While investing in equities is far from an exact science, many great money masters have advocated the importance of fundamental analysis in sound portfolio management.
Essentially, they argue that it is the rational, self-disciplined and hard-working investor who consistently succeeds in the long-term game of equities. However, often motivated by greed and driven by fear, one of the greatest difficulties that investors face is not beating the market, but beating themselves. As markets essentially reflect the attitude and expectations of participants, it is hardly surprising that shares are influenced by emotional and psychological factors.
As Benjamin Graham pointed out more than 50 years ago, "the super-contagious emotions that swirl around the marketplace" inevitably play their part in exaggerating share prices. Indeed, history is littered with examples of speculative booms and busts arising from such irrational behaviour, including the "tulipmania" of the 17th century, the Great Crash of 1929 and the Asian crisis of last year. As a Sharetrack investor, your objective is not only to identify, but also profit from the irrational workings of the market. However, given that you are trying to beat it at its own game, this is a task easier said than done.
Investors throughout the world have tried to develop trading strategies which attempt to exploit market frailties. For example, momentum investors often try to identify stocks with which the market has a love affair and piggyback on this upwardly spiralling bandwagon. In this regard, you may be attracted to the AOLs and Vodafones of this world. Alternatively, chartists rely on sophisticated analysis of share prices to identify trading opportunities. If this is your chosen route, you may find positive "buy" signals in the graphs of Pfizer or Adare Group.
Speculators also regularly bet on the outcome of information announcements or the market's reactions to these releases. You may therefore be attracted to General Electric in the hope of strong results or Bank of Ireland in expectation of positive statements from annual general meetings this week.
Overall, it is important to bear in mind that successful strategies based on emotional responses are subject to chance and thus very rarely lead to the attainment of consistent results. However, if you are looking for short-term gains, this may be a chance you are willing to take.
Contestants should note that Pfizer's three-for-one share split took effect from July 1st.
Goodbody Stockbrokers acts as broker to Adare Group.
Mark Donnelly is a portfolio manager in the private client division of Goodbody Stockbrokers.
