"Our Philosophy of Investing is Slightly At Odds With Warren Buffett - We Prefer To Be Out of Stocks in Bear Markets"

Introduction

As a common sense retirement investor you should look at both.  

We like to be just a little different.  We're O.K. with looking at value stocks, and growth stocks, but we also like to look at momentum stocks. We delve into Momentum Investing.

"Our Philosophy of Investing"

We like to model Warren Buffett and when we first got started seriously with this Retirement Investing topic we got our hands on all there was to read about the man and his sidekick - Charlie Munger.

We also liked to find out who they got their education from.  After a little bit of digging we found the name of Benjamin Graham, that wasn't too difficult, but what was a little bit harder was that it was a former employer of Benjamin Graham who helped Warren Buffett the most. 

His name - Walter Schloss.

He also encouraged the study of Value Investing and Growth Investing.

What Warren Buffett and Charlie Munger do not major on is Momentum Investing.  We can see why.  It's not a long term philosophy. 

In short, we follow Buffett and Munger 90% of our time but we let our hair down with spending (approximately) 10% of our efforts in Momentum Investing.

A good piece of investing software will pick out stocks with momentum.

But we like to be a tad contrarian.

Let's turn Momentum Stocks around 180 degrees and call it 'negative momentum'  i.e. if momentum refers to those stocks that are the best performers over say, the past year, then negative momentum can refer to the worst performers over the last year.

The only (minor) problem with looking at negative momentum stocks is one of timing.  But, even this can be resolved using the simple 'Moving Average'.

So what's special?

Well, nothing really, but picking out negative momentuam stocks highlights shares that may have an imminent change of direction.

"We Like Stocks With a High Beta for Our Momentum Investing"

To satisfy our Philosophy of Investing we look for the 10% of our portfolio in Momentum Stocks to be in shares with a high 'Beta'.

Beta, by definition, is a means of measuring the risk of a stock compared with that of the market.

'Risk' is a word that Warren Buffett would not encourage.

Stocks with a Beta of 1 move in line with the market as a whole

Stocks with a Beta of more than 1 show that a stock is more volatile than the market.

Stocks with a Beta of less than 1 show that a stock is less volatile than the market or one that moves in the opposite direction to the market.

We look for stocks with a high Beta.

But let's not forget, our 'Momentum Investing' strategy is only 10% of our portfolio.

Conclusion

If you've explored this web site in any detail you should know by now that our Philosophy of Investing is such that we are investors - not speculators. 

We look to the long term.  Short-termism isn't a part of our overall strategy, although we do make a few exceptions but they are really special, special situations.  For the most part of our trading we follow the techniques of our hero - Warren Buffett.

Our Philosophy of Investing is clearly 90% in agreement with that of Warren Buffett.  We wouldn't want to bet against the sage.

But we like to add a bit of spice to our portfolio.  Nothing reckless.  But a calculated foray into something that can give better-than-average returns.

Our Investing Philosophy is to invest our portfolio 70% in Value Stocks, 20% in Growth Stocks, and 10% in Momentum Stocks. 

That is, when we're 100% invested. It is that 10% invested in momentum stocks that makes the difference between our conservative investments and our little piece of adventure investing.

And we re-iterate, when we are 100% invested.  Which is not all of the time.  We like to like our powder dry.  10% in cash is normal, but sometimes we use that 10% for our adventures into Momentum Stocks.

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