Talk Your Book: Momentum Investing with Joe Terranova – A Wealth of Common Sense

“Buy low, sell high” is excellent advice in the same way “eat vegetables” is excellent advice: true, simple, and
wildly unhelpful the moment you’re standing in front of a glowing screen watching a stock rip 12% in a day.
That’s where momentum investing barges in wearing sunglasses indoors, shouting, “BUY HIGH, SELL HIGHER!”
and somehow… it’s not as dumb as it sounds.

In the Talk Your Book episode hosted by Ben Carlson (A Wealth of Common Sense) and Michael Batnick,
Joe Terranova joins to unpack why momentum is so hard to understand, what 2020 taught investors, and how his
“quality momentum” framework tries to capture market leadership without falling in love with the hottest,
sketchiest thing on the menu.

What “Talk Your Book” actually means (and why it’s not just a sales pitch)

“Talk your book” is Wall Street slang for: “Of course you like this tradeyour name is practically stitched into
the position.” It’s usually said with a smirk, because incentives matter. But the best “talk your book” conversations
are valuable precisely because they force someone to explain how their strategy works when markets get weird.
And markets get weird… a lot.

In this episode, the hosts interview Joe Terranova about the investment lessons of 2020 and his momentum-focused,
quality-screened ETF. The conversation hits the emotional paradox of momentum (“buy high, sell higher”), the Fed’s
role in modern markets, and why the stock market sometimes feels less like a spreadsheet and more like an amusement
park ride you didn’t fully consent to.

Who is Joe Terranova, and what is “quality momentum”?

Joe Terranova is known as a market strategist and media regular, and he’s also deeply identified with momentum-style
thinkingespecially the idea that price trends and risk management can be used systematically instead of emotionally.
He’s been described as a CNBC ensemble member and the author of Buy High, Sell Higher, and he’s tied to the launch
of the Virtus Terranova U.S. Quality Momentum ETF (ticker: JOET), which began trading in late 2020.

The basic pitch of “quality momentum” is simple: don’t chase momentum in the lowest-quality names. Instead, aim for
stocks showing strong recent performance and some evidence of fundamental strength. In plain English, it tries to
avoid building a portfolio that’s 40% “future disappointment.”

According to launch materials, JOET seeks exposure to U.S.-listed large-cap companies that combine strong quality
fundamentals with positive momentum trends, using a rules-based approach and rebalancing on a regular schedule.
The goal is not clairvoyanceit’s discipline.

Momentum investing, explained like you’re a human (not a finance textbook)

Momentum investing is the idea that assets that have been winning recently tend to keep winning for a while, and
losers tend to keep losingat least over intermediate time horizons. It’s sometimes described as “relative strength”:
you’re not forecasting absolute returns so much as betting that leadership persists.

Academic research helped formalize this by testing strategies that buy recent winners and sell recent losers over
horizons like 3–12 months. One key insight is that momentum is most associated with those intermediate windows, not
ultra-short-term noise (days/weeks) or ultra-long-term mean reversion (years).

Many modern momentum definitions also exclude the most recent month when measuring “recent performance,” because the
very short-term can behave differently (think: reversal, liquidity effects, tax-loss selling, and other market microstructure
gremlins). In practice, the momentum “signal” is typically a structured rule, not a vibe.

Momentum factor vs. “momentum indicators”

A quick clarification: the momentum factor is a systematic investing style (buy relative winners).
Momentum indicators (like RSI or MACD) are technical analysis tools often used by traders.
There’s overlap in spirit, but factor momentum is generally about portfolio construction and rebalancing rules,
not day-trading your way into a personality disorder.

Why momentum might work (even though it feels wrong)

Momentum’s staying power is one of finance’s most stubborn facts. If markets were perfectly efficient at instantly
absorbing information, it would be hard to justify why winners keep winning.

The most common explanations fall into two buckets:

• Behavioral delay: People underreact to new information at first, then gradually update beliefs.
  Analysts revise earnings expectations slowly. Institutions rebalance slowly. News gets priced in like it has to go
  through a committee. (Because it does.)
• Risk story: Momentum can be a “risky” strategy that earns a premium over time but suffers in specific
  regimesespecially sharp rebounds after bear markets, when yesterday’s losers become today’s rockets.

That second point is crucial: momentum is not magic. It has periods where it looks brilliant and periods where it looks
like it’s been personally targeted by the universe.

The “buy high, sell higher” brain problem

Momentum investing forces you to do the opposite of what most people want to do:

• Buy things that have already gone up (which feels late, even when it’s not).
• Sell things that are going down (which feels like admitting defeat).

