My Fundamental Research

Being a Price based trader I am asked often if I use fundamental data when choosing my trades/positions. When investors discuss "fundamental data" it can be anything from a news event, balance sheet, or company management press release. Personally I find most fundamental data noise and most research a complete waste of time. I can do all the research in the world, hours and hours worth, but if the stock goes down I still lose money. The key to this game is to make money, not build this web of story lines that justify why I'm in a position.

That being said I do feel certain fundamental criteria can be helpful when filtering watchlist data. The primary focus of my fundamental research is to buy stocks that are growing in a positive direction. This means I (mostly) look for companies that have positive EPS and positive Sales growth. If the company in question is profitable AND there is continuing demand for their product that's a good start. *Note: I will still take positions in stocks with poor fundamental growth, but I generally treat them as more speculative, and therefore trade them with smaller position sizes.

When I build my growth portfolios I run a simple scan at the close of trading each day, you can do this using free software like Finviz.com/screener or using more complex trading software (my TC2000 software will scan for the same criteria but also will add more technical filters as well). But to get started all you need is Finviz.com.

In the fundamental scan area select:

-EPS Growth 1-year > 0
-Sales Growth 1-year > 0
-Sales Growth Q/Q > 10

This tells me all I need to know; the company is profitable over the past year, whatever product they are selling consumers are buying, and in the last few months consumers have increased interest and are buying even more.

I then go a step further and add a technical filter to my search:

-New 50-Day highs

This tells me not only is the business on firm footing but also that the market is rewarding the strong posture.

Again all the fundamental research in the world won't make a lick of difference if the market is not rewarding the narrative and its trading lower.

I use this filter as a way of building potential buy candidates, this is by no means a complete process for investing. Fundamental data, i believe, should be used as a starting point only. The execution of the trade should come down to a positive trending stock and good price structure.

Fundamentals tell you what to buy and price action tells you when to buy. Putting these concepts together can create a very powerful trade process.