Most investors have probably heard of Joel Greenblatt. He is a value investor with fantastic insights on analyzing special situations like mergers and spin-offs. I would recommend his books to anyone interested in investing or business.
The video below is a talk he gave at Google. The whole talk is worth watching, but I want to highlight a portion (11m:18s) where he discusses his investment philosophy and contrasts it to momentum investing.
Greenblatt explains that with momentum, it’s hard to know what to do when a trade isn’t working. He admits there’s plenty of evidence that it often works, but there are certain times it doesn’t work. If it’s not working at a given moment, it’s hard to tell if you should be patient or if the trade is too crowded. If your timing is wrong, it may not work, and there’s nothing fundamental to guide your decision.
This isn’t the case with a value approach. If Greenblatt is confident in his assessment of intrinsic value, he can be patient, and he won’t rely on price movements to dictate his decisions.