This is why momentum is both powerful and psychologically brutal. It replaces comfort with a process.
And the process will occasionally make you look wrong right before it makes you look right.
(Great for returns. Terrible for your group chat.)

How “quality momentum” tries to stack the odds

Pure momentum can drift into whatever is movingsometimes that’s innovative businesses with improving fundamentals,
and sometimes that’s a speculative stampede powered by vibes, leverage, and a collective inability to read a balance sheet.

A “quality momentum” approach is an attempt to keep the trend-following engine while adding a seatbelt. Conceptually,
it aims to:

• Participate in market leadership when trends persist.
• Avoid low-quality names that can implode when conditions tighten.
• Systematize decisions so you don’t “fall in love” with a ticker symbol.

In launch descriptions, JOET is positioned as a core equity allocation approach with a rules-based index and a portfolio
designed to balance diversification while systematically rotating toward stronger quality + momentum characteristics.
Whether an investor uses JOET specifically or not, the underlying idea is broader: momentum tends to work better when
you’re not buying junk just because it’s loud.

How momentum is implemented in the real world

In the academic world, a classic momentum recipe uses a lookback window (often 12 months), skips the most recent month,
and then holds winners for a defined holding period. In the index world, it’s often more nuanced.

For example, MSCI’s momentum methodology describes momentum as a combination of 6-month and 12-month performance
(excluding the most recent month), often adjusted for volatility to avoid simply loading up on the wildest names.
That’s the key difference between “hot” and “strong”: strong relative performance after considering risk.

DIY momentum rules vs. momentum ETFs

You can implement momentum in two broad ways:

1. DIY (do-it-yourself rules): You set the universe (say, the largest 500 U.S. stocks), rank by a momentum
   metric, buy the top slice, and rebalance on a schedule. This offers control but requires discipline, trading, and
   tax management.
2. ETFs and index products: You outsource the process to a rules-based fund. Examples include broad momentum
   factor ETFs that track indexes built from U.S. large- and mid-cap stocks with higher momentum characteristics.
   This can reduce operational friction and keep the rules consistent.

ETFs also make it easier to stick with the strategy when it hits a rough patchbecause when the strategy is inside a fund,
you’re less tempted to “just tweak one little thing” right at the worst possible time.

Risks that momentum investors must respect (or momentum will humble them)

Momentum has a long history, but it’s not a free lunch. Here are the main risks you need to understand before you start
flirting with a “buy high, sell higher” philosophy.

1) Momentum crashes can happenespecially after big reversals

Research and practitioner commentary have documented that momentum can suffer sharp losses after extended bear markets
followed by abrupt recoveries. Why? Because the portfolio often holds “winners” that were defensive or resilient during
the downturn, while the newly rebounding, previously crushed names become the new leaders fast.

In other words: momentum can get whiplash when leadership flips overnight.

2) Turnover, taxes, and trading costs are part of the deal

Momentum strategies rebalance. That means turnover. Turnover means transaction costs and potential tax consequences.
The good news is that real-world implementation can be better than people assume, and certain portfolio design choices
can help reduce friction. The bad news is that pretending turnover doesn’t exist is like pretending calories don’t exist:
emotionally soothing, mathematically doomed.

3) “Out of favor” is a feature, not a bug

Vanguard and other large providers regularly remind investors that factor-based funds intentionally tilt toward specific
characteristics, which can increase risk and lead to long stretches of underperformance versus the broad market.
If you’re choosing momentum, you’re choosing the possibility of looking foolish for long enough to question your hobbies.

A practical momentum playbook for long-term investors

Momentum investing isn’t just about chasing what’s up this week. A long-term approach is about rules, sizing, and
diversification. Here’s a framework that’s realistic for actual humans.

Step 1: Decide what role momentum plays in your portfolio

• Core-only investors: If you want simplicity, keep momentum exposure small or skip it.
• Core + satellite investors: Use momentum as a satellite sleeve (for example, 5–20% of equities),
  while keeping the rest in broad index exposure.

Step 2: Pair momentum with a “different personality” factor

One of the best ideas from the factor literature is that value and momentum often complement each other.
They can struggle at different times, and combining them can reduce the severity of drawdowns compared with owning
either alone. Think of it like pairing an extrovert with an introvert: the dinner party runs more smoothly.

Step 3: Use a schedule, not feelings

Momentum works best when you treat it like a system:

• Pick a rebalance frequency (quarterly or semiannual are common in indexes).
• Rebalance on calendar dates, not headlines.
• Expect “whipsaw” periods where it buys, then sells, then buys again. That’s the cost of admission.

