Tag Archive for: stocks

Technical analysis of stocks can boost the power of your fundamental research

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You can use technical analysis in combination with your firm’s fundamental equity analysis to help decide when to buy or sell stocks. This is the message I took away from “Applying Technical Analysis to a Fundamental Investment Strategy,” a March 23 presentation to the Boston Security Analysts Society by David Keller, who oversees technical analysis as a managing director of research for Fidelity Investments. 

Technical analysis is not voodoo science, throwing darts at a board, or even a prediction of the future, said Keller. Rather, it’s a way to analyze supply and demand using patterns, he said.

Fundamental research and technical analysis tackle different parts of the decision to trade a stock. Here’s how Keller described them.

  1. Fundamental research analyzes the company for the what and why of buy and sell decisions.
  2. Technical analysis analyzes the stock, looking purely at market activity for when and how to buy or sell

These two approaches overlap, in the opinion of Keller and the Fidelity portfolio managers who use his team’s research. Technical research helps to identify the best time to execute a fundamental strategy, he said. You can think of technical analysis as a trigger, he said.  

When the results of technical analysis diverge from those of fundamental research, portfolio managers should pay attention, according to Keller. He referred to point and figure charts as “a gut check on how I look at individual stocks.”

Relative strength indicators are among the most important technical indicators, Keller said. They can be warning signs, he added.

Keller’s message was warmly received by members of the audience, most of whom raised their hands when asked if they regularly consulted technical indicators. 

Related post
* Fidelity’s head of technical research addresses “Where will the stock market go from here?”
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Copyright 2010 by Susan B. Weiner All rights reserved

Fidelity’s head of technical research addresses "Where will the stock market go from here?"

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Will the bull market continue? 

Investment professionals are always curious. So naturally the question came up during a Q&A session with David Keller, who oversees technical analysis as a managing director of research for Fidelity Investments. The question followed Keller’s March 23 presentation to the Boston Security Analysts Society on “Applying Technical Analysis to a Fundamental Investment Strategy.”

The bottom line: It appears that the market is in an uptrend and the offensive sectors will outperform their defensive peers. 

However, Keller framed his comments cautiously, saying that there is little evidence that the stock market is not in a sustained uptrend. Nor does he see evidence that the market is overbought.

“I can’t say,” replied Keller, when asked to identify his favorite sector. He’s looking at groups that are traditionally considering offensive. “But it’s not as clear cut as in the past,” he said.

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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors” will start in April. For more information, sign up to receive “Information on upcoming classes, workshops, and other events” as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Statistics to calm nervous investors: Research on dollar cost averaging

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Are you–or your clients–nervous about buying stocks? You may find comfort in statistics from “(Re)Entering the Market: The Costs and Benefits of Dollar Cost Averaging” by Gregory D. Singer, director of research, and Ted Mann, analyst in Bernstein Global Wealth Management’s New York office. Their article appeared in the CFA Institute’s Private Wealth Management e-newsletter (August 2009).

The bottom line, according to the authors’ research

…if you have a sum of money to invest for the long term, entering the market all at once will usually prove to be a better strategy than dollar cost averaging. The odds that you will reap greater wealth in the end are in your favor. But dollar cost averaging is reasonable insurance against the risk of investing in a falling market.

The authors highlight the downside of dollar cost averaging. “If the market rises while we are ‘averaging in,’ we miss out on potential gains. And those forgone gains could be substantial.”

As evidence, they present average 12-month rolling returns for the U.S. stock market from 1926 to November 2008 for three strategies of investing a lump sum.

  • Invest All at Once: 12%
  • Dollar Cost Averaging: 8%
  • Hold Cash: 4%

I find these numbers tremendously reassuring, even though past performance is no guarantee of future results. The case for investing all at once is even stronger following 12 months of a down market, with returns of 15%, 10%, and 3% respectively.

However, dollar cost averaging does preserve wealth during the bottom 20% of markets. In this bottom quintile, it “resulted in an average of 11.6 percent more wealth than investing all at once.”  So it sounds like a great strategy for declining markets. The hitch? No one can reliably predict when those markets will occur.

Over the long run, investing all at once should outperform dollar cost averaging and holding cash.

The authors concede that investing entire lump sums immediately isn’t for everyone. Their research suggests that the potential benefits from dollar cost averaging fall after the first six months. Moreover, “Beyond 18 months, averaging in doesn’t make financial sense (unless it’s part of a program like payroll deduction, where the money becomes available only over time).”

