Growth Investing vs Momentum Investing

Which am I doing and is there a difference?

Am I investing or trading?

I've thought about this concept quite a bit since switching to a heavily consolidated growth portfolio. Though I believe I’ve raised the standards for earning my hard-earned investment dollars, I must admit I’m seeing more portfolio churn than my younger days. This is particularly true at the back end, where there seems to be a constant battle between my last holding and the top name on my watch list (currently WORK vs NET). So am I doing this the right way? On one hand, I know active investors can become too active. On the other, churn is almost inevitable when managing a condensed portfolio with strict guidelines for inclusion.

I believe some of this dilemma lies in the difference between growth and momentum investing. In my opinion most people unfairly equate the two. That being said I understand the logic. At its core every type of investing is momentum investing. Even someone purchasing an index fund with the intent of holding forever is betting on some sort of momentum to carry the price higher. It’s the easiest way to mentally grasp the idea of participating in the market.

However, in my experience successful investors have a more nuanced approach. They don’t make decisions haphazardly. They pay close attention to their current holdings. They have specific reasons for both buys and sells. And they are ruthless in allocating their capital. Their money stays in as long as the thesis holds. Yet when it changes, sayonara. That might seem like momentum to the casual observer, but I prefer to think of it as disciplined as long as there is some sort of information-based rationale behind the decision. Far more often than not, that rationale is driven by the underlying company rather than price

Momentum investing implies some form of timing the market. I view growth investing as much more involved. True growth investing – at least as I am trying to practice it – is driven by company fundamentals rather than any attempt to time the market. In the big picture broad market conditions or an individual stock price should have very little influence on whether a company is worth owning. Decisions should be based on the perceived value of the underlying business instead. That perceived value is all that matters! Therefore, I am constantly trying to make it my sole focus. Easier said than done sometimes, but in that respect I’d consider myself more investor than trader.

Thanks for reading and good luck out there.