The value and momentum trader

What this book actually teaches

The Value and Momentum Trader: Dynamic Stock Selection Models to Beat the Market (2010) by Grant Henning is a quantitative investing guide built around the combination of two historically documented equity factors — value (buying stocks that are cheap relative to fundamentals) and momentum (buying stocks that have recently outperformed) — arguing that combining them produces more consistent results than applying either factor alone. Henning brings a statistical background to the subject, framing the stock selection process as a model-driven discipline rather than a discretionary judgment exercise.

Henning's central argument is that value and momentum are complementary rather than competing signals. Pure value strategies buy stocks that have been beaten down — which means they often continue to underperform in the near term as market sentiment remains negative. Pure momentum strategies buy recent winners — which means they can chase stocks that are already richly priced and vulnerable to reversal. Combining the two filters for stocks that are both reasonably priced on fundamentals and beginning to show improving price action — a combination that, the academic literature suggests, has historically produced better risk-adjusted returns than either factor alone.

The book covers the mechanics of building screening models that apply both filters. Henning discusses value metrics — price-to-earnings, price-to-book, price-to-sales, enterprise value to EBITDA — and momentum metrics — relative strength over various lookback periods — and how to weight and combine them into a composite score for ranking stocks. He also addresses the practical implementation questions that academic factor research often glosses over: how frequently to rebalance a factor portfolio, how to manage transaction costs that erode the theoretical return advantage, and how to handle the turnover that momentum strategies inherently generate.

The risk management sections cover position sizing, stop-loss discipline, and portfolio construction principles for managing downside when individual positions move against the model. Henning is direct that factor strategies go through extended drawdown periods — the value factor underperformed dramatically during the late-1990s technology bubble — and that systematic discipline during those periods is what separates investors who capture the long-run factor premium from those who abandon the strategy at the worst time.

The weaknesses are about currency and depth. Published in 2010, the book predates the proliferation of factor ETFs and smart beta products that now allow investors to access value and momentum exposures at very low cost without building individual stock models. Readers who want to capture these factors today have significantly simpler and cheaper options than the individual stock screening approach the book describes. The statistical content is also accessible rather than rigorous — readers who want to understand the academic evidence base for factor investing at a deeper level will need to supplement with the academic literature or texts like Asness et al.'s work on value and momentum.

For investors who want to understand why value and momentum work together and how to think about combining them in a systematic stock selection process, The Value and Momentum Trader provides a practical, model-oriented introduction. Current implementation is probably better accomplished through low-cost factor products than individual stock screening.

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About Grant Henning

Read more from Grant Henning and explore the full bibliography on ClearValue Books.