Value investors generally have to be a tenacious bunch. While everyone knows that value will out in the long run, in the short run it seems to have a torrid time. Within these long periods of underperformance lies the risk that value investors lose their careers in the process – a grim prospect for many. Warren Buffett himself underperformed the market during the dot com bubble by something like 70%. Luckily for him he had the record and authority not lose his job. Others like Tony Dye at the time had no such luck. The risks that value investors deal with in pursuing their strategy are very real. But what if there were a way to mitigate these risks?
In 2008, Cliff Asness, Goldman Sachs alumni and founder of the big quantitative hedge fund AQR Capital, published a research paper titled “Value and Momentum Everywhere” that holds some hope for those value investors willing to broaden their remit. Most investors who’ve been around markets know that over the long run both value investing and momentum investing work, but something extraordinary appears to happen when they are baked together.
Building the combined value amp; momentum portfolio
Asness et…
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