September 1, 2021 • 40 mins
Welcome back!
We have been gone for quite some time and, life happens. For that, we apologize but we are excited to dig deep and get back on track. We are now entering into the realm of investing on your own terms and it all starts here! Analysis is a skill that is required should you do the heavy lifting of investing yourself, but is also an excellent skill to have if you're going to keep track of markets, companies, and simply keeping up with whoever may be assisting in running your investments.
Thank you for joining us again! Let's get started.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris Holling (00:00):
This is the truth about investing back to basics
podcast. We wamt to help youtake control of your personal
finance and long terminvestments, if looking for a
way to learn the why and howinvesting, then you found the
right place. Thank you fortaking the time to learn how to
(00:23):
better yourselves.
Welcome back, ladies andgentlemen, to the fourth season
of the truth about investingback to basics. My name is Chris
Holling. And I'm Sean Cooper.
And ultimately, I'm just I'mjust gonna be upfront about
(00:45):
this, we are re recording thisepisode. And I would love to
blame Sean. And I can't we, weactually, we did record this and
we had this ready to go. Andthen I checked my file, and it
made a very aggressive andviolent sound with the track
(01:07):
that I had recorded, that wasultimately unusable. And so here
we are, pretending like it neverhappened. It's, but you know,
why we're here is clearly todemonstrate our acting skills,
and nothing else. Right, Sean?
Sean Cooper (01:28):
Maybe your acting?
You actually have some I havenone.
Chris Holling (01:35):
thank thank God, somebody does, I guess, maybe
sorta, kinda, but really welcomeback, we appreciate you coming
back. And we're excited to gointo the fourth season. There,
the fourth season is it we'restarting to hit this point of
where we're starting to go. evendeeper down the rabbit hole of
(01:56):
the things that we've been doingbefore. And really, these these
concepts that we're gettinginto, are, are important. And
I'll be honest, I think they'rethey're a little dense, and
they're a little complex. And I,I like that. But I would also
encourage that you take sometime and maybe, maybe get a
(02:16):
legal pad and jot some stuffdown. Because it's, it's a lot
to take on in this realm. Ithink we're kind of starting to
veer, in my opinion, you cantell me what you think. But I
think we're starting to veerinto the realm of I'm, I'm
choosing to take this on onmyself, rather than having
somebody do a lot of this stufffor me, and making that active
(02:39):
decision. These these are thesteps now that we're getting
into of like, now that I've madethat choice to, to take this on,
these are the things that areimportant for you to take it on
individually. Whereas, you know,you can send this off to
somebody like Sean, which, youknow, he'll do a great job. But,
(02:59):
you know, when you when you dosend it off to somebody, this
area isn't as how do I put thatas vital of information, as some
of the previous seasons havebeen for just understanding some
stuff. But I also think thatit's really key and really
important to understand thesethings. So that you're not
completely in the woods on onany of this. And when you are
(03:22):
able to talk with people aboutthis, you can you can eloquently
pay attention, and make surethat everything is is on track,
like what do you what do youthink about that?
Sean Cooper (03:30):
Yeah, I would tend to agree, I'd say if you're
you're planning on doing thisyourself, you need to have a
very strong understanding of thetopics that we're going to be
discussing over this season andnext season. And if you're
planning on hiring it out, thenyou still should have a base
level understanding of thesetopics, so that you can
(03:51):
understand what they're tellingyou. You can more or less fact
check them if you will, youknow, if they're telling you one
thing and your base levelunderstanding goes, Yeah, that
sounds right, or your base levelunderstanding says I don't, know
about that. That's, you know, agood level of knowledge to have
going into that relationship. So
Chris Holling (04:15):
I think that's super reasonable. In fact, it
kind of makes me think of theother day we there's there's a
guy that I work with that. Therewas a story that that came up
where he was meeting with hisretirement specialist
specifically with somebody forthe the pension board that him
and I are part of,
Sean Cooper (04:33):
Oh, yeah,
Chris Holling (04:33):
excuse me. Well, not not the board. We're not
part of the board. But the
Sean Cooper (04:36):
No the pension itself
Chris Holling (04:37):
right. Right. And so some
Sean Cooper (04:39):
participants,
Chris Holling (04:40):
yes, we are participants, but when somebody
that was a representative of it,and was one of the ones that was
essentially trying to go to batfor us on some of these things.
He was asking some pretty indepth questions about how it's
working, moving forward, askinga lot of the right questions
about the the in depth portionsof his retirement as well as
(05:04):
other people's. And the, theconversation eventually got to a
point where he was askingsomething that the, the
representative said, Oh, youknow what I don't know, I'm
gonna have to look into some ofthese things that you're talking
about. And then there's a pause.
He said, you know, you've,you've really taken the time to,
to look into this stuff, I justdon't know some of the answers
to what you're asking. And thereis an equally long or awkward
(05:24):
pause. He said, it's your job.
What do you mean you didn't lookinto these things
Sean Cooper (05:33):
good for him.
Chris Holling (05:35):
And so it continued to get awkward. But
the point is, is that if you'reable to take the time and at
least have a basicunderstanding, then you can kind
of keep people in check. And notsaying that everybody, by any
stretch is trying to pull thewool over your eyes. But
sometimes it's, you know, maybeit's just something that they
haven't considered. And even ifyou just have a general
(05:57):
understanding there, you cankeep things on track. I think
that's, that's worth theknowledge to have just as a base
understanding. So cool. Great.
Well, today, what we're going totalk about to to hit on this
moving forward to, you know,legal pad and pen ready. Is, is
we're going to talk abouttechnical and fundamental
(06:21):
analysis. Right, Sean? Right.
Sean Cooper (06:25):
Correct.
Chris Holling (06:26):
Okay. Cool
Sean Cooper (06:26):
And I'm curious, Chris, because, as you pointed
out, we've, we've already gonethrough this process, but in the
past, you always take the timeupfront to share with us. Your
understanding, of the topics
Chris Holling (06:41):
are you testing me?
Sean Cooper (06:42):
we're covering which, and but it did and last
time, it was rather enjoyablefor me to listen to. But this
time, you've already heard it atleast once. So how do you want
to go about that
Chris Holling (06:57):
you're seeing if I paid attention,
Sean Cooper (06:59):
I think that's a good way to go about
it. Yeah, maybe we should dothat.
Chris Holling (07:04):
This, this, this can only go poorly. So Oh, man,
of course, I'm so used to beingput on the spot. And I'm just
okay. All right,
Sean Cooper (07:16):
come on improv.
Chris Holling (07:19):
It's, it's gonna be good for somebody,
Sean Cooper (07:21):
how about you just start with one start with start
with fundamental analysis?
Chris Holling (07:25):
So that's what we're starting with, right? Of
course,
Sean Cooper (07:28):
unless you want to just compare the two. I mean, I
get that too
Chris Holling (07:31):
Okay. I, I've totally thought about how to
reiterate this since last time,we spoke two weeks ago, and I've
totally not lost sleep sincethen. And I'm eloquent now.
Alright. So a technical analysiswould be a factual analysis on
(07:54):
not a portfolio, right? Becauseit might be about something
specific, like for instance, aspecific stock that you might be
evaluating, but not not anoverall portfolio, just a
specific thing that you arelooking at identifying the, the
(08:17):
growth and decay of, and beingable to establish a formula or
apply a formula to see no, oh,
Sean Cooper (08:30):
if we're talking formulas, we're most likely on
fundamental analysis,
Chris Holling (08:33):
see, see, that's why I stopped. That's why
I stopped, see how I'm gonnasee, I'm aware of things. The
technical analysis is strictlythe numbers of the growth Oh,
man, Nope, I'm totally lost.
Sean Cooper (08:52):
Okay, should I jump in at this stage here?
Chris Holling (08:56):
Well, I mean, if you think you can describe it
any better than I did?
Sean Cooper (09:04):
If I can't, then we probably should give up on the
whole podcast thing.
Chris Holling (09:09):
This, this has been the truth about it
investing. Okay, yes. Tell metell me about technical
analysis. And I'm going to maybecut in while you're describing
it as going, Aha.
Sean Cooper (09:26):
Okay, so I'll actually start with fundamental
analysis, just because it's themore traditional method. These
both fundamental and technicalanalysis can be used as
predominantly. They'repredominantly used for
individual securities orindividual companies and the
securities there of whether it'sstocks or bonds, technical
(09:51):
analysis, I guess, technicallyboth of them could be used for
other investments as well. Youknow, if you're talking about
like commodities or somethingalong those lines, just a
different way of applying them,especially the technical
analysis can be used in thatregard and often is. You could
also use them to analyze aportfolio. But again, that's
(10:15):
kind of a unique application ofeach of them. So for the most
part, we're talking aboutanalyzing individual securities.
