How to Measure Your Stocks – A Simple Technical

We all have investments in both taxable and tax deferred accounts. Many people however are unsure exactly how to measure whether their stock or fund is doing well or not. Professional investors have dozens of tools by which to judge performance, I’ll just show you a simple one.

This measurement is to compare your investment to the S&P 500 Index, commonly referred to as “the market”. The S&P 500 is made up of the 500 largest companies listed on the NYSE or NASDAQ stock exchange. When you hear comments like a stock or fund “beat” the market, it normally refers to its performance against the S&P 500.

One simple and common measurement to judge the performance of your stocks is to compare it to the overall market, and then look at a comparison to its own “moving average”. I like to use both a 50 day and 200 day MA (moving average). The moving average quickly shows growth or decline over a longer period of time.

 We’ll look at two stock charts. The first chart is for one of my favorite holdings, Kroger (KR). It is almost the perfect stock from a “technical” point of view. In stock lingo, “technicals” refer to the analysis techniques from a chart. “Fundamentals” by comparison refers to looking at a stocks PE, beta, PEG ratio, last earnings report and so forth. Yahoo Finance has a simple easy to use chart capability.

 Kroger

 

 

 

 

 

 

This chart shows Kroger’s has substantially outperformed the market over the 12 months. In addition it has consistently stayed above its 50 day and 200 day moving average, the price keeps going up in a nice smooth, consistent way. Also notice that the gap is widening between the 50 and 200 day MA, the rate of growth is increasing. In the last 12 months the S&P has gone up 9.64%, and Kroger has gone up 82%.

 The next stock is Goldman Sachs (GS). I bought GS on August 7th at $183.90, just after the 50 day MA crossed above the 200 day MA, it looked like the stock was on the rebound and would outperform the market. Last week they reported disappointing earnings and the stock has slid down every day since. It finally crossed the 200 day MA and I sold it this morning for small loss. Part of my decision to sell was that almost all of the big banks and financial services companies are reporting weaker than expected earnings and the entire sector looks in trouble for at least the 1st half of 2015. I also own a position in Morgan Stanley (MS), it too dropped but only below the 50 day MA, not the 200 day.

Goldman

 

 

 

 

 

 

Comparing your investments to the market and their own moving averages will help you determine if you have chosen the right investments in your accounts. In a future post I’ll give you a few more things to look for.

 

 

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