There are two approaches to growth investing in the stock market. (Actually there are thousands, but I’m working on a thesis here, so bear with me.)
Growth investors can be either enthusiasts or pragmatists.
The growth investing enthusiast wants to know everything there is to know about the markets and what influences them. Enthusiasts are looking for the secret of the market or the piece of data that will unlock the future. In pursuit of success, they will tear into all available data on a company’s products, markets, competitors, management, history and R&D activities. The may also dig deeply into a company’s quarterly and annual reports, looking for subtle signs of strength or weakness hiding among the reams of data.
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Enthusiasts will also typically run through dozens of technical indicators, looking not just for the one that works best, but the one that will give them insight that other investors don’t have.
If you take a look at the proliferation of trend indicators, you’ll see that there are plenty to choose from. And they are all, despite the colorful names they’ve been tagged with, serious attempts by stock analysts to gain profitable insight using commonly available data. Here’s a sampling: Vortex Indicator, Coppock Curve, Aroon Oscillator, On Balance Volume, MACD Histogram, Bollinger Bands, True Strength Index, Pring’s Know Sure Thing and the Ulcer Index.
Most of these involve analysis of a stock’s price history, valuation ratios, central tendency, moving averages or trading statistics looking for historical patterns, statistically significant movement above or below trading ranges or combinations of price movement and trading volume.
And for stock enthusiasts, they’re a great way to spend time, lots and lots of time. Combine them with the calendar of economic data releases, and you have an activity that can absorb all the time you have.
I know these things are fascinating because in the nearly 12 years I’ve spent at Cabot, I’ve looked at most of them, even the ones that involved mathematical formulas that I couldn’t understand.
But in the end, I realized that what it takes to make money in the stock market isn’t having the biggest toolbox of technical indicators. Over the 46 years that Cabot’s analysts have been making a living by picking winning growth stocks, our enthusiasm for esoteric indicators and analytical tools has been beaten out of us by the market itself.
And what’s left is what makes us growth investing pragmatists.
Pragmatists are investors who just want to make money.