And we'll talk about more moreof that in the future. But for
today, we'll just review thesetwo methodologies and how they
compare to one another.
Chris Holling (10:32):
So almost like we know what we're going to talk
about in the future episode thatwe've already recorded.
Sean Cooper (10:37):
We do, we've actually taken some time
to plan this out. And I askChris, the day before, what
we're supposed to be talkingabout, because I don't have it
written down anywhere.
Chris Holling (10:49):
And I said, we're gonna do this, again.
Sean Cooper (10:54):
fundamental analysis specifically is the
more traditional style ofanalysis it is looking at
predominantly the numbers. Sowe're looking at the financial
statements, the incomestatement, the balance sheet,
and the statement of cash flows.
And we're using multiple numbersfrom different pieces of those
three statements, and buildingout ratios, things like the
(11:16):
price to earnings, which wouldbe the price of the stock
divided by the earnings pershare.
Chris Holling (11:26):
Okay,
Sean Cooper (11:26):
we might do the price to book so again, the
price of the company relativedid the book value of the or the
price per share relative to thebook value per share? The cash
flow, which there's a number ofdifferent ways of doing that,
but traditionally, it's going tobe the operating cash flow
(11:47):
divided by the short termliabilities. So determining how
well the company can basicallyproduce income off of their
actual operations and how wellthey can cover their short term
liabilities via that income.
Chris Holling (12:03):
And then you're going through these options as
like a means for this is whatbuilds your fundamental
analysis, or you're saying thatyou need to know these two, to
accomplish it.
Sean Cooper (12:15):
This is just potentially part of fundamental
analysis.
Chris Holling (12:19):
Okay. Okay. Fair enough.
Sean Cooper (12:20):
Yeah, this is just all lumped into that big
umbrella. And these are justsample ratios that people often
use, there are a coupledifferent couple dozen ratios
that people potentially use,whether they're focused, their
analysis is focused on earnings,or relative value. So you might
(12:46):
be comparing multiple companiestogether. And so you want to see
how the companies compare. Soyou take these ratios and view
them in conjunction with oneanother to see how relatively
valued they are. So is this oneundervalued relative to this
one, or overvalued, or if you'rein like mergers and
(13:07):
acquisitions, you might belooking at comparable sales or a
comparable companies that havesold in the recent past. And so
you're looking at those ratiosand then using the ratios as a
means of adjusting that salesvalue.
Chris Holling (13:25):
So you're saying like, you'd be looking at
whatever company you'reinterested in, and then one
that's comparable, or in thesame realm, and you'd compare
the two price to earnings on onboth of them, you're using the
two ratios to compare whileyou're doing this?
Sean Cooper (13:38):
Exactly, exactly. Yep. Otherwise, you
might just have some kind oflike threshold that you're
looking for. So for example,maybe you're a, you're looking
for low p/e ratios, so you'renot even gonna bother looking at
companies that have a P/E ratioover 20. Or maybe it's even
lower, maybe it's 15, whichwould be really hard to come by
(14:01):
right now, in today's market,but since most everything is
really high, in terms of P/E,but that's neither here nor
there. The point is, you couldhave a threshold, so you're
using it as a cutoff of nowthese companies are, are the
only ones I'm going to look atif they meet these criteria. So
you're using it as a screen,basically, and then you might
(14:24):
start evaluating the companiesfrom there. So that would be the
primary use for the ratios isfor comparables or for screening
purposes. Another aspect offundamental analysis, there's a
lot of different things that wecould, you could potentially do
that would fall underfundamental analysis, but one
that I tend to prefer would bediscounted cash flow. So you
(14:48):
would actually be taking thesefinancial statements and
projecting them out into thefuture under different
scenarios. So different growth.
scenarios or different marketscenarios, like if the market
were to tank or the market doesreally well, or supply exceeds
(15:11):
demand, or vice versa? How dothose impact the company going
forward, and then funneling thatall down into a cash flow,
whether you're analyzing thecompany's actual cash flow, like
what we were talking aboutbefore, so operating cash flow,
or maybe it's the dividends thatthey're going to be paying out.
(15:33):
So you're looking at the cashflow of the dividends, from an
investor standpoint, and thendiscounting those cash flows in
each of the quarters, or eachyear, back to today's value
based on some sort of discountrate. So that would all fall
under fundamental analysis.
Chris Holling (15:49):
And so those those are all things that just
just to kind of, I guess, putup, put a bow on it. While
we're, while we're talking aboutthis a fundamental is going to
be much more, we're strictlylooking at that factual history.
And numbers with the current,say, ratios really is the right
(16:12):
word, using the current ratios,and then maybe creating a couple
of variables along the way tolook at potential changes within
ratios in the future. Butthat's, it all remains very,
very factual and puttingspecific numbers places that
it's not it's not ageneralization when you're doing
(16:33):
these, this fundamentalanalysis.
Sean Cooper (16:37):
Right, right.
Right. And actually, you broughtup a good point there, yes, you
can put in doing thoseprojections that I talked about,
you can actually project forwardthe so there's the forward p/e
ratio is what they refer to itas. So you could project forward
these ratios and see what theylook like in the future and how
reasonable your assumptions arethat sort of thing as well. So
(16:57):
another thing that I think wouldprobably fall under fundamental
would be like multipleregression analysis. I don't
think I'm going to take the timeto go over that in any great
detail. It's
Chris Holling (17:11):
okay.
Is there a good? Good source forit? Like, is there a good
description on investopedia? forit that we can just say, hey, go
check this out. If you'reinterested in learning more,
Sean Cooper (17:23):
if you want to learn more on multiple
regression analysis, an advancedcourse on Excel would be
probably the way to go.
Chris Holling (17:29):
Okay,
Sean Cooper (17:29):
so
Chris Holling (17:29):
cool.
Sean Cooper (17:30):
Yep. And if you're getting into that advanced
course, then you can also pickup some info on Monte Carlo
simulation and things alongthose lines, although there are
a lot more efficient ways to runMonte Carlo simulations than
excel at this point.
Chris Holling (17:43):
Okay, that's fair enough. Yeah.
Sean Cooper (17:45):
So
Chris Holling (17:46):
note worthy
Sean Cooper (17:46):
solver's. Another good one that you can learn in
that advanced course as well. Sogetting back to the some of the
more traditional fundamentalanalyses, though, I would say
another aspect is actuallydigging into the prospectuses of
companies. And they're notnecessarily the prospectuses,
(18:07):
excuse me, but their annualreports. So jumping in, and it
This helps a lot when it comesto those projections, basically
reading through the annualreport to determine what areas
is, is the company focusing onwhat aspects of the economy, you
know, different growth,trajections? Are they
(18:27):
anticipating? Are they do theyhave a new product line that's
coming out that they're hopingis going to increase sales, and
then trying to build thoseconcepts into your projections
is very useful. And then alsoanalyzing, okay, what if they
Chris Holling (18:44):
Okay, that's fair enough.
get this wrong? What does thatdo to them? How much money are
they investing into this, youknow, new endeavor, if that's
what they're doing? And what ifit doesn't pan out the way
they're hoping for? So thatwould all fall under fundamental
analysis too
Sean Cooper (19:03):
Cool.
Any questions on? I mean, thatwas kind of my
Chris Holling (19:07):
No, I think, that was good
Sean Cooper (19:08):
overview of fundamental.
So
Chris Holling (19:10):
no, I think that was good. It was good to have
like a uh this, here's, here's aversion of what you're looking
at. Here's the things toconsider. It's it's very
factual. It's verystraightforward. It's compare,
compare these ratios. There'slots of ratios to consider. Here
are some of them that do getconsidered. And if you want to
learn more on X, Y, and Z, thenhere are some options. So I
(19:32):
think that covers it.
Sean Cooper (19:33):
Cool. Cool.
Chris Holling (19:35):
So then were looking at
Sean Cooper (19:37):
yeah, for comparison purposes, technical
analysis is definitely morerecent is it's been around for a
few decades now for sure. Butit's the more recent development
and that has to do predominantlywith technology, if you will,
because technical analysisprimarily revolves around
(20:01):
Looking at historical prices ofa stock of a company shares, and
some of the ancillaryinformation that you can garner
along with that. So, thetechnical analysts are often
referred to as Chartists becausethey're they're looking at
charts they're looking at chartsof a company's stock. And
(20:24):
depending on what their tradingtimeframe is, will often
determine what timeframe they'relooking at on the charts,
whether they're only looking at,you know, a few weeks worth of
data, or they're looking at10-20 years worth of data.
