As a new investor in the market, Manish was confused about the analytical process behind investment decisions. What was the best practice to follow and how could he ensure quality bets while looking for high returns? These were the biggest questions in his mind when he turned to his mentor for advice. Considering Manish’s interest in the market, and his aptitude for data and analytics, his mentor suggested that he try the technofunda approach. A combination of technical and fundamental analysis, the technofunda approach has been gaining ground over the last few years. Technofunda practitioners follow a set of principles which help them identify the best stocks for their investment goals. They consider two major aspects – find fundamentally strong stocks and look for robust technical patterns within them or, pick stocks based on chart patterns and then analyse their underlying fundamentals.
What is Technofunda?
The technofunda approach is gaining popularity as it leverages the best practices exhibited by both fundamental and technical analysis. Usually, when investors pick a particular side, they tend to ignore the other and this leads to miscalculations based on limited information. However, practitioners of technofunda stand to gain from the potential offered by both these strategies and this is why Manish was advised to follow this approach. Both fundamental and technical analysis involve data streams and, while it is important to ignore the chatter while taking decisions, it is always good to know both sides of the coin. Technofunda analysis enables investors to analyse both sides of the equation and take fully informed decisions on the quest for high returns.
How does TechnoFunda Help?
Investors like Manish can employ the technofunda approach to understand the nitty gritty of the stocks they invest in. For instance, they can use the fundamental approach to understand the company’s business model and combine it with technical insights like the demand-supply equation to take more informed decisions. Followers of the approach believe that technofunda analysis offers better results than simply sticking to either the fundamental or the technical approach. Now, the question arises as to why technofunda is not widely practised. The biggest differentiator here is the fact that fundamental analysis revolves around time horizons of one year or longer, while technical analysis usually consists of a shorter-term outlook of a few days or weeks. Therefore, if you do wish to follow the technofunda approach to investing, you will have to reconcile this time mismatch in an optimal manner.
While there are major differences in the approaches, a combination of the two can help you pick stocks which are poised for a long and sustained rally. Sticking to just the demand-supply equation or the fundamentals of the stock can leave you hanging, especially if you are keen on investing in liquid stocks, for a longer duration. To enhance the technofunda approach, investors can also keep an eye out for trends in the market. This involves following price patterns and holding on to stocks which offer continuously strong results and indicate an upward trend.
Following this practice can help you build positions in long-term, well-performing stocks which have the potential to compound your wealth significantly, especially over the longer term. For Manish, the technofunda approach unlocked various gems like HDFC and Zomato and all he now has to do is figure out when to exit his position. The technofunda approach also helps investors decide when to exit positions – you can sell your technofunda stocks when either the fundamental or technical trends break down.
What You Should Do
It is true that both fundamental and technical analysis are proven methods of investing. However, you can create magic when you blend both the approaches to build a portfolio capable of withstanding supply-demand risk and offering sustainable returns. While the fundamental approach will help you understand which stocks to include in your portfolio, based on aspects such as balance sheets and projected earnings, the technical approach will tell you when to buy fundamentally strong stocks. Combining these two aspects will help you optimise your entry and exit while also helping you assess when to add to your existing positions. Using an optimal mix of price volume action, company fundamentals, and charts, the technofunda approach will ensure that you invest in the best stocks, at the right time.
If you are keen on understanding the nitty gritty of the market, and have a good eye for analysis, the technofunda approach can help you beat the market by a mile. You will find yourself ahead of the curve as you will not be limited by the drawbacks of either of the two common investing approaches. Rather, with technofunda analysis, you can pick the best of both the approaches and build a portfolio primed for long-term wealth gains. So start researching today and gain a strong understanding of the technofundas catalysing the stock market.
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