Step 4: Manage risk like an adult

“Risk management” doesn’t have to mean fancy derivatives and a secret handshake. It can mean:

• Position sizing (don’t let one style dominate your life).
• Diversification (across sectors, market caps, and/or regions).
• Sticking with a plan through underperformance without doubling down emotionally.

What 2020 taught momentum investors (and basically everyone else)

The episode’s timinglate 2020matters. That year was a masterclass in volatility, narrative whiplash, and
“did that really just happen?” moments. In the show notes, the hosts and Terranova discuss why momentum can be difficult
to understand, the biggest investing lessons from 2020, the market’s amusement-park vibes, and questions about whether
central bank intervention has become a durable feature of the landscape.

Momentum strategies often thrive when leadership is strong and trends persist, but 2020 also reminded investors that
trends can rotate quicklyand that emotions don’t get a vote in a systematic process. If you’re running a momentum
framework, you may sell something you “like” because the signal says it’s no longer strong. That’s not heartless;
it’s the point.

Key takeaways (the common sense version)

• Momentum is real, but it’s not smooth.
• “Buy high, sell higher” is counterintuitive, which is part of why it can persist.
• Quality momentum tries to avoid chasing low-quality hype while still riding leadership.
• Rules beat feelingsespecially when the market is acting like a caffeinated squirrel.
• Diversification helps, particularly pairing momentum with styles that behave differently.

Conclusion: Talk your book, but read the fine print

The best “talk your book” interviews don’t ask you to blindly buy someone’s productthey show you how a strategy behaves
under pressure. Momentum investing is a perfect example. It can feel like buying the top… until you realize “the top”
is often a process, not a price.

If you take anything from Joe Terranova’s momentum conversation, let it be this: momentum is less about prediction and
more about participation with discipline. You’re not claiming to know the future. You’re acknowledging that trends exist,
that humans and institutions move slowly, and that your job is to build a process you can stick with when your instincts
are screaming the opposite.

Real-world experiences with momentum investing (the part nobody puts in the brochure)

Ask ten investors what momentum “feels like,” and you’ll get the same theme in ten different costumes: it feels like being
right in public and wrong in private. Here’s what that means.

The first experience most people have with momentum is the honeymoon phase. You buy what’s working, it keeps working,
and you start to wonder if you’ve secretly become “a market person.” You check your portfolio a little more often.
You begin speaking in confident sentences like, “The trend is your friend.” You may even develop a mild allergy to the word
“valuation.” This is normal. Momentum is excellent at making you feel like you earned the return through sheer vibes.

Then comes the second experience: the betrayal. Momentum portfolios rotate. The winners you loved get sold because the signal
says they’re no longer winners. You watch a stock you just sold continue higher for a bit, and it feels personallike the market
waited for your sell order to hit before turning into a rocket ship. This is also normal. Momentum is not a crystal ball; it’s a
disciplined way to stay aligned with leadership over time, and that means it will sometimes exit early.

Next is the whipsaw period, which is where momentum goes from “strategy” to “character development.” The market chops around.
Leadership rotates weekly. Your rules buy something, sell it, then buy it again. You feel silly, and the temptation is to “improve”
the strategy by adding filters, exceptions, and your personal opinionsbecause surely the problem is the rules, not the fact that
markets sometimes behave like a blender.

This is the moment where experienced momentum investors learn a hard truth: most of the damage doesn’t come from the strategy’s
bad months. It comes from investors abandoning the strategy right before it recovers, or continuously re-optimizing it until
the rules perfectly fit the past and fail in the future. People often say, “Momentum doesn’t work anymore,” when what they really
mean is, “Momentum didn’t work on the specific Tuesday I needed emotional comfort.”

Another common experience is realizing momentum isn’t just about prices; it’s about behavior. Momentum tends to force humility.
You have to admit you don’t know the perfect bottom. You have to sell things that aren’t working even if you believe the story.
You have to buy things that feel expensive because the trend is strong. Many investors discover that momentum is basically a
training program for disciplined decision-makinglike a gym membership that occasionally steals your lunch money.

Finally, there’s the experience that separates dabblers from practitioners: learning to size momentum correctly. Investors who
go all-in on momentum because it just had a great run often learn the lesson the hard way when leadership flips. Investors who keep
momentum as a sleevealongside broad market exposure and diversifying stylesare more likely to stick with it long enough for the
long-term edge to matter. The “win” isn’t predicting the next winner. The win is building a portfolio that can survive your emotions.

If you’re considering momentum after hearing a conversation like Terranova’s, the most honest advice is boring: pick a rules-based
approach, keep it at a sensible size, diversify it with other exposures, and commit to a time horizon that’s long enough to live through
the awkward phases. Momentum investing can be powerfulbut only if you can tolerate the parts that feel, in the moment, completely
ridiculous.