Because that, that changes whatthe chart looks like, to a great
(20:44):
extent. And what they're lookingfor is a number of different
things. But oftentimes, they'relooking at the trend of the
stock, whether it's bullish,bearish or flat, or if it's
bouncing back and forth betweentwo prices, or it's just kind of
oscillating between a couple.
And, you know, stock that looksbearish on a, you know, one
(21:09):
month chart may still be verybullish on a 20 year chart. So
this timeframe
Chris Holling (21:19):
Where do those terms come from
Sean Cooper (21:20):
bullish and bearish?
Chris Holling (21:21):
Yeah, like
Sean Cooper (21:22):
I don't actually know
Chris Holling (21:24):
horns of the bull. Is it? Or is it like I
always picture like a bull thatI I know I shouldn't, but I keep
picturing like an actual, likegrizzly bear. But it's I imagine
bearish is more like, naked?
Like, like empty? Bear Bear?
Sean Cooper (21:41):
No. Traditionally, they it's a bull and a bear like
a grizzly, like what you weretalking about when they depict
them?
Chris Holling (21:50):
Well, then where do they come from,
Sean Cooper (21:52):
I don't know.
That's a great question. Youshould look it up. I.
Chris Holling (21:58):
Okay. My
Sean Cooper (21:59):
OK
Chris Holling (22:00):
my calling is here.
Sean Cooper (22:01):
That's right.
Chris Holling (22:02):
It's my moment,
Sean Cooper (22:03):
you you look it up.
And I'll continue.
Chris Holling (22:05):
Okay.
Sean Cooper (22:05):
Technical Analysis.
Chris Holling (22:06):
Yes, proceed.
Sean Cooper (22:08):
Yeah. So looking for the trend. Most time traders
will not go against a trend.
There are in fact, trendfollowers. Managed futures,
that's typically what they do isfollow trends. Then there's also
different patterns thattechnical analysts will look
for, like, specifically reversalpatterns or continuation
(22:30):
patterns. So your reversalpatterns might be something like
a double top or a double bottom,in which case you've the double
top, it's been going up ordouble bottom, it's been going
down, and then it kind of hits alevel comes back up a little bit
hits that same level again, andthen returns back up and exceeds
that that first bounce, thenthey would expect that to be a
(22:53):
reversal. And it's going to goback up from there. The double
top is just the opposite ofthat. And then there's also the
head and shoulders. So thatwould be something similar where
like, if a stock was going up,it goes up to a certain level,
call it $40 a share. And then itcomes back down to like, say 38
bucks a share. And then it goesup to 45, a share and then 38
(23:14):
and then back to 40, which isthat initial top that it had
earlier. And then it goes backdown and it passes that 38 down
to like 37, they would considerthat a reversal. And it's going
to continue on down from there.
And then you could have a headand shoulders, you know, upside
down head and shoulders, whichwould really be a reversal to
the upside. Some of them,
Chris Holling (23:35):
I do remember, I do remember talking about that.
Because I was saying that ifyou're if you're heading
upwards, then then I was upwardsand downwards. I was thinking it
should be called a head andshoulders. But if you had the
trend downwards, and then backupwards, it should be called the
knees and toes. And it wastotally a missed opportunity by
whoever was naming all of that.
Sean Cooper (23:56):
Yes. And then some continuation patterns, most
mostly continuation patterns.
They could also be reversals aswell would be like a pendant or
a flag. So with the flag, sayfor example, the stock has been
going up and then it starts totrend sideways. But it is
trending sideways in a narrowingpattern. So it's you know,
(24:20):
volatile, it's going up anddown. But the the gap, the width
of that volatility is narrowing.
And then if it pops out of thatnarrowing gap, those that
narrowing trend, that would be acontinuation to the upside. And
then you might have like apendant where you know it's flat
(24:42):
on one side and going that thatvolatility that's narrowing is
going up on one side or down onthe other side. That would be
your indication that it is goingto break out to the side that it
is trending to already. And insome instances, the technical
(25:05):
analysts will also use theoriginal width of that flag or
pendant as their guide of howfar it's likely to break out to
the upside or the downside. Andthat's what they're targeting
for their initial trade. So assoon as it breaks out, they want
to get in, and then they'regoing to get out once it reaches
that initial gap. So if theinitial gap was like a $5,
(25:30):
spread, which would be ratherlarge, depending on the stock
you're referring to, they'retargeting a $5 spread once it
breaks through. So those wouldbe some continuation and some
reversal patterns for atechnicalanalysts. And that's just
looking at the chart the stockprice. Some of the ancillary
(25:53):
pieces that they might belooking at would be things like
MACD, which is moving averageconvergence divergence,
Chris Holling (26:01):
Sounds like a sweet rapper's name.
Sean Cooper (26:05):
Yeah, or stochastics are looking at under
over bought overbought oroversold, moving averages, there
are a variety of differentmoving averages in addition to
the MACD. And again, thatdepends on the timeframe if
you're looking at like I got,you can look at moving averages
(26:28):
on a minute by minute basisversus weekly or monthly or
annually.
Chris Holling (26:34):
So overall, I'm sorry, I cut you off.
Sean Cooper (26:37):
No, you're okay.
Chris Holling (26:38):
So overall, when we're when we're looking at this
stuff, and we're considering thetechnical side, you're you're
not just strictly holding on tothe numbers and adjusting some
ratios here and there, itbecomes more of a general view
of uptrend downtrend maintaining
Sean Cooper (26:58):
correct
Chris Holling (26:59):
the level and it becomes it sounds like a lot
more visual than anything
Sean Cooper (27:04):
very much. So yeah, if I'm a true technical
analyst, I care nothingwhatsoever about the value of
the company.
Chris Holling (27:12):
Gotcha. Okay.
Sean Cooper (27:15):
Yep,
Chris Holling (27:15):
I think I think I identify with the technical guys
a little bit more. I'm such avisual person, I remember,
remember going over this
Sean Cooper (27:22):
That's fair,
Chris Holling (27:22):
you're like, this looks like a flag. I'm like I
can I can picture a flag.
Sean Cooper (27:26):
Right, right.
Chris Holling (27:28):
Okay.
Okay, great.
Sean Cooper (27:32):
Another thing that you might look for, as a
technical analysis analyst wouldbe volume. So the trick, trading
volume in a particular day, soyou want to look at the average
trading volume of a stock, andsee where it's at relative to to
that. So if you get a breakout,to the upside, or the downside
in one of those patterns that Iwas referring to, and there's no
(27:53):
volume behind it, like thevolume is a quarter of what its
average would be, that would notbe a confidence booster, if you
will, that would not be apositive sign that that breakout
is going to continue in the waythat you expect it to. Whereas
if there's a lot of volumebehind it, you know, double
their average volume, that wouldbe a very confident breakout. So
(28:16):
at least that's how they, theywould view it.
Chris Holling (28:19):
Okay.
Sean Cooper (28:20):
And they're often combining a variety of these
different different factors. Soand, and in terms of combining
things, you don't necessarilyhave to be a whole hearted
fundamental analysts or awholehearted technical analysts,
you get people that combine thetwo concepts into one. And most
(28:40):
often the way they're doingthat, and this isn't how
everybody does it. But mostoften, they would be using the
fundamental analyst analysis todetermine what to buy. And then
they would be utilizing thetechnical analysis to determine
when to buy or sell
Chris Holling (28:57):
Oh Okay. That's a that's, that makes sense.
Sean Cooper (29:01):
So using them in conjunction with each other. I
on the other hand, Ipredominantly rely on
fundamental analysis. And then Iutilize a variety of different
technical analyses to evaluatethe overall feeling in the
market as a whole. So looking atlike the s&p 500, for example,
(29:25):
to represent domestic equities,large cap domestic equities, and
evaluating how is it overheated?
Is it overbought, oversold? Isit trending? So I don't
necessarily use it as a buy sellindicator so much as how is the
what is the overall marketsentiment? And how is that going
(29:48):
to impact my underlyingholdings?
Chris Holling (29:55):
That makes sense.
Well, that makes sense in boththe sense of what you're
describing as well as of course,you've leaned towards
fundamental because you're anumbers nerd.
Sean Cooper (30:05):
Yeah.
Chris Holling (30:07):
Yeah.
Sean Cooper (30:07):
Yeah.
I like the discounted cash flow.
I like the multiple regressionanalysis.
Chris Holling (30:12):
Gotcha.
Sean Cooper (30:13):
Yep,
Chris Holling (30:14):
totally makes sense. Okay. Well, I mean, how,
how else did is that? Is thatkind of a good broad strokes of
what we're, what we're lookingat?
Sean Cooper (30:24):
Yeah, those are definitely the the broad strokes
gives you well. Go ahead.
