I have written quite a bit on the long-term value of value investing as opposed to momentum investing in the past. However, I believe that the current market investors find themselves in presents a unique opportunity for investors to reap the time-tested strategy of investing in companies with durable competitive advantages and proven track records. These are stocks which trade at a discount to companies with plenty of upside but little in the way of previous earnings for a number of reasons.
Even the companies I have been most bullish on with strong fundamentals, such as Boeing Co. (NYSE:BA), have seen their market capitalizations take large hits from shocks which may not have been foreseeable. Any such shock to companies operating in high-growth momentum sectors such as technology, cannabis, or cryptocurrency segments could, in my opinion, be hit much harder than firms such as Boeing for a number of reasons.
First and foremost, having a proven track record and backlog of projects provide investors with a level of security and lower risk profile than those with the potential to achieve such results in the long-term.
A “moat” or competitive advantage may be present for many upstart companies, however in sectors which are less well-defined such as cannabis or cryptocurrency, such a moat may not be readily visible given the fact that these companies are competing a market which is still in its infancy.
Momentum investing has its upside, but also carries with it significant downside (when whales begin to sell, a stampede often occurs, so make sure you have a balanced portfolio loaded with value stocks to hold you through the tough times that will (eventually) come.
Invest wisely, my friends.
