Identify the Fundamentalists and Chartists

There are two very broad classifications of analysts on Wall Street, fundamentalists and chartists.

Fundamentalists investigate operations of companies, sales, earnings and future potential, with all its aspects. Among fundamentalists there are many variations of users or non-users of definitive strategy. Also, there are quants who look to the math of securities more than they do management evaluation.

The chartists look at the technical market. The market-pricing highs, lows, trading patterns and the volume that accompanies these patterns. There are many types of chartists, and interpreters of each type.

When you hear someone saying a market for a stock is oversold or undersold or is ready to “break out,” chances they are charting the market, and not talking about fundamentals.

Fundamentalists are more long term in their outlook than are chartists. And to complicate matters, some analysts use a combination of both analytical approaches.

I have spent decades studying well over 1,500 individual investment strategies. The upshot? I find it important that you overlook analyst recommendations if you have little understanding of where they are coming from or what they are about.

And always remember: The analyst advice you get may vary greatly, depending on the type of analysis they do.