Chris Holling (30:31):
If the broad strokes are handled, then that
means it's my turn to shine.
Cool. Because Where did thebulls and the bears come from?
Sean Cooper (30:44):
Tell us Chris
Chris Holling (30:45):
I will. Okay.
This actually came frominvestopedia, which I thought
this is gonna be like a wikithing that I find. But
Sean Cooper (30:54):
No investopedia is always better than Wikipedia
when it comes to finance andinvesting.
Chris Holling (30:58):
Well sure, but you know, we're just talking
about bears and bulls. So Ijust, alright, whatever, it's
fine. So and I'll actually I'lljust, it's short enough. I'll
just read the the excerpt fromit. So that it's a it's straight
from the horse's mouth aboutbulls and bears. That's a lot of
animals? Oh man
Sean Cooper (31:18):
That is a lot of animals. I want to know why the
horse is the one talking aboutthe bulls and the bears,
Chris Holling (31:23):
because it's the from the horses. Shut up, Sean.
Okay, so where? Where did bullsand bears come from? While the
terms are relatively simple tounderstand the impact either a
bull or bear market can have onyour portfolio and wealth is
undeniable. Both animals areknown for their incredible and
unpredictable strength. So theimage that evokes in regards to
(31:47):
stock market volatilitycertainly rings true actually.
That's really why I startedwondering about it, because I
was like, well, they're both bigand scary. So like, why, you
know, it's not like the bear andthe salmon market, you know,
it's not like it dives downanyway,
Sean Cooper (32:03):
the salmon, I mean, they're very determined swiming
upstream. That's
Chris Holling (32:08):
I bet that a salmon is like, like a flag on a
technical analysis you likethat, you know, it kind of kind
of wavers, kind of, kind of,alright, shut up. Okay. So,
interestingly enough, the actualorigins are unclear, but here
are the two most frequentexplanations. The terms bear and
(32:29):
bull are thought to derive fromthe way in which each animal
attacks its opponents. That is abull will thrust its horns up
into the air while a bear willswipe down.
Sean Cooper (32:39):
Interesting
Chris Holling (32:40):
These actions were then related metaphorically
to the movement of a market. Ifthe trend was up, it was
considered a bull market trendwas down, it's a bear market.
Sean Cooper (32:48):
I like that.
Chris Holling (32:50):
The second explanation is historically, the
middlemen in the sale of bearskins, would sell skins they had
yet to receive. As such, theywould speculate on the future
purchase price of the skins fromthe trappers hoping they would
drop, the trappers would profitfrom the spread, the difference
between the cost price and theselling price. These middlemen
(33:12):
became known as bears short forbear skin jobbers, and the term
stuck for describing a downturnin the market. Conversely,
because bears and bulls werewidely considered to be
opposites due to the oncepopular Bloodsport of bull and
bear fights. The term bullstands as the opposite of bears,
which I didn't even know therewas such a thing as a bull and a
(33:34):
bear fight.
Sean Cooper (33:35):
I didn't either.
Chris Holling (33:37):
So
Sean Cooper (33:37):
I like the first explanation better.
Chris Holling (33:39):
I do. I do too. I think that's a I can, it'll
it'll stick with all myvisualization.
Sean Cooper (33:46):
Right Right.
Chris Holling (33:48):
So that's cool.
Maybe Maybe one of our listenerswill know, the actual which
one's correct. Or maybe there'sanother explanation that we that
we haven't even heard yet.
I think one of those threelisteners are in fact just going
to give me weird facts abouthorses and ignore everything I
just said,
Sean Cooper (34:04):
right.
Chris Holling (34:05):
That's going of wind up happening. Okay. Well,
you know, do you do you feellike we handled this? Wellish do
you think we we're hitting ithitting pretty good?
Sean Cooper (34:16):
Yeah, yeah.
Chris Holling (34:16):
What do you think
Sean Cooper (34:17):
I mean, we're just trying to give an overview of
the the two two methodologieshere, if somebody wants, you
know, more insight into youknow, how do you actually crunch
these numbers for fundamentalanalysis? What is discounted
cash flow? Or, you know, how,what does it look like to do
these? What are these chartistsactually looking at? You know,
(34:39):
we can, we can certainly try toaddress those in more detail,
but that would to do it all inone fell swoop would involve,
you know, a six hour podcast andI don't have that kind of energy
Chris Holling (34:52):
No. No. hard No, that I don't have enough booze
in my booze drawer.
Sean Cooper (35:01):
That's why if somebody has a particular
interest in one aspect of themor multiple, we can break them
out into individual podcasts anddescribe them, break them down
in more detail.
Chris Holling (35:13):
Sure, I totally agree with all that I think it
was a good little wrap up. Andespecially because we do make
some references as we do formost of these, we usually build
on whatever we've started frombefore. And in a lot of ways,
especially per season, we tendto do that.
Sean Cooper (35:30):
Exactly. So come back next week.
Chris Holling (35:33):
Right, come back next week for the the the
episode we totally didn't recordalready.
Sean Cooper (35:38):
Yeah. portfolio analysis, and then we'll cover
stock analysis,
Chris Holling (35:44):
security
Sean Cooper (35:44):
In the following
Chris Holling (35:45):
You corrected me on that
Sean Cooper (35:46):
security analysis.
I did correct you. It'ssecurity analysis, because it's
analysis. You can use for anyindividual security, it just
most common amongst stocks. Soyes,
Chris Holling (35:56):
good.
Sean Cooper (35:57):
Yes. We did cover a lot of those concepts today. But
we'll be going over some otherideas then later as well
Chris Holling (36:05):
Absolutely. So I'm glad we're getting into this
I hope. I hope your your mindand legal pad are full. And
yeah, let's, let's wrap this up.
Thank you again, everybody, forjoining us actually on the start
of the season four for the truthabout investing back to basics.
We appreciate you coming outhere. My name is Chris Holling.
Sean Cooper (36:30):
And I'm Sean Cooper.
Chris Holling (36:32):
And really thank you for taking the time to want
to learn how to better yourselfbecause I think that is a hard
quality to find. And we will seeyou here how how am I still
screwing this up?
Sean Cooper (36:45):
You got it for like the entire season three.
Chris Holling (36:48):
you know it was?
I got cocky wethank you for joining us. We'll
catch you next time. podcastdisclaimer disclaimer. The
disclaimer following thisdisclaimer is the disclaimer
that is required for thispodcast to be up and running and
(37:10):
fully functioning and movingforward. This is going to be the
same disclaimer that you willhear in each one of our
episodes. We hope you enjoy itjust as much as we enjoyed
making it.
Sean Cooper (37:24):
All content on this podcast and accompanying
transcript is for informationpurposes only. opinions
expressed here in by Sean Cooperare solely those of fit
financial consulting LLC unlessotherwise specifically cited.
Chris Holling is not affiliatedwith fit financial consulting,
LLC nor do the views expressedby Chris Holling represent the
views of Fit financialconsulting LLC. This podcast is
(37:46):
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(38:09):
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(38:32):
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(38:54):
dealer, investment advisor ortheir representatives. The
consumer should contact theirstate securities administrator.
So if you want to talk abouttechnical analysis, if
Chris Holling (39:07):
that's what I was talking about
Sean Cooper (39:08):
Seemed to be going, yes,
Chris Holling (39:09):
I don't I don't know what you were paying
attention to. But I was payingattention to technical analysis.
Sean's Phone (39:16):
Let me out, I'm stuck in your pocket.
Sean Cooper (39:17):
So was my phone.
Chris Holling (39:21):
The things startles me every time. It
startles me now. It startles mewhen I edit. It startles me.
Every single time. How do youfollow Will Smith in the snow?
You follow the fresh prints?
Sean Cooper (39:44):
I like that one
Chris Holling (39:46):
I thought the dryer was shrinking all my
clothes. Turns out it was therefrigerator all along.
Sean Cooper (39:55):
Indeed,
Chris Holling (39:56):
What do you what do you call a fish wearing a bow
tie sofishticated. No,
Sean Cooper (40:08):
no.
Chris Holling (40:11):
You know what you can say this but you have to say
it in like the proper voice.
It's a I'm afraid for thecalendar. It's days are
numbered. I once had a dream Iwas floating in an ocean of
orange soda. It was more of afantasy
(40:32):
I used. I used to play piano byear, but now I use my hands
Sean Cooper (40:39):
wise choice
This is the truth about investing back to basics
podcast. We wamt to help youtake control of your personal
finance and long terminvestments, if looking for a
way to learn the why and howinvesting, then you found the
right place. Thank you fortaking the time to learn how to
(00:23):
better yourselves.
