Rule Du Jour: Rule #43 FA is for What! TA is for When (Patreon)

Rule Du Jour: Rule #43 FA is for What! TA is for When

Fundamental Analysis (FA) and Technical Analysis (TA) are key tools in an investor's arsenal. They have to be used together! Those that trade on TA alone miss half the picture.

Fundamental Analysis (FA): Deciding What to Invest In

Fundamental Analysis is the cornerstone of long-term investing strategies. It involves evaluating a company's intrinsic value by examining its financial health, competitive position, and growth prospects. I spend an inordinate amount of time on the WHAT! Examples of use FA to decide what to invest in:

• Analyze financial statements: Examine the income statement, balance sheet, and cash flow statement to assess the company's financial health.

• Calculate key ratios: Use financial ratios like P/E ratio, ROE, FCF, and debt-to-equity ratio to gauge profitability, efficiency, and financial stability. In Crypto I had to create scores of my own ratios as they never existed hence Crypto Compendium and SCP Profiler and the IA Engine.

• Assess the company's competitive position: Evaluate the company's market share, brand strength, and barriers to entry in its industry.

• Consider growth prospects: Look at the company's historical growth rates and future growth potential in its market.

• Compare with peers: Benchmark the company's performance against its competitors to identify strengths and weaknesses. MOAT is also key.

Technical Analysis (TA): Deciding When to Invest and Exit

Once you've identified promising investments through FA, Technical Analysis can help you determine the optimal timing for entering and exiting positions. Here's how to use TA to decide when to invest:

• Tools like ATR analyze historical price movements, support and resistance levels and patterns to identify trends and potential entry or exit points.

• Tools like IADSS help define entry and exists

• Tools like DCAS help you build positions, maximizing ROI

• etc etc

SUMMARY

Combining FA and TA is key. Rem re FA a thesis can change hence tap dancing shoes. FA to identify emerging leaders early with killer long-term potential, and then apply TA to pinpoint optimal entry and exit points for these investments.