Investment Strategy

Investment Strategy

We believe the combination of fundamental analysis with technical analysis can help stack the odds in your favor.


Basically, there are two types of securities analysis - fundamental analysis and technical analysis.  Fundamental analysis is what most of us are familiar with.  When you see an analyst on television or read comments from an analyst in a magazine or a news story, most often these comments come from fundamental analysts.


A fundamental analyst tries to answer the question “What” to buy.  They will study the company’s balance sheet, evaluate the management team, try to understand the quality of the company’s financial strength.


A technical analyst tries to answer the question “When” to buy.  A technical analyst wants to find the trend of a chart - is it trending up or trending down.  Is the stock outperforming the broad market?  How high, or in some cases, how low can the stock go?


The method of technical analysis I use is the Point & Figure methodology.  The reason I use this form of technical analysis is because it is based upon supply and demand.


Charles Dow was the first to use Point & Figure charts.  While he was a fundamentalist at heart, he also appreciated the need for understanding the supply and demand relationship of any stock.


When you cut through all the red tape on Wall Street, all of the financials media’s reporting, what moves stock prices are supply and demand.  Simply said, if there are more buyers than sellers willing to sell, the price will rise.  If there are more sellers than buyers will to buy, the price will move lower.  And, if buyers and sellers are equal, the price will remain the same, it’s that simple.

The Point & Figure methodology is a logical, organized way of recording the supply and demand relationship in a  stock.  This methodology is not the Holy Grail.  There is no crystal ball.  But what we can do is help strive to increase our odds of success.



The Five-Step Game Plan


Step 1: Market Analysis

Step 2: Sector Analysis

Step 3: Fundamental Research

Step 4: Technical Research

Step 5: Risk management and follow-up


This is the five-step process I use in seeking to manage risk in the market.  First, I look at the market to determine whether it is supporting higher prices.  If it is, then I move to the sectors and determine which sectors are supporting higher prices.  From there, my inventory of stocks is determined by those deemed fundamentally sound in the strong sectors.


Then from that inventory I choose those that are technically sound and controlled by demand.  Finally, all the stocks in your portfolio are updated each day so that I see changes in the supply/demand relationship and can notify you to potential opportunities as well as potential problem areas.


Supply and Demand


We all understand the basic law of supply and demand; we have all experienced these forces at the supermarket.  We know why in the winter tomatoes don’t taste very good, don’t have a very long shelf life and are expensive.  We inherently understand why there are lemonade stand in the summer and hot chocolate stands in the winter.  Stocks and sectors move in and out of favor just like produce in the supermarket.



Why Point and Figure Charts


  • P&F charts are indigenous to stock market trading which give you both the immediate and long term view.
  • Formations, patterns and signals may be recognized and interpreted and potentially repeat themselves.
  • Trends and trend lines can be identified.
  • Suitable targets can be established.
  • The objective is to enable the investor to stay on a winner while it is winning and get off a loser quickly.


Investing in securities involves risks, including loss of principal.  An investor trading stocks according to a Point & Figure strategy may incur additional transactions costs than if the investor employed a Buy and Hold Strategy.  There is no assurance that the investment objective of any investment strategy will be attained.


Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.