Mixing Speculation and Investing
The choice between investment and trading strategies does not have to be exclusive. It makes the most sense to combine both approaches in a manner that works for you and best serves your portfolio, conforms to your risk tolerance, and accomplishes the level of control you need and want.
In selecting a company (the fundamental approach) or a stock (the technical approach), you can employ combinations of both fundamental and technical analysis.
The goal is to decide which companies work as long-term value investments, and how to time entry and exit into positions in the short term. Both can maximize your profits and minimize your losses if your approach includes as much analytical source material as you need.
A profound realization in using both fundamental and technical analysis is that you eventually find them to be attributes of the same selection process. If you choose to follow only one or the other, you miss valuable indicators concerning a company's profitability and working capital strength, and you also miss the chance to time trades in the best possible manner.
Fundamental and technical analyses are actually not different matters, but attributes of the same cause and effect in stock valuation.
The Fundamental/Technical Combination
, The Dividend Timing Trading Strategy
, Applying the Combined Approach as a Diversification Method
discuss essential ideas for mixing investment and speculation into a single strategy. This involves developing a program that identifies a short list of indicators from each side; using fundamental indicators like dividend yield as a timing strategy; using combined analysis as a method for diversification; incorporating safe and conservative options strategies into a portfolio management plan; and resolving a changing long-term investment strategy into a short-term trading approach when the change is justified by changing conditions.
By Michael C. Thomsett