A long ‘work-in-progress’ post on my investing philosophy and process. My investing philosophy in 1 paragraph: Value and momentum are main drivers of returns while diversification reduces risks and thinking about the long term helps reduce negative behavioural biases.
Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength momentum does not expose investors to severe crashes during crisis periods, and its profits are remarkably consistent over time. We uncover similar results when we vary the sorting period for cumulative returns between 3 and 12 months.