Saturday, March 5, 2016

Having Every Tool In Your Toolkit

Jon Haghayeghi | Twitter@LoneStarQuant

Market timing is a challenging proposition, which is why it is important to consider all available information when making an investment decision. Whether a technical trader or a fundamental trader, being aware of news events, earnings reports, fundamental value, macro trends, and historical trends are all important. For the fundamental investor looking to enter a long term position or a technical trader looking for a short term move, historical trends can provide valuable insights that have the potential to increase returns (or reduce losses) on a trade.

Often when searching through the Seasonalysis database, I like to create my own universe of stocks that have strong fundamentals before doing any search. The motivation is that in the event that history does not repeat itself, I like to ensure that the position I hold has fundamental strength so I can wait for the market to reflect a fair valuation of the companies equity. Some of my best trades in recent history have been the result of the combination of great fundamentals, great timing based on historical patterns, as well as near term technical strength.

I am interested in the following large-cap that trades in line with industry, has technical support, that I don't mind holding while it pays a 2.25% dividend.

Here is an example of a trade that I might reject because the stock trades at a 50% premium to industry in terms of its earnings multiple. Additionally, the stock has and mixed technical strength.