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...However, the software presents both technical and fundamental analysis. While nothing works all of the time, if you don't believe that technical and fundamental analysis helps you to make money in the market, then what do you believe will help?

Of course there are no guarantees. No way somebody is going to tell you that using their software will beat the S&P. They, after all, have no way to guarantee that you will use it correctly.

I have done OK with theis software, that is all I can say.


Without a look at the software to see what it does, I can't comment directly on the question "is it any good?"

BUT I can comment on the question of whether a combination of fundamental and technical analysis can help one make stock trading decisions: Yes, of course.

However, one can get that information a zillion places. The fundies can be gotten directly from SEC filings, for goodness sakes. Technical analysis can be done using charts from Yahoo, or Marketwatch, or various other places. One has to know how to interpret Bollinger Bands or the like, but one can get that from a book, or even from a website. If one studies CanSLIM, one can get TA data from Investors Business Daily.

Standard & Poor's Stock Reports contain both elements, too. There are reports from Argus, Ford, a lot of other sources. Depending on one's choice of broker(s) and other resources, a typical investor probably has access to a heck of a lot of data, for no extra charge beyond whatever fees he/she is paying just to maintain an account. Most of the other websites I mentioned are free.

The "course" as described on the website appears to teach a "Five-Step Investing Formula." FORMULA is really a ridiculous word to apply here. Most people with any brains at all do exactly what this "formula" suggests -- the difference is, they don't pretend that it's some kind of unique system that automatically leads to profitable investing. Here are the five areas the website lists. (Note: I've edited and excerpted a lot, but neglected to keep track of the elisions. Sorry!)

Step 1: Searching for an Investment

Our alumni have access to over 65 prebuilt and back-tested online search tools to consistently deliver the top 25 stocks according to parameters such as "Great Earnings, Sales & Cash Flow Growth" or "Strong Long-Term Growth."


By "search tool" all they really mean is "stock screen" -- and anybody who does a little homework can cook up 65 such screens and stash them away. I have a bunch of mutual fund screens stashed at Morningstar, for example. And I don't have to settle for the criteria used by somebody else.

Take a look at the titles above. Just ask yourself: what are "Great" earnings? What is "Strong" growth? The criteria are subjective, and even worse, subject to faulty reporting by the companies whose stock one is examining. For growth, let's say your "growth" screen uses a PEG ratio of 1.0. You will get a different selection of stocks than if you put in 1.5. But PEG ratios are based on future PE ratios, which means they depend on estimates of future earnings. Anybody familiar with Wall Street should know that estimates of future earnings can be very chancy, no matter what company you're talking about.

Step 2: Fundamental Analysis

It doesn't matter whether you find stocks in a search or in the newspaper, or if you want to invest in a company you're familiar with. By doing a quick fundamental analysis on a company through our Phase 1 and Phase 2 scoring system, you can confidently reduce or limit the amount of emotion that comes with an investment decision: either a stock passes or it doesn't.


This kind of automated fundamental analysis (using a "scoring system") is fine if you know what kind of stock you're looking for, and if you are confident that it matches your own investment temperament.

(By the way, where is THAT issue dealt with? Is there a questionnaire that determines the user's risk tolerance, and adjusts the software accordingly?)

Even if you have a good handle on your desire to be "aggressive" or "cautious," or somewhere in between, the problem remains: when you are encouraged to use a "system," it will discourage you from thinking outside the box.

Like, a really high PE ratio might rule out certain speculative stocks that may actually be good investments, due to news events that never show up in historical data. If you watch "Mad Money" on CNBC you can hear Jim Cramer do a LOT of that kind of analysis -- finding stocks that play in niches where business is likely to rise a week or a month from now. Pharma and biotech are good examples. To get at the REAL "fundamental" a person has to read a lot of reports and analysis of biological and medical information, and then make an informed judgment.