Welcome back, ladies andgentlemen, to the fourth season
of the truth about investingback to basics. My name is Chris
Holling. And I'm Sean Cooper.
And ultimately, I'm just I'mjust gonna be upfront about
(00:45):
this, we are re recording thisepisode. And I would love to
blame Sean. And I can't we, weactually, we did record this and
we had this ready to go. Andthen I checked my file, and it
made a very aggressive andviolent sound with the track
(01:07):
that I had recorded, that wasultimately unusable. And so here
we are, pretending like it neverhappened. It's, but you know,
why we're here is clearly todemonstrate our acting skills,
and nothing else. Right, Sean?
Sean Cooper (01:28):
Maybe your acting?
You actually have some I havenone.
Chris Holling (01:35):
thank thank God, somebody does, I guess, maybe
sorta, kinda, but really welcomeback, we appreciate you coming
back. And we're excited to gointo the fourth season. There,
the fourth season is it we'restarting to hit this point of
where we're starting to go. evendeeper down the rabbit hole of
(01:56):
the things that we've been doingbefore. And really, these these
concepts that we're gettinginto, are, are important. And
I'll be honest, I think they'rethey're a little dense, and
they're a little complex. And I,I like that. But I would also
encourage that you take sometime and maybe, maybe get a
(02:16):
legal pad and jot some stuffdown. Because it's, it's a lot
to take on in this realm. Ithink we're kind of starting to
veer, in my opinion, you cantell me what you think. But I
think we're starting to veerinto the realm of I'm, I'm
choosing to take this on onmyself, rather than having
somebody do a lot of this stufffor me, and making that active
(02:39):
decision. These these are thesteps now that we're getting
into of like, now that I've madethat choice to, to take this on,
these are the things that areimportant for you to take it on
individually. Whereas, you know,you can send this off to
somebody like Sean, which, youknow, he'll do a great job. But,
(02:59):
you know, when you when you dosend it off to somebody, this
area isn't as how do I put thatas vital of information, as some
of the previous seasons havebeen for just understanding some
stuff. But I also think thatit's really key and really
important to understand thesethings. So that you're not
completely in the woods on onany of this. And when you are
(03:22):
able to talk with people aboutthis, you can you can eloquently
pay attention, and make surethat everything is is on track,
like what do you what do youthink about that?
Sean Cooper (03:30):
Yeah, I would tend to agree, I'd say if you're
you're planning on doing thisyourself, you need to have a
very strong understanding of thetopics that we're going to be
discussing over this season andnext season. And if you're
planning on hiring it out, thenyou still should have a base
level understanding of thesetopics, so that you can
(03:51):
understand what they're tellingyou. You can more or less fact
check them if you will, youknow, if they're telling you one
thing and your base levelunderstanding goes, Yeah, that
sounds right, or your base levelunderstanding says I don't, know
about that. That's, you know, agood level of knowledge to have
going into that relationship. So
Chris Holling (04:15):
I think that's super reasonable. In fact, it
kind of makes me think of theother day we there's there's a
guy that I work with that. Therewas a story that that came up
where he was meeting with hisretirement specialist
specifically with somebody forthe the pension board that him
and I are part of,
Sean Cooper (04:33):
Oh, yeah,
Chris Holling (04:33):
excuse me. Well, not not the board. We're not
part of the board. But the
Sean Cooper (04:36):
No the pension itself
Chris Holling (04:37):
right. Right. And so some
Sean Cooper (04:39):
participants,
Chris Holling (04:40):
yes, we are participants, but when somebody
that was a representative of it,and was one of the ones that was
essentially trying to go to batfor us on some of these things.
He was asking some pretty indepth questions about how it's
working, moving forward, askinga lot of the right questions
about the the in depth portionsof his retirement as well as
(05:04):
other people's. And the, theconversation eventually got to a
point where he was askingsomething that the, the
representative said, Oh, youknow what I don't know, I'm
gonna have to look into some ofthese things that you're talking
about. And then there's a pause.
He said, you know, you've,you've really taken the time to,
to look into this stuff, I justdon't know some of the answers
to what you're asking. And thereis an equally long or awkward
(05:24):
pause. He said, it's your job.
What do you mean you didn't lookinto these things
Sean Cooper (05:33):
good for him.
Chris Holling (05:35):
And so it continued to get awkward. But
the point is, is that if you'reable to take the time and at
least have a basicunderstanding, then you can kind
of keep people in check. And notsaying that everybody, by any
stretch is trying to pull thewool over your eyes. But
sometimes it's, you know, maybeit's just something that they
haven't considered. And even ifyou just have a general
(05:57):
understanding there, you cankeep things on track. I think
that's, that's worth theknowledge to have just as a base
understanding. So cool. Great.
Well, today, what we're going totalk about to to hit on this
moving forward to, you know,legal pad and pen ready. Is, is
we're going to talk abouttechnical and fundamental
(06:21):
analysis. Right, Sean? Right.
Sean Cooper (06:25):
Correct.
Chris Holling (06:26):
Okay. Cool
Sean Cooper (06:26):
And I'm curious, Chris, because, as you pointed
out, we've, we've already gonethrough this process, but in the
past, you always take the timeupfront to share with us. Your
understanding, of the topics
Chris Holling (06:41):
are you testing me?
Sean Cooper (06:42):
we're covering which, and but it did and last
time, it was rather enjoyablefor me to listen to. But this
time, you've already heard it atleast once. So how do you want
to go about that
Chris Holling (06:57):
you're seeing if I paid attention,
Sean Cooper (06:59):
I think that's a good way to go about
it. Yeah, maybe we should dothat.
Chris Holling (07:04):
This, this, this can only go poorly. So Oh, man,
of course, I'm so used to beingput on the spot. And I'm just
okay. All right,
Sean Cooper (07:16):
come on improv.
Chris Holling (07:19):
It's, it's gonna be good for somebody,
Sean Cooper (07:21):
how about you just start with one start with start
with fundamental analysis?
Chris Holling (07:25):
So that's what we're starting with, right? Of
course,
Sean Cooper (07:28):
unless you want to just compare the two. I mean, I
get that too
Chris Holling (07:31):
Okay. I, I've totally thought about how to
reiterate this since last time,we spoke two weeks ago, and I've
totally not lost sleep sincethen. And I'm eloquent now.
Alright. So a technical analysiswould be a factual analysis on
(07:54):
not a portfolio, right? Becauseit might be about something
specific, like for instance, aspecific stock that you might be
evaluating, but not not anoverall portfolio, just a
specific thing that you arelooking at identifying the, the
(08:17):
growth and decay of, and beingable to establish a formula or
apply a formula to see no, oh,
Sean Cooper (08:30):
if we're talking formulas, we're most likely on
fundamental analysis,
Chris Holling (08:33):
see, see, that's why I stopped. That's why
I stopped, see how I'm gonnasee, I'm aware of things. The
technical analysis is strictlythe numbers of the growth Oh,
man, Nope, I'm totally lost.
Sean Cooper (08:52):
Okay, should I jump in at this stage here?
Chris Holling (08:56):
Well, I mean, if you think you can describe it
any better than I did?
Sean Cooper (09:04):
If I can't, then we probably should give up on the
whole podcast thing.
Chris Holling (09:09):
This, this has been the truth about it
investing. Okay, yes. Tell metell me about technical
analysis. And I'm going to maybecut in while you're describing
it as going, Aha.
Sean Cooper (09:26):
Okay, so I'll actually start with fundamental
analysis, just because it's themore traditional method. These
both fundamental and technicalanalysis can be used as
predominantly. They'repredominantly used for
individual securities orindividual companies and the
securities there of whether it'sstocks or bonds, technical
(09:51):
analysis, I guess, technicallyboth of them could be used for
other investments as well. Youknow, if you're talking about
like commodities or somethingalong those lines, just a
different way of applying them,especially the technical
analysis can be used in thatregard and often is. You could
also use them to analyze aportfolio. But again, that's
(10:15):
kind of a unique application ofeach of them. So for the most
part, we're talking aboutanalyzing individual securities.
And we'll talk about more moreof that in the future. But for
today, we'll just review thesetwo methodologies and how they
compare to one another.
Chris Holling (10:32):
So almost like we know what we're going to talk
about in the future episode thatwe've already recorded.
Sean Cooper (10:37):
We do, we've actually taken some time
to plan this out. And I askChris, the day before, what
we're supposed to be talkingabout, because I don't have it
written down anywhere.
Chris Holling (10:49):
And I said, we're gonna do this, again.
Sean Cooper (10:54):
fundamental analysis specifically is the
more traditional style ofanalysis it is looking at
predominantly the numbers. Sowe're looking at the financial
statements, the incomestatement, the balance sheet,
and the statement of cash flows.
