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By Dr. David Edward Marcinko MBA MEd CMP

SPONSOR: http://www.MarcinkoAssociates.com

By Dr. David Edward Marcinko MBA CMP™

There are two distinct forms of financial analysis investment strategies often used by medical colleague investors who desire to pursue an active investment strategy.

Technical Analysis: Technical analysts, sometimes referred to as chartists, use historical price data and transaction volume data to identify mis-priced securities. A key belief shared by technical analysts is that stock prices follow recurring patterns and that once these historical patterns are identified, they can be used to identify future security prices. The heart of technical analysis is identifying significant shifts in the macro/micro economic supply and demand factors for a particular securities investment.

Skeptics of technical analysis generally subscribe to the notion that the markets efficiently and accurately price securities. In fact, the weak form of the Efficient Market Hypothesis [EMH] is based on the view that investors cannot consistently earn superior returns using historical data and technical analysis alone.

Fundamental Analysis: In contrast to technical analysis – which relies on historical market returns / transactions data – fundamental analysis focuses on the underlying company’s assets, earnings, risks, dividends and intrinsic security factors to identify mis-priced securities.

Furthermore, investors using fundamental analysis can use either a top-down or bottom-up approach:

• The top-down investor starts with global economics, including both international and national economic indicators. These may include GDP growth rates, inflation, interest rates, exchange rates, productivity and energy prices. They subsequently narrow their search to regional / industry analysis of total sales, price levels, the effects of competing products, foreign competition and entry or exit from the industry. Often they refine their search to the best business in the area being studied.
• The bottom-up investor starts with specific businesses, regardless of their industry / region, and proceeds in reverse of the top-down approach. Bottom-up investing is an approach that focuses on analyzing individual stocks and de-emphasizes the significance of macroeconomic and market cycles. In other words, bottom-up investing typically involves focusing on a specific company’s fundamentals, such as revenue or earnings, versus the industry or the overall economy. The bottom-up investing approach assumes individual companies can perform well even in an industry that is under performing, at least on a relative basis.

And so, a medical professional utilizing fundamental analysis is attempting to find securities that are trading at market prices below their intrinsic value. Skeptics suggest this is difficult or almost impossible to achieve.

Thus, while technical analysis focuses on market price history, a security’s intrinsic fundamental analysis is determined independent of the security’s market value. Of course, a combination of both fundamental and technical analysis can also be considered.

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Filed under: "Doctors Only", CMP Program, Financial Planning, Investing, Marcinko Associates, Risk Management, Touring with Marcinko | Tagged: active investing, bottom up, efficient market hypothesis, EMH, fundamental analysis, Investing, Marcinko, stocks, Technical analysis, top down |