Active Investors Favor A Qualitative Approach To Managing Their Portfolio

E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results from the most recent wave of its quarterly self-directed active investor tracking study.
  • By a two-to-one margin, active investors use fundamentals as their primary method of valuing a security over technical indicators (54% v. 25%), and advice from others (21%).
  • When asked which resources are most helpful in researching investments, 55% chose earnings reports, followed by price charts with 37%, and P/E ratios with 36%.
  • Channels and trend lines, volume, and stochastics were some of the least helpful, with 23%, 22% and 11%, respectively.

“When push comes to shove, active investors use fundamentals over technical indicators,” said George Fischer, Vice President of Trading, Margin Lending and Cash Management at E*TRADE. “That said, having more tools in your toolbox is better than having fewer — and in building a portfolio you want to use them together. It’s like the old saying ‘measure twice; cut once.’ If you study a security through both fundamental and technical lenses your chances of making the right decision will only increase.”

Several data points also suggest that experienced investors prefer not to adhere to the rigid principles advocated by technical analysts and traders:
  • When purchasing a stock, only 21% have an exact idea of their target price for selling a position, with 67% having a general idea, and 13% having no idea.
  • More than half – 53% prefer to monitor their position and sell when the market conditions are right, as opposed to setting limit orders (26%) or trailing stop losses (21%).

“In speaking with active investors we find that success comes from being both methodical and thoughtful,” continued Fischer. “Methodical in that they have a defined trading strategy, and thoughtful in that they study their investments closely in order to enter and exit a position at the right time.”

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