And we're using multiple numbersfrom different pieces of those
three statements, and buildingout ratios, things like the
(11:16):
price to earnings, which wouldbe the price of the stock
divided by the earnings pershare.
Chris Holling (11:26):
Okay,
Sean Cooper (11:26):
we might do the price to book so again, the
price of the company relativedid the book value of the or the
price per share relative to thebook value per share? The cash
flow, which there's a number ofdifferent ways of doing that,
but traditionally, it's going tobe the operating cash flow
(11:47):
divided by the short termliabilities. So determining how
well the company can basicallyproduce income off of their
actual operations and how wellthey can cover their short term
liabilities via that income.
Chris Holling (12:03):
And then you're going through these options as
like a means for this is whatbuilds your fundamental
analysis, or you're saying thatyou need to know these two, to
accomplish it.
Sean Cooper (12:15):
This is just potentially part of fundamental
analysis.
Chris Holling (12:19):
Okay. Okay. Fair enough.
Sean Cooper (12:20):
Yeah, this is just all lumped into that big
umbrella. And these are justsample ratios that people often
use, there are a coupledifferent couple dozen ratios
that people potentially use,whether they're focused, their
analysis is focused on earnings,or relative value. So you might
(12:46):
be comparing multiple companiestogether. And so you want to see
how the companies compare. Soyou take these ratios and view
them in conjunction with oneanother to see how relatively
valued they are. So is this oneundervalued relative to this
one, or overvalued, or if you'rein like mergers and
(13:07):
acquisitions, you might belooking at comparable sales or a
comparable companies that havesold in the recent past. And so
you're looking at those ratiosand then using the ratios as a
means of adjusting that salesvalue.
Chris Holling (13:25):
So you're saying like, you'd be looking at
whatever company you'reinterested in, and then one
that's comparable, or in thesame realm, and you'd compare
the two price to earnings on onboth of them, you're using the
two ratios to compare whileyou're doing this?
Sean Cooper (13:38):
Exactly, exactly. Yep. Otherwise, you
might just have some kind oflike threshold that you're
looking for. So for example,maybe you're a, you're looking
for low p/e ratios, so you'renot even gonna bother looking at
companies that have a P/E ratioover 20. Or maybe it's even
lower, maybe it's 15, whichwould be really hard to come by
(14:01):
right now, in today's market,but since most everything is
really high, in terms of P/E,but that's neither here nor
there. The point is, you couldhave a threshold, so you're
using it as a cutoff of nowthese companies are, are the
only ones I'm going to look atif they meet these criteria. So
you're using it as a screen,basically, and then you might
(14:24):
start evaluating the companiesfrom there. So that would be the
primary use for the ratios isfor comparables or for screening
purposes. Another aspect offundamental analysis, there's a
lot of different things that wecould, you could potentially do
that would fall underfundamental analysis, but one
that I tend to prefer would bediscounted cash flow. So you
(14:48):
would actually be taking thesefinancial statements and
projecting them out into thefuture under different
scenarios. So different growth.
scenarios or different marketscenarios, like if the market
were to tank or the market doesreally well, or supply exceeds
(15:11):
demand, or vice versa? How dothose impact the company going
forward, and then funneling thatall down into a cash flow,
whether you're analyzing thecompany's actual cash flow, like
what we were talking aboutbefore, so operating cash flow,
or maybe it's the dividends thatthey're going to be paying out.
(15:33):
So you're looking at the cashflow of the dividends, from an
investor standpoint, and thendiscounting those cash flows in
each of the quarters, or eachyear, back to today's value
based on some sort of discountrate. So that would all fall
under fundamental analysis.
Chris Holling (15:49):
And so those those are all things that just
just to kind of, I guess, putup, put a bow on it. While
we're, while we're talking aboutthis a fundamental is going to
be much more, we're strictlylooking at that factual history.
And numbers with the current,say, ratios really is the right
(16:12):
word, using the current ratios,and then maybe creating a couple
of variables along the way tolook at potential changes within
ratios in the future. Butthat's, it all remains very,
very factual and puttingspecific numbers places that
it's not it's not ageneralization when you're doing
(16:33):
these, this fundamentalanalysis.
Sean Cooper (16:37):
Right, right.
Right. And actually, you broughtup a good point there, yes, you
can put in doing thoseprojections that I talked about,
you can actually project forwardthe so there's the forward p/e
ratio is what they refer to itas. So you could project forward
these ratios and see what theylook like in the future and how
reasonable your assumptions arethat sort of thing as well. So
(16:57):
another thing that I think wouldprobably fall under fundamental
would be like multipleregression analysis. I don't
think I'm going to take the timeto go over that in any great
detail. It's
Chris Holling (17:11):
okay.
Is there a good? Good source forit? Like, is there a good
description on investopedia? forit that we can just say, hey, go
check this out. If you'reinterested in learning more,
Sean Cooper (17:23):
if you want to learn more on multiple
regression analysis, an advancedcourse on Excel would be
probably the way to go.
Chris Holling (17:29):
Okay,
Sean Cooper (17:29):
so
Chris Holling (17:29):
cool.
Sean Cooper (17:30):
Yep. And if you're getting into that advanced
course, then you can also pickup some info on Monte Carlo
simulation and things alongthose lines, although there are
a lot more efficient ways to runMonte Carlo simulations than
excel at this point.
Chris Holling (17:43):
Okay, that's fair enough. Yeah.
Sean Cooper (17:45):
So
Chris Holling (17:46):
note worthy
Sean Cooper (17:46):
solver's. Another good one that you can learn in
that advanced course as well. Sogetting back to the some of the
more traditional fundamentalanalyses, though, I would say
another aspect is actuallydigging into the prospectuses of
companies. And they're notnecessarily the prospectuses,
(18:07):
excuse me, but their annualreports. So jumping in, and it
This helps a lot when it comesto those projections, basically
reading through the annualreport to determine what areas
is, is the company focusing onwhat aspects of the economy, you
know, different growth,trajections? Are they
(18:27):
anticipating? Are they do theyhave a new product line that's
coming out that they're hopingis going to increase sales, and
then trying to build thoseconcepts into your projections
is very useful. And then alsoanalyzing, okay, what if they
Chris Holling (18:44):
Okay, that's fair enough.
get this wrong? What does thatdo to them? How much money are
they investing into this, youknow, new endeavor, if that's
what they're doing? And what ifit doesn't pan out the way
they're hoping for? So thatwould all fall under fundamental
analysis too
Sean Cooper (19:03):
Cool.
Any questions on? I mean, thatwas kind of my
Chris Holling (19:07):
No, I think, that was good
Sean Cooper (19:08):
overview of fundamental.
So
Chris Holling (19:10):
no, I think that was good. It was good to have
like a uh this, here's, here's aversion of what you're looking
at. Here's the things toconsider. It's it's very
factual. It's verystraightforward. It's compare,
compare these ratios. There'slots of ratios to consider. Here
are some of them that do getconsidered. And if you want to
learn more on X, Y, and Z, thenhere are some options. So I
(19:32):
think that covers it.
Sean Cooper (19:33):
Cool. Cool.
Chris Holling (19:35):
So then were looking at
Sean Cooper (19:37):
yeah, for comparison purposes, technical
analysis is definitely morerecent is it's been around for a
few decades now for sure. Butit's the more recent development
and that has to do predominantlywith technology, if you will,
because technical analysisprimarily revolves around
(20:01):
Looking at historical prices ofa stock of a company shares, and
some of the ancillaryinformation that you can garner
along with that. So, thetechnical analysts are often
referred to as Chartists becausethey're they're looking at
charts they're looking at chartsof a company's stock. And
(20:24):
depending on what their tradingtimeframe is, will often
determine what timeframe they'relooking at on the charts,
whether they're only looking at,you know, a few weeks worth of
data, or they're looking at10-20 years worth of data.
Because that, that changes whatthe chart looks like, to a great
(20:44):
extent. And what they're lookingfor is a number of different
things. But oftentimes, they'relooking at the trend of the
stock, whether it's bullish,bearish or flat, or if it's
bouncing back and forth betweentwo prices, or it's just kind of
oscillating between a couple.
And, you know, stock that looksbearish on a, you know, one
(21:09):
month chart may still be verybullish on a 20 year chart. So
this timeframe
Chris Holling (21:19):
Where do those terms come from
Sean Cooper (21:20):
bullish and bearish?
Chris Holling (21:21):
Yeah, like
Sean Cooper (21:22):
I don't actually know
Chris Holling (21:24):
horns of the bull. Is it? Or is it like I
always picture like a bull thatI I know I shouldn't, but I keep
picturing like an actual, likegrizzly bear. But it's I imagine
bearish is more like, naked?
