A Blended Investment Strategy For All Markets: Tobias Moskowitz

Computer Simulation Suggests That The Best Investment Strategy Is A Random One





Yet, before seeking something new, there are two proven long-term approaches that investors might want to consider: value and momentum. Whats more, when combined, these strategies produce an even more potent investment vehicle and can website be applied much more broadly across asset classes. The basic idea of value investing is to buy assets that are cheap -- meaning that the market value or price is low relative to fundamental or intrinsic value -- and sell those that are expensive. Simple measures of price-earnings ratios or price-to-book values seem to adequately capture this notion and have produced consistently positive returns, on average, for more than 80 years. Similarly impressive are the average returns over the same period when one looks at data generated by momentum investing, which means buying stocks that have risen in price over the preceding six to 12 months, and selling those that have fallen. The two strategies seem at odds with each other.
















They then compared their random investment strategy to four different traditional investment strategies: momentum investing, where stocks are bought and sold based on past performance; investment based on the relative strength indicator of stocks; up and downpersistency, where investment one day is the opposite of market direciton the day prior; and investing based on themoving average convergence/divergence of the stocks. The primary result they determined was that over the long periods of time, all of the different strategies performed about the same. Yes, over smaller time windows, some of the strategies showed better performance than a random investment, but over the long run those differences mostly went away. Whats more, although some of the traditional strategies showed better performance in a particular stock indiex, none performed better over the four indicies.







What's Your Investment Strategy?





Stock investing approaches A sound stock investment strategy is hard to beat, for long-term growth. Here's a quick rundown of some key approaches. Note that many investors engage in one or more of them -- they're not all mutually exclusive. Value investing: This investment strategy involves seeking out stocks that offer a meaningful margin of safety, by being undervalued -- ideally, trying to buy a dollar for 50 cents. Value investors will typically study the fundamentals of a company, such as its growth rates, balance sheet, profit margins, and so on.