“We don’t take our signals from the market,” a well-known value investor recently remarked, a few months before blowing up his fund.
I have no respect for any market participant who cannot accept that there is value to be had from considering aspects of other disciplines when making investments and trades. I spent the first seven years of my career blowing myself up in so-called “cheap” stocks with “good” fundamentals and “smart” management teams. Often, I had a great company but no risk management and a poorly timed buy or sell. it wasn’t until I began incorporating technical analysis that I started to really feel like I was making progress as an investor.
They say “Fundamentals tell you what to buy, Technicals tell you when to buy it.” I like that, even if it may be oversimplified. In the case of Hewlett-Packard, the fundamentals and valuation have trapped millions of investors. If only they’d respected the money-flow and supply/demand picture of the stock, they’d have saved themselves billions of dollars and a ton of embarrassment.
At Fusion, we quantitatively rank every stock and ETF by multiple factors, some of which are fundamental and some are technical. It’s a good starting point, not a fool-proof method, but at least it’s something. So many analysts and investors make one or two-factor decisions and ignore variables that they weren’t taught in college. And that’s how they end up getting suckered by a value trap like Hewlett-Packard, while missing the obvious negatives away from “valuation.”
But those who pay attention to both fundamentals and technicals probably missed the horror show of HPQ, despite its status as a “good” company and a “blue chip” stock. In the below screenshot, the downtrend in HPQ is so obvious that a child could be taught to spot it with a 30 minute classroom lesson. Funamental analysts would be doing themselves a huge favor by incorporating some of this stuff while they still have a solvent firm client left.
(Click to Embiggen!)