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Stock Charts Ask The Right Questions At The Right Time
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Stock Charts Ask The Right Questions At The Right Time

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  • 1. Volume 8, Issue I32 Market Dynamics August 28, 2009 Performance Stock Charts Ask The Right Questions At The Right Time Management System Portfolios heavy One of the primary uses for the fundamentals it may be impossible to long-term relative performance charts discover the true causes for the downturn. with is to ask questions. The questions can Experience shows that when the under- be framed as “If this stock is so great, financial performance of a business starts performing why is it under-performing the to deteriorate, the management of the stocks almost market?” Or “If this stock has so little company will probably do one of two never going for it, why is it outperforming things. They will either “clam up” or they outperform the the market? These are extremely will lie. This can make it even more valuable questions for the portfolio difficult to determine the causes for the market. manager to answer. downturn in performance. The long-term relative If the trend of poor performance Ignat’s Law performance charts set up these continues, it must be assumed to have been questions by showing the long-term caused by real factors even though those trend of the stock’s performance. It is factors may remain unknown and the stock important to try to answer these can be sold. This is one of the most A primary use of questions when the trend of important uses of long-term performance long-term relative performance changes direction. That is charts. To identify stocks that should be performance charts the most important time to try to apply sold. is to know when to these questions. Many “fundamentals only” sell a stock. This is The performance shown on the portfolio managers have difficulty with the especially important relative performance charts reflects sell decision. The charts ask the right because the relative investor expectations. When the trend question at the right time when the trend of performance of a of performance changes direction, it is performance turns down. Charles Ellis stock usually leads a direct indication that expectations suggested in a 1975 issue of the Financial fundamental are changing. The stock market, since Analyst’s Journal that to win “The Losers developments. it is based on investor expectations of Game”, portfolio managers should develop the future, is forward looking and the their skill at knowing when to sell. That trend of performance almost always suggestion has been confirmed many times leads the disclosure of the fundamental over the years in my experience in portfolio A collection of recent developments that account for the management and stock research.. newsletters is available on change in trend. Better sell decisions begin with the web site. Many times the trend of better questions and the best question of all performance will turn down for a is “if this stock is so great, why is it under- Please visit the web site highly popular stock that has been a at performing the market?” First of all, you http://www.clayallen.com/ leader in the market. Analysts are still have to be able to know that the rating the stock a buy and yet its performance of the stock has turned down. Market Dynamics performance is faltering. The charts This is the primary use and application for 7325 S. Jackson St. are most helpful when this situation Centennial, Colorado charts of a stock’s relative performance. develops. Critical research should be Charts should be used to record and applied to try to discover the causes measure performance, not to predict the Phone: 303-804-0507 for the downturn in performance. future movements of the market. Since the trend of performance leads W. Clay Allen CFA clayallen@msn.com