Technical Analysis

Some bear markets have been known to last as long as five years in duration. Holding a great company while it goes through a massive correction in price even though it is still a great company never made sense to me. Understanding price action, momentum, when a large move is about to begin, understanding the business and price cycles is far more important to your bottom line. It's more important to buy a great company at a great price when price action is starting to suggest a large rally is about to unfold. All strong rallies start from a certain technical set up in price, so understanding the charts, volume, commitment level of our buyers and how strong trends develop and build is paramount to trading and investing successfully

Fundamental Analysis

Some fundamental theories are better than others. We can't put all companies in the same box and we often need to look at different metrics depending on where they sit in their development cycle. Most of the great growth companies have a few key things in common, so its important to understand what are the most important fundamental markers that a growth company should have. When we look at more mature companies we need to look at some of these same markers but acknowledge that there are other measures also we must consider and a larger business is never going to be as nimble as a smaller company but a balanced portfolio should have a place for both at the right value point.

Quantitative Analysis

In my biased opinion, quantitative analysis is underutilsed in a lot of broking and research houses in Australia. Once considered to be one of the most important roles in research is now only a minor part to the research arm. In the mature end of the market, ie the top 50 stocks, knowing where price/earnings valuations sit in comparison to the last 5-10 years of trading can be incredibly important and also add clarity and conviction to your decision making. If one of the big four banks is trading at its highest p/e valuation in eight years and you understand that this is the most expensive price its could be purchased at when looking at the last decade it can put the risks into perspective and alert you to when you should be looking to exit or hedge your position.

Sector Analysis

The fundamentals of a company always look great at the top of a business cycle. Being able to recognise that a sector is becoming crowded or a sector has peaked in the business cycle is rarely recognised until after the event but there are a few key markers that should be an alert to start exiting an overpriced sector. Apart from being a contrarian in the market you need to be able to look ahead into the future and recognise the typical warning signs that your near the top of the cycle. You also need to be able to recognise what might be the catalyst for a major turn around in an unloved or out of favour sector.