Learning to Play Offense and Defense: Combining Value and Momentum from the Bottom Up, and the Top Down

10 Pages Posted: 8 Oct 2015  

Meb Faber

Cambria Investment Management

Date Written: October 4, 2015

Abstract

Sorting stocks based on value and momentum factors historically has led to outperformance over the broad US stock market. However, any long-only strategy is subject to similar volatility and drawdowns as the S&P 500. Drawdowns of 50%, or even 60-90% make implementation of a stock strategy very challenging. Is there a way to add value on stock selection, but also reduce volatility and drawdowns of a long only strategy with hedging techniques? In this paper we examine the possibility of following a strategy that combines aggressive offense and smart defense to target outsized returns with manageable risk and drawdowns.

Keywords: stocks, bonds, futures, hedging, tail, swan, risk, value, momentum, ETFs

Suggested Citation

Faber, Meb, Learning to Play Offense and Defense: Combining Value and Momentum from the Bottom Up, and the Top Down (October 4, 2015). Available at SSRN: https://ssrn.com/abstract=2669202 or http://dx.doi.org/10.2139/ssrn.2669202

Meb Faber (Contact Author)

Cambria Investment Management ( email )

2321 Rosecrans Ave
Suite 4270
El Segundo, CA 90245
United States

HOME PAGE: http://www.cambriainvestments.com

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