{"id":2093793,"date":"2018-11-30T10:17:48","date_gmt":"2018-11-30T04:47:48","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2093793"},"modified":"2018-11-30T10:17:48","modified_gmt":"2018-11-30T04:47:48","slug":"momentum-growth-and-market-cap-weighted","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2018\/11\/30\/momentum-growth-and-market-cap-weighted\/","title":{"rendered":"Momentum, Growth and Market-cap Weighted"},"content":{"rendered":"

Momentum and growth investing are not the same and investing in a market-cap weighted index is not the same as momentum investing.<\/p>\n

Momentum Investing<\/h3>\n

One-liner:<\/strong> A portfolio that is long the stocks that have gone up in price over the last one year will out-perform the market.<\/p>\n

There are a number of ways to measure price appreciation. Mainly:<\/p>\n

    \n
  1. Relative: Compare how price has appreciated in comparison to the market. Rank from largest to smallest.<\/li>\n
  2. Absolute: Rank returns from largest to smallest.<\/li>\n
  3. Acceleration: Compare how price has appreciated in the last 6-months vs. how price appreciated in the prior 6-month period. Rank from largest to smallest.<\/li>\n<\/ol>\n

    The one-year formation period is by no means carved in stone. Some portfolios measure momentum over different time-periods and blend them together.<\/p>\n

    Additionally, the following preference overlays can be applied:<\/p>\n

      \n
    1. Stocks with lesser volatility.<\/li>\n
    2. Stocks that rise up in price gradually (linear) over ones that have gone up like a hokey stick (parabolic.)<\/li>\n
    3. Liquid stocks over illiquid ones to reduce trading frictions.<\/li>\n
    4. A trailing stop-loss over strict scheduled rebalancing to manage stock-specific risk.<\/li>\n<\/ol>\n

      Growth Investing<\/h3>\n

      One-liner:<\/strong> A portfolio that is long the stocks whose earnings have grown at an above-average rate relative to the market will out-perform the market.<\/p>\n

      There are number of ways to measure earnings growth. Mainly:<\/p>\n

        \n
      1. Total sales: Compare this year’s revenue over previous years’.<\/li>\n
      2. EBITDA: Compare this year’s operating performance over previous years’.<\/li>\n
      3. EPS: Compare this year’s earnings per share over previous years’.<\/li>\n<\/ol>\n

        All these measures involve gotchas<\/em>. For example, any of the following actions taken by the company will boost revenue:<\/p>\n

          \n
        1. Increase the asset base – setup a new factory.<\/li>\n
        2. Increase leverage – take on more debt\/buy-back stock.<\/li>\n
        3. Compromise on margins – lower prices.<\/li>\n<\/ol>\n

          Also, there could be temporary structural shocks – natural disasters\/policy shifts – that takes out supply\/boosts short-term demand for a company’s\/sector’s products.<\/p>\n

          Market-cap Weighted<\/h3>\n

          One-liner:<\/strong> A committee meets every six months and creates a basket of stocks primarily based on their market cap (number of shares outstanding x<\/em> price.) This basket defines the market.<\/p>\n

          Passive investors invest in such a basket through index funds or ETFs and get on with their lives.<\/p>\n

          The long-arch<\/h3>\n

          All investment strategies have their day\/year\/decade under the sun and neither are necessarily “better” than the other. It depends on the investor’s task at hand. As an analogy, whether you use a flat-head or a Phillips screw is all nuance when compared to task at hand: screwing. But it is important to know the difference between these investing approaches and not get confused between them.<\/p>\n","protected":false},"excerpt":{"rendered":"

          Momentum and growth investing are not the same and investing in a market-cap weighted index is not the same as momentum investing. Momentum Investing One-liner: A portfolio that is long the stocks that have gone up in price over the last one year will out-perform the market. There are a number of ways to measure … <\/p>\n","protected":false},"author":2,"featured_media":2051281,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3953,3491],"class_list":["post-2093793","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-growth","tag-momentum","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2093793","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2093793"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2093793\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2051281"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2093793"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2093793"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2093793"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}