Momentum or Value? Why Not Both

I’ve noticed investors tend to split into two tribes: value people and momentum people. I’ve never fit cleanly into either, but both camps have ideas worth stealing. You can learn from both.

The problem for most investors is that they become momentum investors at the top (i.e they buy the top), then become value investors at the bottom (i.e they sell the bottom). Emotions take hold without a clear framework.

Let’s dive into the idea of merging the best of both into a usable framework.

Why Not Both

Momentum or value is a false dichotomy. We can have both.

Meb Faber has championed this idea. It’s been a recurring theme throughout his writing and podcasts. I’d definitely recommend his podcast, it brings a very different vibe than the majority of fintwit. Meb has described this framework as playing offense (investing in cheap stocks that are going up) and playing defense (hedge / short when stocks are expensive and going down). The idea is you want to be buying when you are in the upper right and hedging while you are in the bottom left.

How to Momo

Momentum itself is straightforward once you strip out the noise. The classic approach is the 12 month return excluding the most recent month to avoid short term reversal effects. Some people blend shorter windows like 3, 6, and 9 months. The point isn’t the exact look back. The point is identifying assets with persistent strength instead of reacting to one day pops.

Wrap It Up

The true dichotomy is buy and hold vs everything elseThe real divide isn’t value versus momentum. It’s buy-and-hold versus a rules-based approach that adapts to valuation and trend. When this market eventually rolls over, that combination matters. We’re in an expensive market, so once the trend actually cracks, hedging and reducing exposure makes more sense than pretending nothing changed.