Coming up with my new year gift to the timeline: secrets to long term invest successf. Shortly.

There are three key components of successful investments. Mastering each can take years or even decades. But combining the three even with rudimentary knowledge will make you a master in the game of investing

The three components: fundamental analysis, technical analysis and sentiments analysis.

Novice investors tend to start with technical analysis and then get stuck there. While it is possible to use is successfully, it is very difficult to use it alone for the long term.

Fundamental analysis is the bedrock of long term investment success. Warren Buffett has used this to create an empire. This basically uses different techniques to arrive at a fair value of an investment opportunity and then check against the current valuation/pricing.

But people tend to mix this up. There is no one way to use fundamental analysis. A big time corporate investor may use the discounted cash flow model, while a retail investor may prefer a dividend discount model.

The corporate investor is likely to come to a higher value.

That’s because the corporate investor may end up buying so much shares they get a board seat and can control how much dividend is paid out, or even get preference shares, or give the company a loan.

A retail investor is unlikely to have this kind of luxury.

Summary: be careful of the kind of fundamental analysis you carry out. Make sure it aligns with your specific circumstances. Also note that it is okay for people to have different fair values. That is how markets work, creating liquidity for participants.

On to technical analysis.

People use different strategies. Some people trade only breakouts, some use Fibonacci, some use relative strength index. People also use various time frames, from hourly to daily to weekly to monthly. Algorithms may even use micro-seconds timeframe.

Many novice investors start from here and then get stuck. Unfortunately, because there are many participants using different methods and market makers creating liquidity and all, the prices are definitely not cast in stone.

Some people have elevated technical analysis into some sort of pseudoscience. It doesn’t work that way. It is impossible to incorporate every single event into one price. For example, Donald Trump has moved the markets on several occasions with just one tweet.

I personally use technical analysis very sparingly. And only when I want to make short term moves. But those moves are usually backed by some sort of fundamental or sentiment analysis.

You are very unlikely to stay in business for long if you 100% depend on technicals.

The last component is sentiment analysis. This is kind of the weakest component and most investors often ignore it. But short term investors can make truckloads of money if they combine this with technical analysis.

The best way to describe sentiments is by using examples.

A few months ago, a few corporate advertisers decided to pull off from Facebook. Then price crashed immediately thereafter, but rebounded strongly not long after.

Google, last week, was dragged to court by several lawyers across multiple states in the US. The price crashed

I expect the price to start recovering soon. Most sentiments are usually short term. That’s why they work quite well when used with technicals.

But there are some that thrive only on sentiments. Example - Tesla.

Tesla has no fundamental basis to its price, just speculation. Tesla has also effectively made a mess of whatever technical analysis you can think of. This is quite rare and also unsustainable. The market can be quite unforgiving and a day of reckoning will come.

Tesla would either have to justify its pricing by growing revenues and profit margins like a house on fire or the market will get tired of it and make a run for the hills and turn the stock to dust.

Oracle experienced something like this in the 80s and AOL in the 90s.

There is another asset that has thrived on sentiments - Bitcoin. It is quite easy to think that Bitcoin is just like Tesla, but it has some fundamental basis for its pricing

Just a few - the IRS has recognized crypto as an asset class, based on its placement on tax return forms

The dollar has been taking a hit of recent, which has driven up asset pricing. As people take cover from the dollar devaluation, more inflow is going into commodities and cryptocurrencies.

Lastly, Bitcoin also happens to be deflationary unlike traditional currencies.

As you grow your investment portfolio, remember to improve your knowledge across all the three components and I can assure you of a successful long term investment. May the force be with you.

Wishing you the very best of 2021 ahead.