What do YOU think? When would you recommend investing lump sums all at once vs. dollar cost averaging?

"James Grant: A Positive Lesson from the Great Depression"

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Great price tags on a number of investments are the silver lining of the current recession, according to James Grant, founder of Grant’s Interest Rate Observer. 

Grant shared his “Thoughts on the Financial Markets and the Current State of the Economy” with the Boston Security Analysts Society on February 11. He spoke at length about the virtues of value investing, as exemplified by the Depression era strategies of Floyd Odlum of Atlas Corporation. Today’s investors can learn from Odlum’s strategy of underpaying for assets, Grant said.

Continue reading “James Grant: A Positive Lesson from the Great Depression,” my article in Advisor Perspectives.

Access 342 hiring investment research analysts, says Integrity Research

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Access 342, a new kind of investment research firm, is hiring research analysts, according to Integrity Research’s “Who is Hiring in the Current Environment?“

That’s the good news.

The bad news: not many analysts will fit the Access 342 mold. The bar to entry is high. You must be “identified as highly valuable by the buy-side themselves.” 

Also, you’ve got to be willing to risk working for a relatively young firm.

Dan Ariely on "The Financial Markets and the Neurospsychology of Trust"

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Individuals have lost their trust in financial institutions, says Dan Ariely in “The Financial Markets and the Neurospsychology of Trust.”

Everyone knows that. But Ariely also asserts that our stock market problems can’t be resolved until trust is restored–something that  bailout efforts don’t address. 

Ariely says:

I don’t have much faith in the legislation, but I hope that one of the banks will decide to step out of the herd and be the good guy–eliminating conflict of interests and creating complete transparency.

Ariely is the author of Predictably Irrational.

"Jeremy Siegel on why Equities are ‘Dirt Cheap’ ”

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“I may be the lone optimist in this market,” said Prof. Jeremy Siegel in a Q&A published in Advisor Perspectives. 

He was responding to a question about his Oct. 31 Yahoo finance column, in which he said, “I would be very surprised that if an investor who bought a diversified portfolio today did not make at least 20% or more on his investment in the next twelve months.”

Are there any other optimists out there?

Your clients’ stock options are down 76% overall

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“For those executives whose company holdings were largely in stock options, rather than stock, the decline in wealth has been huge…. Over all, the options have lost 76 percent of their value.”

That’s according to New York Times columnist Floyd Norris, who wrote in “Be Glad You’re Not Warren Buffett” about a report by Stephen Hall & Partners, an executive compensation consulting firm. By the way, Buffett’s paper losses amount to more than $15 billion–or nearly one-third of the $52.3 billion in losses through Oct. 27.

I looked on the Stephen Hall & Partners website to see if their report is available to the public. I couldn’t find any mention of it.

Are your clients talking to you about their stock options? If not, maybe it’s time to bring up this topic.

Independent investment research will suffer in the near term

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The recent decline in commissions generated by buy-side equity trading will cut funding available for independent and sell-side investment research, according to “Integrity’s Outlook for Independent Research.” Michael Mayhew of Integrity Research Associates says that commissions are expected to fall by 40% next year.

However, there is a silver lining to this dark cloud. Integrity says, “However, once the dust settles (in late 2009 or early 2010) we anticipate that the market for investment research, and particularly non-traditional independent research, is likely to improve markedly.” Why? Because buy-side research staffs will have shrunk and the supply of good research will be tighter.

Interested in more news like this? Visit Integrity ResearchWatch or  subscribe by email or RSS feed.

Prof. Andre Perold on "Stable Risk Portfolios: A Timely Alternative to Static Asset Allocations?"

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Risk matters. October’s wild stock market swings have reminded investors that volatility can be painful. They simply can’t stomach as much risk as they thought they could.

In this environment, it’s no surprise that Professor André F. Perold’s October 21 talk on “Risk Stabilization and Asset Allocation” attracted a bigger than usual crowd to the monthly meeting of the Boston chapter of the Quantitative Work Alliance for Applied Finance, Education, and Wisdom, affectionately known as QWAFAFEW.

Perold’s premise: A stable-risk portfolio that keeps risk constant is a viable alternative to investors’ classic static policy portfolio, such as 60% stocks and 40% bonds, and it may offer superior risk-adjusted returns.

Continue reading about stable risk portfolios in my Advisor Perspectives article.