TIP247: Legendary Investor Bill Miller (Business Podcast)
Jun 16, 2019
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This time, legendary investor Bill Miller shares insights from his impressive career, where he famously outperformed the S&P 500 for 15 consecutive years. He discusses the unpredictable nature of markets, especially during geopolitical tensions, and emphasizes the importance of maintaining a long-term investment outlook. Miller critiques traditional value investing, arguing it's outdated, and explores how momentum strategies can enhance returns. With a focus on evaluating stocks, he advocates for understanding intrinsic value over conventional metrics.
Incorporating momentum in value investing can provide entry points for better-priced investments and potential exit signals for winners, as long as consistent criteria are applied to assess a stock's price behavior relative to its historical range.
Value investors should treat momentum as a validation tool rather than the primary focus of their strategy, using it to flag stocks that exhibit significant deviations from historical ranges and assessing whether to buy or sell based on capital gains, dividends, and yields.
Deep dives
Importance of Incorporating Momentum in Value Investing
When applying momentum to value investing, it can yield better returns by allowing you to buy stocks at better prices and potentially sell winners before they decline. However, it is possible to implement momentum without relying on technical indicators, as they may not align with a value investor's comfort level. Instead, you can define consistent criteria for assessing momentum based on factors like long-term volatility and moving averages. These criteria can serve as buy and sell signals, with careful consideration given to capital gains, dividends, and the overall value of the investment. By understanding the distinction between cyclical and secular trends, value investors can effectively exploit behavioral tendencies in the market. Overall, the key is to adopt momentum as a validation tool for value picks rather than making it the primary focus of your investment strategy.
Incorporating Momentum in Value Investing - Practical Approach
To implement momentum in value investing, consistency is key. One approach is to analyze the long-term volatility and moving averages of a stock, using these factors to assess its price behavior relative to its historical range. If the stock shows a significant deviation from normal volatility or crosses certain moving average thresholds, it can be flagged for review. When determining whether to buy or sell, you should consider the capital gains of the stock and compare it to the dividends and yields you expect to receive. If a stock exhibits a negative momentum trend, causing concern, it can trigger a sell decision. However, if the capital gains outweigh the risk, holding onto the stock may still be advantageous. By maintaining consistent criteria and using momentum as a final validation step, value investors can avoid catching falling knives while staying true to their core investing approach.
The Value of Incorporating Momentum in Value Investing
Incorporating momentum in value investing can offer advantages by providing entry points for better-priced investments and potential exit signals for winners. By evaluating long-term volatility and using moving averages, consistent criteria can be applied to determine when a stock's price behavior deviates from its historical range. However, it's important to consider the overall value of the investment, including capital gains, dividends, and yields, when making buy or sell decisions based on momentum signals. Staying aware of the distinction between cyclical and secular trends allows value investors to exploit behavioral tendencies in the market. By treating momentum as a validation tool rather than the primary focus of their strategy, value investors can still incorporate this approach while staying true to their core principles.
Implementing Momentum in Value Investing: A Practical Guide
When incorporating momentum in value investing, it is essential to establish consistent criteria for assessing stocks. This can involve analyzing long-term volatility and moving averages to identify price deviations from historical ranges. By flagging stocks that exhibit significant deviations, you can assess whether to buy or sell based on capital gains, dividends, and yields. It is important to consider the overall value of an investment alongside momentum signals. Understanding the difference between cyclical and secular trends allows value investors to exploit market behavioral tendencies effectively. Rather than making momentum the focal point, it is best to use it as a final step for validation in the investment process.
On today's show we talk to legendary investor Bill Miller. Miller holds the record for 15 consecutive years beating the S&P 500 as a mutual fund manager. Since 2009, Miller has outperformed the market by achieving a 20.4% annual return.
IN THIS EPISODE YOU’LL LEARN:
How Bill Miller thinks about the Trade War and the implications for the stock investor
How Bill Miller are sizing his equity positions
Why Bill Miller is fully invested in stocks right now
Why the traditional value investing approach has been broken since the 1990s
Ask The Investors: How can value investors use momentum strategies?
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