I've been known, on occasion, to place a small bet or two if I can find a baseball game that offers a decent risk-reward setup.
Now, I know gambling is frowned upon in some quarters, but even folks who are down on it would be hard-pressed to turn down the "bet" I'm offering today.
Let's look at this past weekend's matchup between the hated Boston Red Sox and my much-beloved Baltimore Orioles. We'll pretend it hasn't happened yet.
Boston is a powerhouse, leading all of MLB in runs scored, with the second-lowest staff earned run average (ERA) in the game. It is nine games ahead of the New York Yankees for the American League East title.
Baltimore, it grieves me to say, scores less than four runs a game. The staff ERA is one of the worst in all of Major League Baseball. As of this writing, Baltimore sits a dismal 49.5 games out of first place.
At first glance, this looks easy: Bet the Red Sox.
The problem is, in order to win $1, you will probably have to bet more than $2 on the Red Sox.
The Orioles are unlikely to win, but every $1 bet should return more than $2. Of course, the odds of that happening are pretty slim, but... if they were to win, the payoff would be excellent.
I'll spare you the math, but both bets are likely losers if you were to "let it ride" over a series of games with similar odds and payoffs.
Instead... Here's the bet I am going to offer you.
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A Sports Book-Style Bet You Can Only Find in the Markets
The terms: You can bet $1 on both teams.
If you lose, you get your dollar back. The winning team pays off at the appropriate odds.
Stunning Video Footage: Watch this guy become $4,238 richer in under a minute - then follow his simple instructions to learn how you could pocket a potential $2,918 in just one move. Click here...
You literally cannot lose.
If I could find that bet in baseball every day... Well, I would have retired years ago.
Fortunately for us, we can find something that works more or less exactly like that in the stock market, and it can help us all get where we are going financially a lot sooner.
First, let's meet the teams that will be playing in this game.
First up is our old favorite: value investing.
Value investing is buying companies that are undervalued and owning them until they are wholly or maybe even over-valued and selling them at a profit.
Of course, there have been many "offshoots" and variations on value investing throughout history, and even more in the eight-odd decades since Benjamin Graham and David Dodd codified it in their 1934 classic "Security Analysis," but pure value investing is buying cheap stocks with a margin of safety in the balance sheet and owning them until they can be sold for unreasonably high multiples of the purchase price.
It is a time-tested approach to investing that has beaten the market's rate of return pretty much since we had financial markets.
Across the park, in the other dugout: momentum investing.
This is merely buying the stocks that have been going up the most and owning them until they stop going up.
A momentum investor ends up holding many of the darlings of the day that investors are pushing higher with their enthusiastic buying - and stepping aside when their passion fades.
To achieve the best results, we have to smooth out the momentum to avoid those overhyped super-speculative stocks, but much like value investing, momentum investing has beaten the market since "way back when."
And since "way back when," the smartest and most successful investors have tended to back one "team" or the other.
Just as Yankees fans hate the Red Sox and Dallas Cowboys fans think Washington fans are the worst kind of people, you were either a "value guy" or a "momentum guy."
The problem with this dichotomy is this: Both are winning strategies, but both are also "streaky," with long periods when they are underperforming the indexes.
Few investors have the ruthlessness and intestinal fortitude to stick with even a proven approach when they're whirling through these phases.
Recently, some very smart folks have figured out that if you take a more open-minded approach and bet on both, magical things happen.
It turns out that value and momentum both do well, but they don't correlate with each other; one zigs when the other zags.
Momentum and Value Have Traded the Title for Decades
In the late 1970s, value investors did very well, while momentum seemed to flounder. Then, in the early 1980s, momentum was the flavor of the day as a new bull market began.
Thanks to the leveraged-buyout folks and Mike Milken's Magical Junk Bond Machine, value-investing diehards retook the lead in the second half of the decade.
That lead lasted until the early 1990s, when Al Gore invented the Internet and tech-fueled momentum left value in the dust.
After the bubble imploded in the early 2000s, value regained the lead.
The credit crisis? Well, that was something of a rainout - nobody did very well. But you'd better believe value regained the lead for a few years as bank and real estate stocks recovered in the aftermath.
For the last few years, the FANGMA stocks and healthcare stocks have given momentum investors the upper hand (again).
Now, at this point, I'm willing to bet some of you are thinking, "Hey, all I have to do is figure out when the cycle changes, and I'll have it made!"
Let me save you the trouble: You can't. I speak with the confidence that can only come from experience.
I've tried to figure out how to calculate or determine when the value-momentum "switch" will happen, and I've never even come close.
I'm not alone: Lots of other brilliant people have burned a lot of brain and computing power on the problem, and so far, it has been the stock market equivalent of the better mousetrap.
That's the bad news - and it's really not that bad, all things considered, because the good news is really good.
The good news is, if you split your stake and put 50% your portfolio in momentum stocks and 50% in value stocks, you always hold the winning hand.
You are effectively making a bet you cannot lose. Totally unsinkable.
According to a study produced by my friends at Alpha Architect, this balanced approach outperforms the market by more than 50% since 1927!
Here's what they've found...
If you invested $1 in the S&P 500 back in 1927, you would have more than $5,100 today.
However, using the balanced value and momentum approach... that tiny little dollar would be worth more than $350,000.
If you're keeping score, that's more than 68 times the market's return.
There's no doubt in my mind: Value is at one end of the investing spectrum; momentum is at the other. But when you combine them, they blow away all the strategies in between them like indexing, dividend, and other bits of Wall Street's marketed methods of mediocrity.
You Could Be Paid $2,353
Very soon, we'll be releasing a very simple set of instructions to a selection of our readers.
Each person who follows these steps could be paid a total of $2,353 in only 28 seconds.
You won't need to buy a single share of stock up front to collect this cash. You won't need to spend a nickel on anything.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.