First things first, what kind of investor would you describe yourself as? Conventionally, we classify investors into two groups—long-term and short-term.
Long-term investors also tend to identify as value investors, who typically base their decisions on Fundamental Analysis (FA). In other words, they are not so into day-to-day trading, or watching stock charts closely as stock prices go up and down. Instead, they prefer to read company reports and seek stocks which they believe are trading for less than their intrinsic values.
Short-term investors…well, it is still debatable whether short-term trading can be called investing, but we know that it’s a much faster game with less waiting time, but more technicalities or Technical Analysis (TA) involved.
So, quick, choose one between the two, which type are you? It’s hard to stick completely to one choice, isn’t it?
Each side has its limitations!
I too would find it hard to just pick one and leave the other one out entirely, because I don’t believe that the two investing styles should be mutually exclusive.
In fact, each style comes with its own set of blind spots and shortcomings.
For instance, one could still lose money by buying a fundamentally-strong stock at a sky-high price.
In the case of short-term trading, it might easily turn into over trading, i.e. excessive buying and selling to increase the probability of successful trades. Such gambling behaviour, coupled with a lack of discipline, could cost investors heavy losses.
Therefore, I think it is advisable and even important to make use of both FA and TA, to enjoy the “best of both worlds”, and in other words, buying giant stocks at cheap prices and at the right time.
On top of that, the investor would also need to develop a kind of inner discipline. Thus, I would like to add another school of thought—personal analysis (PA) as well.
I have integrated 3 schools of thought: FA+TA+PA (FTP analysis) through the unique Optimism Strategies.
More about FTP Analysis
People who are new to investment may ask the question, “So what is FA, TA, or PA? What can I expect to learn under each category?”
This is how I look at it.
When it comes to Fundamental Analysis (FA), it is more than just assessing a company’s business performance or intrinsic value (though that will be covered as well). We should also have an understanding of the macro economy (e.g. how countries/ economies are doing on the whole) as well as microeconomics concepts (e.g. demand and supply). I believe that the stock market and the economy are related like how the teeth are related to the lips—without the lips, the teeth will feel chilly.
As for Technical Analysis (TA), ideally we want to buy low and sell high, but it is not that straightforward. In order to enter and exit markets at the right timings, we need to look into trade volumes, values, patterns, trends, etc. I will also be sharing key points that include: relative and absolute technical analysis, as well as bull and bear market interpretation.
Personal Analysis (PA) is essentially a study of 4P: Investor Psychology, Political Economy, Winning Probability and Personal Indicators. It might be the most overlooked part, though I feel that it can even be more important than FA and TA sometimes. Market forces may be uncontrollable and unpredictable, but we can overcome our own emotions and also form personalized investing strategies.
How do we connect these three schools of thought together then? Having been an investor for 20 years myself, I think it can be summed up in one sentence: Identify strong FA stocks, and buy/sell at a time aligned with TA indicators, as confirmed by PA.
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