Like, like empty? Bear Bear?
Sean Cooper (21:41):
No. Traditionally, they it's a bull and a bear like
a grizzly, like what you weretalking about when they depict
them?
Chris Holling (21:50):
Well, then where do they come from,
Sean Cooper (21:52):
I don't know.
That's a great question. Youshould look it up. I.
Chris Holling (21:58):
Okay. My
Sean Cooper (21:59):
OK
Chris Holling (22:00):
my calling is here.
Sean Cooper (22:01):
That's right.
Chris Holling (22:02):
It's my moment,
Sean Cooper (22:03):
you you look it up.
And I'll continue.
Chris Holling (22:05):
Okay.
Sean Cooper (22:05):
Technical Analysis.
Chris Holling (22:06):
Yes, proceed.
Sean Cooper (22:08):
Yeah. So looking for the trend. Most time traders
will not go against a trend.
There are in fact, trendfollowers. Managed futures,
that's typically what they do isfollow trends. Then there's also
different patterns thattechnical analysts will look
for, like, specifically reversalpatterns or continuation
(22:30):
patterns. So your reversalpatterns might be something like
a double top or a double bottom,in which case you've the double
top, it's been going up ordouble bottom, it's been going
down, and then it kind of hits alevel comes back up a little bit
hits that same level again, andthen returns back up and exceeds
that that first bounce, thenthey would expect that to be a
(22:53):
reversal. And it's going to goback up from there. The double
top is just the opposite ofthat. And then there's also the
head and shoulders. So thatwould be something similar where
like, if a stock was going up,it goes up to a certain level,
call it $40 a share. And then itcomes back down to like, say 38
bucks a share. And then it goesup to 45, a share and then 38
(23:14):
and then back to 40, which isthat initial top that it had
earlier. And then it goes backdown and it passes that 38 down
to like 37, they would considerthat a reversal. And it's going
to continue on down from there.
And then you could have a headand shoulders, you know, upside
down head and shoulders, whichwould really be a reversal to
the upside. Some of them,
Chris Holling (23:35):
I do remember, I do remember talking about that.
Because I was saying that ifyou're if you're heading
upwards, then then I was upwardsand downwards. I was thinking it
should be called a head andshoulders. But if you had the
trend downwards, and then backupwards, it should be called the
knees and toes. And it wastotally a missed opportunity by
whoever was naming all of that.
Sean Cooper (23:56):
Yes. And then some continuation patterns, most
mostly continuation patterns.
They could also be reversals aswell would be like a pendant or
a flag. So with the flag, sayfor example, the stock has been
going up and then it starts totrend sideways. But it is
trending sideways in a narrowingpattern. So it's you know,
(24:20):
volatile, it's going up anddown. But the the gap, the width
of that volatility is narrowing.
And then if it pops out of thatnarrowing gap, those that
narrowing trend, that would be acontinuation to the upside. And
then you might have like apendant where you know it's flat
(24:42):
on one side and going that thatvolatility that's narrowing is
going up on one side or down onthe other side. That would be
your indication that it is goingto break out to the side that it
is trending to already. And insome instances, the technical
(25:05):
analysts will also use theoriginal width of that flag or
pendant as their guide of howfar it's likely to break out to
the upside or the downside. Andthat's what they're targeting
for their initial trade. So assoon as it breaks out, they want
to get in, and then they'regoing to get out once it reaches
that initial gap. So if theinitial gap was like a $5,
(25:30):
spread, which would be ratherlarge, depending on the stock
you're referring to, they'retargeting a $5 spread once it
breaks through. So those wouldbe some continuation and some
reversal patterns for atechnicalanalysts. And that's just
looking at the chart the stockprice. Some of the ancillary
(25:53):
pieces that they might belooking at would be things like
MACD, which is moving averageconvergence divergence,
Chris Holling (26:01):
Sounds like a sweet rapper's name.
Sean Cooper (26:05):
Yeah, or stochastics are looking at under
over bought overbought oroversold, moving averages, there
are a variety of differentmoving averages in addition to
the MACD. And again, thatdepends on the timeframe if
you're looking at like I got,you can look at moving averages
(26:28):
on a minute by minute basisversus weekly or monthly or
annually.
Chris Holling (26:34):
So overall, I'm sorry, I cut you off.
Sean Cooper (26:37):
No, you're okay.
Chris Holling (26:38):
So overall, when we're when we're looking at this
stuff, and we're considering thetechnical side, you're you're
not just strictly holding on tothe numbers and adjusting some
ratios here and there, itbecomes more of a general view
of uptrend downtrend maintaining
Sean Cooper (26:58):
correct
Chris Holling (26:59):
the level and it becomes it sounds like a lot
more visual than anything
Sean Cooper (27:04):
very much. So yeah, if I'm a true technical
analyst, I care nothingwhatsoever about the value of
the company.
Chris Holling (27:12):
Gotcha. Okay.
Sean Cooper (27:15):
Yep,
Chris Holling (27:15):
I think I think I identify with the technical guys
a little bit more. I'm such avisual person, I remember,
remember going over this
Sean Cooper (27:22):
That's fair,
Chris Holling (27:22):
you're like, this looks like a flag. I'm like I
can I can picture a flag.
Sean Cooper (27:26):
Right, right.
Chris Holling (27:28):
Okay.
Okay, great.
Sean Cooper (27:32):
Another thing that you might look for, as a
technical analysis analyst wouldbe volume. So the trick, trading
volume in a particular day, soyou want to look at the average
trading volume of a stock, andsee where it's at relative to to
that. So if you get a breakout,to the upside, or the downside
in one of those patterns that Iwas referring to, and there's no
(27:53):
volume behind it, like thevolume is a quarter of what its
average would be, that would notbe a confidence booster, if you
will, that would not be apositive sign that that breakout
is going to continue in the waythat you expect it to. Whereas
if there's a lot of volumebehind it, you know, double
their average volume, that wouldbe a very confident breakout. So
(28:16):
at least that's how they, theywould view it.
Chris Holling (28:19):
Okay.
Sean Cooper (28:20):
And they're often combining a variety of these
different different factors. Soand, and in terms of combining
things, you don't necessarilyhave to be a whole hearted
fundamental analysts or awholehearted technical analysts,
you get people that combine thetwo concepts into one. And most
(28:40):
often the way they're doingthat, and this isn't how
everybody does it. But mostoften, they would be using the
fundamental analyst analysis todetermine what to buy. And then
they would be utilizing thetechnical analysis to determine
when to buy or sell
Chris Holling (28:57):
Oh Okay. That's a that's, that makes sense.
Sean Cooper (29:01):
So using them in conjunction with each other. I
on the other hand, Ipredominantly rely on
fundamental analysis. And then Iutilize a variety of different
technical analyses to evaluatethe overall feeling in the
market as a whole. So looking atlike the s&p 500, for example,
(29:25):
to represent domestic equities,large cap domestic equities, and
evaluating how is it overheated?
Is it overbought, oversold? Isit trending? So I don't
necessarily use it as a buy sellindicator so much as how is the
what is the overall marketsentiment? And how is that going
(29:48):
to impact my underlyingholdings?
Chris Holling (29:55):
That makes sense.
Well, that makes sense in boththe sense of what you're
describing as well as of course,you've leaned towards
fundamental because you're anumbers nerd.
Sean Cooper (30:05):
Yeah.
Chris Holling (30:07):
Yeah.
Sean Cooper (30:07):
Yeah.
I like the discounted cash flow.
I like the multiple regressionanalysis.
Chris Holling (30:12):
Gotcha.
Sean Cooper (30:13):
Yep,
Chris Holling (30:14):
totally makes sense. Okay. Well, I mean, how,
how else did is that? Is thatkind of a good broad strokes of
what we're, what we're lookingat?
Sean Cooper (30:24):
Yeah, those are definitely the the broad strokes
gives you well. Go ahead.
Chris Holling (30:31):
If the broad strokes are handled, then that
means it's my turn to shine.
Cool. Because Where did thebulls and the bears come from?
Sean Cooper (30:44):
Tell us Chris
Chris Holling (30:45):
I will. Okay.
This actually came frominvestopedia, which I thought
this is gonna be like a wikithing that I find. But
Sean Cooper (30:54):
No investopedia is always better than Wikipedia
when it comes to finance andinvesting.
Chris Holling (30:58):
Well sure, but you know, we're just talking
about bears and bulls. So Ijust, alright, whatever, it's
fine. So and I'll actually I'lljust, it's short enough. I'll
just read the the excerpt fromit. So that it's a it's straight
from the horse's mouth aboutbulls and bears. That's a lot of
animals? Oh man
Sean Cooper (31:18):
That is a lot of animals. I want to know why the
horse is the one talking aboutthe bulls and the bears,
Chris Holling (31:23):
because it's the from the horses. Shut up, Sean.
