If their results are real, good for them, but I doubt they would be selling substack "research" if they perform. By the way, please read Jegadeesh Titman...
While I generally agree with what you are saying, the idea that a person can know a stock's fair value is just as much of a joke
bump. strategy of buy stocks going up, short stocks going down keep working
stop doing so much differentiated work and lean into mo once a while, pod guys
Haha I love when people write about a strategy then come back only if they were right.
It is a free call. If it does not work you don't come back, if it does you proudly say you were right.
It is for youtube/twitter, not for serious people .
Moreover no one said Momentum does not work. There are countless serious papers about Momentum from academics and practitioners, and I think that a majority fundamental guys agree momentum impacts stocks.
However,
1. You can know that something works and still not trade around it if it is not your mandate. If I work for a CTA I will trade around Momentum, if I work for a risk arb desk I will not.
2. People disagred with some of your statements about momentum regarding drawdowns and other things. If you want to really debate you should reply to those points
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