A good friend, who is an avid and successful investor, recently told me she has launched a study of technical analysis. Although my focus has been on value investing, I don’t object to this. The more and investor knows, the better off she is.
However, I remind her to keep the basics in mind. A company derives its value from its revenues, and the profits from those revenues. The best revenues are from sales of goods or services, since these are the fuel that keeps the engine running. Look askance at profits from the sale of an asset or any windfall. Look at profit margins, because even if a company has healthy sales, they can be drained off by egregious salaries, poor management decisions, and so forth.
The great whooshes of the markets. the crackling adjustments, the follies of governments and madness of crowds – it all comes back to the same thing. Are companies making money or not? Are they going to make money in the future, or not? Keep it in perspective. Without healthy, sustainable sales and good management, concepts such as volatility and momentum are nothing more than static. So go forth, look at all the data, then buy low, sell high and prosper.