Episode 72: Momentum Investing: Exploring Relative Strength with Ian Saunders
In this episode of the “Stuff About Money” podcast, host Erik Garcia, CFP®, BFA™, ChFC®, welcomes Ian Saunders, Senior Research Analyst for Nasdaq Dorsey Wright. They explore the world of Relative Strength, also known as Momentum Investing. Ian draws a compelling analogy to March Madness, highlighting that top seeds have an 80% chance of winning their games, similar to how strong investments are identified.
Throughout the discussion, Ian explains what Relative Strength is and how it differs from other strategies. He shares insights into the metrics used for measurement, optimal time frames for assessment, and the process of identifying promising investments. They also explore the advantages and limitations of this strategy, its performance in various market conditions, and the impact of AI on analysis methods. Gain valuable insights into how Relative Strength can enhance your investment decisions.
Episode Highlights:
- Ian shares about his experience with Dorsey Wright and the evolution of the firm, especially after its acquisition by Nasdaq. (01:36)
- Ian discusses what he wishes he knew about money earlier, highlighting the importance of understanding technical analysis alongside fundamentals. (03:24)
- Ian explains the concept of relative strength (momentum) investing. (07:17)
- Ian discusses the practical application of relative strength investing in creating portfolios. (10:44)
- Ian outlines the main advantages of relative strength investing, such as its objectivity and systematic nature, which help remove emotional biases from investment decisions. (18:28)
- Ian addresses the limitations of relative strength investing, particularly during market conditions where discernible trends are lacking. (22:44)
- Ian shares his comments on the current market environment and how relative strength strategies have adapted to recent market challenges and opportunities. (24:24)
- Ian speculates on the potential impacts of artificial intelligence on investment strategies, emphasizing how AI might speed up data processing without fundamentally changing decision-making processes. (33:18)
Key Quotes:
- “Our approach is a little bit different because it looks at these relative strength comparisons to identify which areas have the best momentum.” – Ian Saunders
- “Relative Strength Investing, RSI, is essentially taking the price movement of two things and see which one wins that game right now.” – Ian Saunders
