The Whaley Report: Process and Spot Part Three

the whaley report

Last week was part two of a five-part series discussing the critical components of an investment process geared towards earning superior investment returns: Focus Markets, Market Bias, Actionable Price Targets, Position Sizing, and finally, Execute, Monitor and Close the Trade Idea.

I opened this series by discussing the secret to pro golf phenomenon Rory McIlroy’s success. In his own words, Rory says that he focuses on two things: “process and spot.” He focuses on the process of making the right swing with long and chip shots and focuses on hitting the right spots on the green with his putting. That same focus on process and spot can make you a successful investor.

In this week’s commentary, I’m going to discuss how to build a Market Bias for each of the Focus Markets that you have curated using the information from the last two weeks.

For each of your Focus Markets, you need to develop a process for evaluating both the fundamental and technical picture of each market and then turning that evaluation into a bias of LONG, SHORT or NEUTRAL.

A LONG bias indicates that both the fundamental and technical pictures are bullish and we believe a particular market will rise in price.

A SHORT bias indicates that that both the fundamental and technical pictures are bearish and we believe a particular market will fall in price.

A NEUTRAL bias indicates that the fundamental and technical pictures are not aligned (one is bullish and the other is bearish) and a particular market currently has an unclear direction and should be avoided.

The goal of the market bias, over time, is to capture the majority of the prevailing trend in a Focus Market and, more importantly, “catch the turns” and alert investors when the current trend ends and a new one begins.

Fundamental Analysis

Your process for evaluating the fundamental picture for each Focus Market will be dependent on that particular market.

However, your fundamental analysis for all Focus Markets should include a thorough geographical understanding.

Here are the top four factors you want to monitor:

1. The current economic conditions of the geography where your Focus Market exists.

2. The current monetary policy.

3. The state of interest rates.

4. The local currency.

These factors should be monitored for all of your Focus Markets whether you are trading mutual funds, stocks or exchange traded funds. All investments exist in a particular geographical area and it is important to monitor and understand the state of that particular economy.

In addition to those four factors, there are a couple of other factors to add to your fundamental analysis depending on each focus market.

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