How I Built a Portfolio That Outperforms in Every Market

The investment world loves its false dichotomies.

Growth versus value. Active versus passive.

And perhaps the most stubbornly persistent: deep value versus momentum.

But here’s the thing: the best portfolios don’t pick sides. They recognize that markets cycle, and different strategies work better at different times.

I’ve spent decades working both sides of this equation, and I’ve learned that combining deep value and momentum approaches isn’t just possible; it’s essential for long-term success.

The key is understanding when to lean into each strategy and, more importantly, how to execute both properly.

Let me show you.

The Deep Value Foundation

Let’s start with deep value, since that’s where most of my career has been focused.

True deep value investing isn’t about buying any cheap stock that shows up on a screen. It’s about finding quality businesses trading at significant discounts to their intrinsic worth, with enough financial strength to survive whatever crisis put them in the bargain bin.

Credit quality and margin of safety aren’t just buzzwords; they’re survival tools. When you’re buying distressed or out-of-favor companies, you need to know they can weather the storm.

That means scrutinizing balance sheets, understanding debt structures, and calculating multiple scenarios for intrinsic value.

A stock trading at 0.5x book value might look attractive, but if the company is hemorrhaging cash and facing a debt wall, that discount could become a total loss.

Valuation metrics matter, but they’re just the starting point. Price-to-book, price-to-sales, enterprise value-to-EBITDA: these ratios help identify candidates, but they don’t tell you if a business is worth saving.

You need to dig deeper into the quality of assets, the sustainability of cash flows, and the competence of management.

The margin of safety concept becomes even more critical in deep value work. When you’re buying troubled companies, you need extra cushion for the inevitable surprises. I typically look for situations where even a pessimistic scenario still offers reasonable returns.

This conservative approach has kept me out of value traps that looked compelling on paper but were wealth destroyers in practice.

The Momentum Component

Now, momentum gets a bad rap in value circles, often dismissed as speculation or trend following.

But properly executed momentum investing is about identifying businesses with accelerating fundamentals and riding that acceleration while it lasts.

The key distinction is between price momentum and fundamental momentum. Price momentum alone (buying stocks just because they’re going up) can be a recipe for disaster.

But fundamental momentum (improving margins, accelerating revenue growth, expanding market share) is a different animal entirely.

When I’m looking at momentum candidates, I want to see evidence that the business is genuinely improving.

Rising return on equity, increasing cash flow margins, growing market share in expanding markets. These are the fundamentals that drive sustainable price appreciation, not just technical chart patterns.

The challenge with momentum investing is knowing when to hold and when to fold. Unlike deep value situations where you can afford to wait years for recognition, momentum stocks require active monitoring.

When the fundamental momentum starts to fade (and it always does eventually), you need to be ready to move on.

Timing the Market Cycles

This is where the magic happens: using market conditions to determine which strategy to emphasize. Markets aren’t efficient, but they do tend to swing between extremes. Understanding these cycles and positioning accordingly can dramatically improve your results.

When trend indicators are showing strength (whether that’s moving averages, breadth measures, or simply the general tone of the market), that’s when momentum strategies tend to work best. Rising markets lift the boats that are already floating, and fundamental momentum gets rewarded with premium valuations.

But when markets become oversold, when sentiment turns negative and quality companies get thrown out with the garbage, that’s deep value hunting season. These are the periods when margin of safety becomes most important, because you’re buying into pessimism and uncertainty.

I use a combination of technical and sentiment indicators to gauge these cycles. The VIX, credit spreads, and insider buying activity all provide clues about market psychology.

When fear dominates, I’m more aggressive with deep value positions.

When optimism reigns, I’ll take profits on value holdings that have worked and look for momentum opportunities.

The art is in the transitions. Markets don’t flip from bullish to bearish overnight, and neither should your portfolio allocation. I typically start shifting emphasis when I see divergences: momentum stocks struggling despite positive market action, or value stocks showing signs of life during market weakness.

Portfolio Construction in Practice

In practice, this means running a portfolio with exposure to both strategies, but varying the allocation based on market conditions. During strong trending markets, I might have 60 to 70% in momentum positions, with the remainder in deep value situations that I’m accumulating on weakness.

When markets turn volatile or start showing signs of exhaustion, I’ll flip that allocation. I’ll take profits on momentum positions that have run their course and redeploy that capital into deep value opportunities that the market is discarding.

The key is discipline. It’s tempting to chase performance: to go all-in on momentum during bull markets or to abandon value during bear markets. But the best results come from staying true to the process and recognizing that both strategies have their time and place.

Risk management becomes crucial when running this kind of hybrid approach. Position sizing, diversification, and stop-loss discipline all matter more when you’re juggling different investment styles. I typically limit individual positions to 3 to 5% of the portfolio and maintain exposure across different sectors and market caps.

The Long Game

The beauty of this approach is that it acknowledges market reality while staying true to fundamental principles. Deep value provides the foundation: the anchor positions that can compound wealth over long periods. Momentum provides the acceleration: the opportunities to capture shorter-term moves in improving businesses.

Neither strategy works all the time, but together they can provide more consistent results across different market environments. The value positions protect you during momentum crashes, while the momentum positions provide upside participation during bull markets.

It’s not about being clever or trying to time every twist and turn. It’s about recognizing that markets cycle, businesses evolve, and the best investment approach is one that can adapt to changing conditions while maintaining focus on the fundamentals that actually create wealth.

The market will always offer opportunities to both the patient value investor and the discerning momentum trader. The trick is knowing when to be which one.

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