Mental Models discussed in this podcast:
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Two Types of Momentum: Price and Busines Fundamentals
Business fundamental momentum is the most important, but price momentum can be helpful.
How to use Price Momentum in your investing process
- Downtrend or Uptrend or Consolidation Period
- Price momentum isn’t a deal-breaker on the purchase decision. However, you should understand where the momentum is if any.
- Some of the best times to buy are during consolidation periods. (Months or years of relatively flat stock price).
- I learned this from ElementaryValue.com (David Flood)
Business Momentum applied to Value Investing
- Is the business improving or deteriorating?
- I no longer want to buy deteriorating businesses. They may surprise to the downside.
- It is psychologically harder to hold bad businesses or declining businesses.
- Improving businesses are likely to surprise to the upside.
Both momentum investing and value investing provide excess returns. This episode outlines how I plan to profit from both forms in my investing process. Specifically, price and business momentum will be added to value investing. The use of price momentum should limit my losses when mistakes are made. Meanwhile, by analyzing business momentum I am likely to reduce the probability of making mistakes.