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CT Larsen

I suppose we should thank the countless analysts who put in countless hours fundamentally analyzing the numbers for us so we don't have to. Because without them, we would have no beginning point. So is that to say fundamental analysis has a purpose? Of course it does. Do we use it? You bet. It is one of the first things we do use. We use in it screens, and we also use analyst's recommendations that are based largely on fundamental analysis. We buy no stock without corroboration of analyst's reports, and many of our screens have an analyst's reports factor to them. So in a sense fundamental analysis is THE most important factor of our selecting stocks. Without a good report from fundamental folks, we don't look any further at the stock.

We know stock analysts also have opinions about where the market is heading, and about the sectors as well. We like that too. We want to be where the action is. An exceptional fundamental stock will not move, if people are not focusing on it. And there is the rub with fundamental analysis, and that is why fundamentalist either make lousy traders or don't believe in trading. They are long term investors, philosophically superior to technicians in their way of thought. But stocks only move if they are the focus of traders. (traders for our purposes could be mid-term speculators as well, which frankly is probably where we fit in.) So reading an analyst report, or with large caps you get the benefit of a pool of analyst's reports, gives you an idea whether or not the stock will be moving in the near future (3-6 months.) A stock that is rated a hold is likely not to do much of anything rather than track the market or the sector. A stock that is rated a sell, likely has already tanked. But a stock that is rated a buy, is worthy of a technical look.

Do we analyze rates of growth, % of debt, stuff like that? Nope, it has already been done. Our job is to find the hot sectors, and the hot large cap stocks in that sector. And then take those and see if they are poised to move..

Long term moves of an individual stock or the market in whole is a process of thought. But every wiggle and waggle along the way is a process of emotion. A stock poised to rise, based on solid fundamental analysis also needs to have emotion behind it, to actually rise in our time frame. We are not interested in holding a stock with 15% growth rates for a year to see if that results in a 15% stock price increase. The fact of the matter is that stock is going to rise and/or fall 15% in a year's time no matter what. But if we know that it has received high marks for it's fundamentals, and then look at its charts and see technically it is also very healthy then we have something.

A stock that does not fair well through analyst's reports is not even worhty of our looking at its' chart. There are so many options in large cap stocks that we want EVERY advantage we can get. We want every selection to be a winner. When your average trade only nets you 4%, you cannot afford to be wrong.

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