Okay, so where? Where did bullsand bears come from? While the
terms are relatively simple tounderstand the impact either a
bull or bear market can have onyour portfolio and wealth is
undeniable. Both animals areknown for their incredible and
unpredictable strength. So theimage that evokes in regards to
(31:47):
stock market volatilitycertainly rings true actually.
That's really why I startedwondering about it, because I
was like, well, they're both bigand scary. So like, why, you
know, it's not like the bear andthe salmon market, you know,
it's not like it dives downanyway,
Sean Cooper (32:03):
the salmon, I mean, they're very determined swiming
upstream. That's
Chris Holling (32:08):
I bet that a salmon is like, like a flag on a
technical analysis you likethat, you know, it kind of kind
of wavers, kind of, kind of,alright, shut up. Okay. So,
interestingly enough, the actualorigins are unclear, but here
are the two most frequentexplanations. The terms bear and
(32:29):
bull are thought to derive fromthe way in which each animal
attacks its opponents. That is abull will thrust its horns up
into the air while a bear willswipe down.
Sean Cooper (32:39):
Interesting
Chris Holling (32:40):
These actions were then related metaphorically
to the movement of a market. Ifthe trend was up, it was
considered a bull market trendwas down, it's a bear market.
Sean Cooper (32:48):
I like that.
Chris Holling (32:50):
The second explanation is historically, the
middlemen in the sale of bearskins, would sell skins they had
yet to receive. As such, theywould speculate on the future
purchase price of the skins fromthe trappers hoping they would
drop, the trappers would profitfrom the spread, the difference
between the cost price and theselling price. These middlemen
(33:12):
became known as bears short forbear skin jobbers, and the term
stuck for describing a downturnin the market. Conversely,
because bears and bulls werewidely considered to be
opposites due to the oncepopular Bloodsport of bull and
bear fights. The term bullstands as the opposite of bears,
which I didn't even know therewas such a thing as a bull and a
(33:34):
bear fight.
Sean Cooper (33:35):
I didn't either.
Chris Holling (33:37):
So
Sean Cooper (33:37):
I like the first explanation better.
Chris Holling (33:39):
I do. I do too. I think that's a I can, it'll
it'll stick with all myvisualization.
Sean Cooper (33:46):
Right Right.
Chris Holling (33:48):
So that's cool.
Maybe Maybe one of our listenerswill know, the actual which
one's correct. Or maybe there'sanother explanation that we that
we haven't even heard yet.
I think one of those threelisteners are in fact just going
to give me weird facts abouthorses and ignore everything I
just said,
Sean Cooper (34:04):
right.
Chris Holling (34:05):
That's going of wind up happening. Okay. Well,
you know, do you do you feellike we handled this? Wellish do
you think we we're hitting ithitting pretty good?
Sean Cooper (34:16):
Yeah, yeah.
Chris Holling (34:16):
What do you think
Sean Cooper (34:17):
I mean, we're just trying to give an overview of
the the two two methodologieshere, if somebody wants, you
know, more insight into youknow, how do you actually crunch
these numbers for fundamentalanalysis? What is discounted
cash flow? Or, you know, how,what does it look like to do
these? What are these chartistsactually looking at? You know,
(34:39):
we can, we can certainly try toaddress those in more detail,
but that would to do it all inone fell swoop would involve,
you know, a six hour podcast andI don't have that kind of energy
Chris Holling (34:52):
No. No. hard No, that I don't have enough booze
in my booze drawer.
Sean Cooper (35:01):
That's why if somebody has a particular
interest in one aspect of themor multiple, we can break them
out into individual podcasts anddescribe them, break them down
in more detail.
Chris Holling (35:13):
Sure, I totally agree with all that I think it
was a good little wrap up. Andespecially because we do make
some references as we do formost of these, we usually build
on whatever we've started frombefore. And in a lot of ways,
especially per season, we tendto do that.
Sean Cooper (35:30):
Exactly. So come back next week.
Chris Holling (35:33):
Right, come back next week for the the the
episode we totally didn't recordalready.
Sean Cooper (35:38):
Yeah. portfolio analysis, and then we'll cover
stock analysis,
Chris Holling (35:44):
security
Sean Cooper (35:44):
In the following
Chris Holling (35:45):
You corrected me on that
Sean Cooper (35:46):
security analysis.
I did correct you. It'ssecurity analysis, because it's
analysis. You can use for anyindividual security, it just
most common amongst stocks. Soyes,
Chris Holling (35:56):
good.
Sean Cooper (35:57):
Yes. We did cover a lot of those concepts today. But
we'll be going over some otherideas then later as well
Chris Holling (36:05):
Absolutely. So I'm glad we're getting into this
I hope. I hope your your mindand legal pad are full. And
yeah, let's, let's wrap this up.
Thank you again, everybody, forjoining us actually on the start
of the season four for the truthabout investing back to basics.
We appreciate you coming outhere. My name is Chris Holling.
Sean Cooper (36:30):
And I'm Sean Cooper.
Chris Holling (36:32):
And really thank you for taking the time to want
to learn how to better yourselfbecause I think that is a hard
quality to find. And we will seeyou here how how am I still
screwing this up?
Sean Cooper (36:45):
You got it for like the entire season three.
Chris Holling (36:48):
you know it was?
I got cocky wethank you for joining us. We'll
catch you next time. podcastdisclaimer disclaimer. The
disclaimer following thisdisclaimer is the disclaimer
that is required for thispodcast to be up and running and
(37:10):
fully functioning and movingforward. This is going to be the
same disclaimer that you willhear in each one of our
episodes. We hope you enjoy itjust as much as we enjoyed
making it.
Sean Cooper (37:24):
All content on this podcast and accompanying
transcript is for informationpurposes only. opinions
expressed here in by Sean Cooperare solely those of fit
financial consulting LLC unlessotherwise specifically cited.
Chris Holling is not affiliatedwith fit financial consulting,
LLC nor do the views expressedby Chris Holling represent the
views of Fit financialconsulting LLC. This podcast is
(37:46):
intended to be used in itsentirety. Any other use beyond
its author's intent distributionor copying of the contents of
this podcast is strictlyprohibited. Nothing in this
podcast is intended as legalaccounting or tax advice, and is
for informational purposes only.
All information or ideasprovided should be discussed in
detail with an advisor,accountant or legal counsel
prior to implementation. Thispodcast may reference links to
(38:09):
websites for the convenience ofour users. Our firm has no
control over the accuracy orcontent of these other websites.
advisory services are offeredthrough Fit financial consulting
LLC, an investment advisor firmregistered in the states of
Washington and Colorado. Thepresence of this podcast on the
internet shall not be directlyor indirectly interpreted as a
solicitation of investmentadvisory services to persons of
(38:32):
another jurisdiction unlessotherwise permitted by statute,
follow up or individualizedresponses to consumers in a
particular state by our firm inthe rendering of personalized
investment advice forcompensation shall not be made
without our first complying withjurisdiction requirements or
pursuant an applicable stateexemption for information
concerning the status ordisciplinary history of a broker
(38:54):
dealer, investment advisor ortheir representatives. The
consumer should contact theirstate securities administrator.
So if you want to talk abouttechnical analysis, if
Chris Holling (39:07):
that's what I was talking about
Sean Cooper (39:08):
Seemed to be going, yes,
Chris Holling (39:09):
I don't I don't know what you were paying
attention to. But I was payingattention to technical analysis.
Sean's Phone (39:16):
Let me out, I'm stuck in your pocket.
Sean Cooper (39:17):
So was my phone.
Chris Holling (39:21):
The things startles me every time. It
startles me now. It startles mewhen I edit. It startles me.
Every single time. How do youfollow Will Smith in the snow?
You follow the fresh prints?
Sean Cooper (39:44):
I like that one
Chris Holling (39:46):
I thought the dryer was shrinking all my
clothes. Turns out it was therefrigerator all along.
Sean Cooper (39:55):
Indeed,
Chris Holling (39:56):
What do you what do you call a fish wearing a bow
tie sofishticated. No,
Sean Cooper (40:08):
no.
Chris Holling (40:11):
You know what you can say this but you have to say
it in like the proper voice.
It's a I'm afraid for thecalendar. It's days are
numbered. I once had a dream Iwas floating in an ocean of
orange soda. It was more of afantasy
(40:32):
I used. I used to play piano byear, but now I use my hands
Sean Cooper (40:39):
wise choice
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