My Essential Investment Tools: Graphs and Charts

My two enduring obsessions are a love of travel and the appreciation of simple, well-prepared food. I’m an amateur chef (emphasis on amateur), I love to watch cooking shows, read cooking books, and take cooking classes. The act of creating a good meal is as much art as it is science and I just love to prepare food for my friends and family. (The trick, lately, is to try to make low carb, keto friendly meals, which narrows the field a little, especially since I love pasta and a nice baguette!) And there’s a real good chance that on any given day I’m daydreaming about (or even planning a trip to) some food centric destination (Hello Parma, Italy! Parmesan cheese, parma ham, pasta factories… mmmmm ) and looking at a map while fantasizing about delicious dishes made with fresh local ingredients. To me, cooking is about love, problem solving, and creativity.

But it’s the maps that I wanted to talk about today, one of my grandsons is obsessed with maps and talking with him helped me to realize that I am too, I love maps. A good map will not only tell you where you’ve been, but maybe (if you are lucky) where you are going. Digital maps are fine, but I loved the old folding maps we kept in our glovebox, I could write on them, folding and unfolding as needed and could always have them around as souvenirs of my adventures. There is a story that I read in Michael Lewis’s new book about the pandemic, Premonition, about a group of soldiers in World War 2 who were lost in the mountains until they discovered a map in a cave and then used it to find their way to safety. It was only later that they realized that the map was a map of the Pyrenees, they had been lost in the Alps. Maps help us to think.

A close cousin of maps are charts (and graphs) and as an investment professional, I spend an inordinate amount of time looking at charts to see where we’ve been while hoping to get a glimmer of where we might be going. Investing, to me, is more than just trying to find a hot tip or trying to outwit other investors, it’s a systematic pursuit designed to find a stock that fits into our overall view of the market environment as we understand it.

Let me give you a quick look at 3 charts that are among the dozens I look at on almost a daily basis. The first thing I need is a sense of where the economy is. I look at economic stats, monetary stats, production numbers, demand numbers, commodity prices, and other information that gives me a sense of where the markets have been and, more importantly: why. Investor sentiment, economic outlooks, global phenomenon (like the pandemic), and other factors give me a “macro” sense of whether we are in more normal or more unusual investment times.  Here’s a very pertinent chart on interest rates that I’ve been looking at for a long time:

As you can see, for most of my career, interest rates have been going lower but in the last 6 months, rates have begun to go up significantly. That’s a handy piece of information to have and any investment decision that we make better be made with this changing interest rate environment in mind. I look at things on a macro level first, stocks and bonds don’t trade in a vacuum, and we need to know whether the tide is coming in or going out before setting out to sea. (Sailor analogies seem to be coming to me today, maybe its the spinach I had last night. I am what I am).

So, given my economic outlook, I’d like to know which sectors of the economy are ripe for investment. One of the chart services I subscribe to updates this chart every week and it’s a great way to get some context:

By looking at the sectors where money has already gone, we get an idea of what is currently working for investors and what might be working soon. It’s interesting how often a sector that has been towards the bottom the chart eventually boils to the top. That’s why time is such an important part of investing, we might invest in a sector and wait for it to float to the top of the performance chart for quite a while. Before I look at an individual company or investment sector, I’d like to know where we stand now and what glimpses of the future I can gleam from current trends. (Fortune telling is hard, I’m not a physic.)

Before I invest in any specific investment, I ALWAYS check what we call technical charts. By looking at daily trends of actual buyers and sellers, I hope to find a good entry level for the investment. Giving you a course in technical investing is beyond the scope of this note, but the point is, I seldomly buy or sell an investment without my technical analysis. I’ve enclosed a sample chart of Apple, not because I want to recommend it today, but simply to give you an example of what sort of graph I’m looking at.

Often my technical and fundamental information tell me to initiate a position slowly, in other words, buy some now and a little later. If I get lucky, and the stock goes up right away, I’m happy with my smaller position’s profit and if it doesn’t, I’ll keep watching and look for opportunities to build my position. It’s been my experience that if I buy companies that seem to fit my macro view and if I buy them right, I’m happy to hold the position for a long time, sometimes even for years. Making timely buys of good businesses is a sound strategy that has worked for investors for a very long time. Selling stock positions because they haven’t gone up in the very recent past is not only impatient, it’s usually wrong.  

One of the last things I normally examine, in making investment decisions is politics. When we invest in good companies with good earnings potential, politics is only marginally a performance factor. It’s disturbing to me when new clients probe about my own political beliefs as if it is a litmus test for selecting an advisor. In my view, people are hiring me because I am politically agnostic, I believe in facts. Democrats and Republicans can each be good or bad investors, the key to me seems to be a willingness to invest for the long term and to make investment decisions based on facts, not political ideology or conspiracy theories.

I sent out many annual investment reviews last week, and we all seem to have had a good year. 1-year returns are relatively meaningless in the long run, it’s sort of like glancing down at the speedometer while driving, a good number to know, but is it sustainable? Like you, I’ve been an individual investor, watching my own portfolio seek growth over time and I believe this long-term investing strategy works, I’ve enjoyed helping many of you build your ideal financial future. As your advisor, I am happy to help you reach your individual financial goals, after 36 years of being an investment professional I’ve seen so many clients succeed and there is nothing more gratifying. If you’d like to review your return and make sure that we are still heading for the proper goals, please give me a call at 321-438-7922 to set up a time to review. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.