For example, a high PE ratio might show that other people have already expressed faith in future earnings. But a simplistic screen of the numbers alone will not tell you whether there is a *reasonable chance* that the earnings will be even higher than those investors believe. Only your own brain, and some serious research, can help there. If the management team of a biotech firm has a track record of passing FDA hurdles -- as opposed to other companies that waste time on blind alleys -- that's a bit of "fundamental analysis" that will escape the "formula."

Step 3: Technical Analysis

Once you've compiled a list of fundamentally solid stocks according to the Phase 1 and Phase 2 scoring system, you monitor them for the opportune time to buy and sell according to technical indicators. Technical analysis is useful in forecasting potential direction—to time your entry and exit points. With our red and green arrow system, you can learn to accurately interpret several technical charts (Moving Averages, MACD, Stochastics, Volume, Support & Resistance) in just 30 seconds per stock. And that's all the info you'll need to consider whether it's time to buy or sell!


People are already reading every one of those indicators day in and day out. You can get them anywhere. Presumably the "red and green arrow system" means Sell and Buy indicators (respectively) that appear on one's screen using their software.

I think it's interesting that they seem to suggest that the TA system should only be used for stocks that pass muster based on fundamentals. And I am somewhat confused that the name is "Investools" NOT "Tradetools" -- but the TA section appears to rely on timing highs and lows, and trading into and out of one's stock positions.

This brings me back to questions like, why bother looking at "Strong Growth" (for example), when one can make money trading stocks of companies that aren't growing their earnings at all? One can easily find companies with fundamentals ranging from boring to horrible, that nevertheless get traded on rather high volume and are extremely volatile in price. I don't claim to be an expert on TA, but it seems to me that it has no purpose unless a stock price has enough volatility to make the indicators worthwhile.

Translated: I've seen some of those "arrow" systems that point to Buy and Sell opportunities that are only a percent or two apart. To make such a trade worthwhile, one would have to trade a huge volume of shares, just to overcome the drag from brokerage fees. I've seen charts where Buy and Sell signals were given in the midst of an overall upward curve, where a simple buy-and-hold approach would have yielded a perfectly acceptable return without all the froth and effort.

Which brings me back to the biggest question about how to incorporate this technique into one's strategy. Some folks -- Cramer among them -- do not believe that LTBH ("long term buy and hold") has any place in the modern investment climate, for stocks anyway. It is up to the individual whether to accept that thesis. But IF one chooses to buy a stock for the longterm, then the whole question of Technical Analysis becomes moot.

And what is the alternative? Trading. Well, trading is VERY time-consuming. Even if one is adept at the use of limit orders and the like, one is going to have a heck of a time using systems like this while living a life away from the computer screen (or Blackberry or cell phone or whatever!).

Which, in turn, raises the question of who they're marketing this stuff to. I can't help thinking that most folks who buy into this thing really do not have the time to use it to its best advantage.

Step 4: Portfolio Management

Every day active investors are moving between steps 1, 2 and 3 looking for great stocks and watching for buy and sell opportunities. Managing that information effectively is critical to your success. Our online analysis and strategic portfolio perspective tools make it easier than ever before to build, manage and monitor portfolios.


This "Step" sounds like fluff. First off, let us ask whether "active investors" might not be an oxymoron. That's an entire lexicographical debate one could pursue (hm, maybe I should not have brought it up! <g>).

What is a "strategic portfolio perspective" anyway? Sounds a LOT like the Morningstar X-ray tool. Even without the X-ray, you can manage a portfolio almost anywhere (although not at the Motley Fool anymore, I hear). Heck, one's stock broker probably has reasonably decent portfolio management tools, at least as far as "building, managing, and monitoring" are concerned. I read this as just throwing a whole lot of words at a very simple process, to make it sound more valuable or unique than it really is.

Step 5: Industry Group Analysis

The final step in the systematic investing process is to be aware of how the different industry groups are performing.


Actually, this would have been STEP ONE for me, but what do I know?

