Friday, Jan 7th 2022

Getting technical

Commentary

At Titan, the foundation of our investing process is researching in an attempt to identify excellent businesses trading at reasonable prices.

We are bottom-up, fundamental investors. When evaluating current or potential investments, we prioritize cash flows, competitive advantages, and what we believe to be a margin of safety.

This fundamental approach is often contrasted with technical analysis, or the study of charts and patterns as the primary tool for making investment decisions.

In our view, however, the investing world is not quite so black and white.

In the modern market environment, where information is abundant and investment edges can be fleeting, we believe some technical indicators can be essential in sketching a more complete picture of the current landscape.

And at Titan, we like to keep some tools of technical analysis at our disposal to complement the deep fundamental work that forms the backbone of our investment approach.

Simple moving averages, for instance, can be important markers of the prevailing trend for a stock or an index. The 200-day moving average is just what it sounds like: the average price of a stock or index over the prior 200 trading days. This figure roughly covers 10 months of trading history and is ultimately the result of some elementary math.

In our view, this indicator can be helpful in sorting out whether shorter-term price moves in a given security are with, or against, the broader trend.

For example, if a stock’s 200-day moving average is trending higher, this suggests short-term declines may be buying opportunities. If the same indicator is trending lower, it may suggest short-term price increases are better selling opportunities.

Apple

Apple’s share price over the last two years has experienced several bouts of volatility, dropping more than 10% at least six times. Through it all, however, the stock’s 200-day moving average trended higher and patient investors were rewarded over this period. (Past performance is no guarantee of future results.) Source: Koyfin

Other indicators like trading volume can help us understand which prior prices surfaced enthusiastic buyers or sellers for a stock or index, while the advance/decline line indicates whether a broad index like the S&P 500 has more constituents moving up or down. And these are just a few of the technical indicators our team keeps in its toolbox as we refine, revise, and update our strategies.

But just as no single fundamental indicator suffices to form the basis of an investment decision, no single technical reading meets that criteria either.

Each of the tools available to investors help us draw a map, but no single indicator alone can offer directions. But the more detailed these guides become, the better chance we have of reaching our destination.

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