There are two main methods for analyzing markets: technical and fundamental. The first seeks to identify trends based on support levels, resistance levels, patterns and volume, among other factors, while the second focuses on determining the intrinsic value of an asset or company using different valuation methods. How does this work in real life? If I use fundamental analysis and find that a company’s value—let’s use Microsoft as an example—should be much higher or lower than its market price, I can act with the understanding that, if my analysis is correct, the price should tend to reflect “reality.” In this analysis, we must also consider external factors. For example, analyzing NVDA is not the same as analyzing Chevron or Starbucks. Each has its own independent variables. By contrast, if we use technical analysis, the sector or company being analyzed does not matter. What matters is the stock’s “mathematics.”

Why am I sharing this with you?

In a way, we are now in the eye of the storm. The truce between Iran and the United States is fragile, and the coming days will be key to what may unfold afterward. The scenarios could be positive or negative. It is unlikely we will end up somewhere in between. What matters is understanding how we are investing and what risks we are taking. Whether we follow technical or fundamental analysis, what should matter is our ability to tolerate uncertainty based on a sound selection of investments. We may be at a point when fundamental and technical analysis together signal a buying opportunity, but that does not translate into an immediate gain. The reverse is also true. Another important real-world example is the 10-year U.S. Treasury bond. If someone bought a bond five years ago at a yield of approximately 1.5%—yes, 1.5% annually—their investment would show a negative return today. Does that mean they will lose their money? No. It means that, if they hold it until its 10-year maturity, they will have received 1.5% per year, but during that period the value of their investment fluctuated rather than moving in a straight line. Another real-world example is what airlines experienced when the COVID-19 pandemic began. It took them several years to recover and surpass their pre-pandemic prices.

To conclude, no one knows what will happen tomorrow. What we can know is what risks we are taking and how to limit them. For this reason, I want to remind you that we should remain calm and understand that, as sad as this situation is, we eventually return to normal.

Have a great start to the week, and please do not hesitate to share your comments or ask me any questions.