Industry groups make up a huge portion of the potential move of a stock. If an industry group is out of favor, it is unlikely that a stock within that group is doing much better. Every stock belongs to one industry group or another. The group it belongs to depends on what the company does or produces. For example, TARO manufactures over-the-counter and prescription pharmaceuticals, so it belongs to the Drugs/Generic and OTC industry group (.DRU).

Here again I will suggest a Cramer-esque concept. In any given sector (or "industry group" if you will), there are companies and stocks that are "pure plays" on that group's product/service, while other participants in that industry group may be conglomerates of one kind or another.

A really good example is GE (one of the biggest conglomerates in the world). I was starting to write my own summary, but discovered that Yahoo has done it much more succinctly: "The company operates through 11 segments: Advanced Materials, Commercial Finance, Consumer Finance, Consumer and Industrial, Energy, Equipment and Other Services, Healthcare, Infrastructure, Insurance, NBC Universal, and Transportation."

It's not mentioned in the summmary from Investools, but the fact that GE is part of the Dow Jones Industrial Index also makes a difference, just as any stock in a major index is affected by mutual funds trading that index. Some stocks are being kept on life support even now, mostly because they have the good luck of being in the S&P500 or the like.

Anyway, back to the pitch:

Most stocks in the same industry—whether it's the financial industry or the oil industry—generally move in the same direction. If the group is strong, it's an indication that institutional money is flowing strongly into the group, causing most stocks to rise. The best-performing stocks in the group generally make the strongest moves, but even lower-quality stocks in a strong group will typically rise with the rest of the group.

Having a tool that helps you do industry group research allows you to better focus your attention on the very best market sectors and to make sure that a stock you are considering is in an uptrending industry.


Well, right off the bat I am mildly nauseated by the word "uptrending" -- there is not a single verb in there, but the "ing" at the end suggests that it is. Ick.

But more importantly -- this is yet another part of the "system" that one can get almost anywhere. However, the analysis is misleading. Momentary "strength" in an industry group CAN potentially be a sign that investors (institutional or otherwise) foresee a shakeout in that sector, with mergers and acquisitions to follow.

Other "uptrends" can come from events having nothing to do with fundamentals. There was a huge influx of money into building materials right after Hurricane Katrina -- but a lot of that money has already slipped away again, even though very little has been built so far.

I am a big fan of Cramer because, among other reasons, he tells people that they should be reading the front section of the newspaper, not just the business section. It is in such news where one can frequently anticipate movements in stock sectors, well before they show up in some handy-dandy charts from a service like this.

AND FINALLY... what I don't see on this website is any mention of Psychology. How on earth can you invest successfully if you don't take that into account? One might say that TA is an effort to remove psychology from the equation, by showing what kinds of stocks people are buying, without bothering to ask WHY they are buying them. I don't know if the average Technical Analyst would view it that way, but in my view it's the only rational explanation why one would even need TA. If not for unpredictable investor behavior, wouldn't it would be logical for fundamentals to dominate?

Now, Cramer says he does not believe in TA and charts. He knows how they work, and he does refer to them now and then. But he does nearly all his analysis based on fundies and psychology. It may well be that Joe Average can't read the tea leaves the way Cramer, a Harvard-grad multi-millionaire Wall Street guru, can. But he constantly points out pretty simple ways for Joe Average to do the same kind of homework, to winnow out opportunities based on social trends, and thus to become independent. And it doesn't cost anything, or require special software. That's my own attitude, which is probably why I like what that guy does.

Different strokes for different folks, of course. But I am a populist by nature, and I kind of think that a system like this just trades one kind of dependence for another. Like, you depend on a broker's advice, or a Financial Advisor, or you go out and pay for a seminar and some specialized software and so on... all the time, waiting for some source OUTSIDE your own brain, to tell you what to do. I just think folks should be encouraged to aspire to more independence than that.
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