What really drives successful investing over the long term?
Many investors focus on stock tips, market headlines, or the latest trend, assuming that wealth is built by finding the next big winner. But what if the real key to investing is understanding the different disciplines working behind the scenes in a professionally managed portfolio?
In this episode of Retire in Texas, Darryl Lyons breaks down three essential approaches that influence how investments are selected and managed: technical analysis, fundamental analysis, and valuation analysis. He explains how each discipline serves a different purpose, why no single approach is perfect on its own, and how professional investment managers often combine all three to make informed decisions.
Drawing from personal experiences, market observations, and current trends surrounding artificial intelligence, Darryl provides a practical look at how investment professionals evaluate opportunities in today’s rapidly evolving economy. He also discusses why outsourcing these complex disciplines to experienced managers can help investors stay focused on their long-term financial goals.
You’ll learn:
• What technical analysis is and how market trends can influence investment decisions.
• How fundamental analysis evaluates a company’s financial health and long-term potential.
• Why valuation matters and how investors determine whether a stock is reasonably priced.
• The strengths and limitations of each investment discipline.
• How mutual funds and ETFs often combine multiple investment approaches.
• Why artificial intelligence is currently playing a major role in shaping market trends.
• How investors can benefit from understanding these concepts without becoming experts themselves.
Whether you’re new to investing, working with a financial advisor, or simply curious about how professional portfolios are managed, this episode provides a helpful framework for understanding the key disciplines that drive investment decisions.
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Transcript:
Hey this is Darryl Lyons CEO and co-founder of Pax Financial Group. And you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax or legal advice. Visit Pax Financial Group for more information. So I want to talk about three attributes of investing, and it’s important for you to know these three things. I don’t think you have to be an expert in them.
Just know them. It’ll help.
You can do all three of these things, but you probably shouldn’t. Does that make sense? Maybe it’ll make more sense at the end.
It’s like you should know about, I guess, changing your will. But you probably shouldn’t do it because you’ve got other things to do in life. Kind of that thing. I guess that’s the best example. Maybe. But at least know something about it. So I want to make sure that you know these three investment ideas and they’re outsourced. They’re happening in your investment portfolio, but it’s outsourced.
And your financial advisor has an idea of how they work. Some advisors are no more than others. Even at Pax, some advisors know about these things more than others. I think it’s a lot to ask an advisor to be an expert in all three of these areas, because of the level of detail involved. There are jobs that specialize in each of these three areas.
And it gets really nuanced and granular. But many times the advisor will outsource your various aspects of your investment strategy to fidelity or Blackrock or inspire, or any third party managers where their skill, their unique skill set and training is in these three attributes. So it’s their job. So if I were to sit down and have a conversation with them about these three pieces of investing, they would nerd out on it because that’s their wheelhouse.
Anyways, let me let me just kind of unpack them, and I really hope you hope you appreciate the idea behind them. But again, not burden yourself with trying to be an expert in them. I think that’s the way to frame it, but not be completely ignorant. Say, you know, I’ve heard of that before. Some of you guys, this is, you know, maybe easy, but some of you guys, it might be the first time.
Anyways, let me jump right into it. The first attribute of investing that I want to unpack is the technical analysis. Technical analysis. I was in Europe recently, and when I went to Rome or Italy, I guess it was in Rome. But, if you’re walking on the streets and you see a really cool Italian restaurant has a long line, you’re like,
That must be a pretty good place to eat that. There’s some parallels to technical analysis, in that a technical analysis will see a trend and imagine a little line moving on your computer screen from the bottom left hand corner to the upright upper right hand corner. And it’s a trend of people buying stocks. So it’s popular like that restaurant.
And it becomes self-fulfilling because as people are buying that stock more and more, it drives the price up. That’s an attribute that falls under that type of research and trend. Following is something that a person who specializes in technical analysis will learn and follow and do. And it has its pros and cons, because you do want to be able to find companies that have that kind of momentum.
And then there’s very sophisticated tools in technology and software that will do so in different ways. And I’ve bought and subscribed to them before, but like some of them will be green light by red light sell. There’s a company that came into town called Life Surge. Y’all might have gone to that event. We had wonderful speakers.
And in this event, it was like an all day event. They actually sold this technology piece that taught you how to do technical analysis. And, you know, with the promise that you’ll get rich if you learn how to follow trends. And I mean, it’s it, it’s, it’s just a really flawed and deceptive marketing tactic as far as I’m concerned, because the ability to be able to do that well over an extended period of time is very, very, very, very, very low.
In fact, over the years I’ve seen I had a guy the other day I met the super nice guy who does it, but I mean, I’m talking about he does it with his, you know, money. He can lose 5000 here, 2000 there. So does he do it? No. Not really. I knew another guy that did it for a long time.
He was a very successful engineer. But eventually, because it can get exhausting and nerve wracking, he got out of it. It’s just that it can be burdensome to try to follow all these trends all the time with the emotions that come with it. I met one guy that’s done it really well for the first time ever, and that was about a year and a half ago, and he’s done it really well.
But over the years I’ve never known anyone not, you know, I’ve met thousands and thousands of people and had thousands of investment conversations, never really met anyone with the exception of that one guy that’s personally built wealth using technical analysis. But still life surges. And all these companies still try to sell these systems and people still buy the dream.
But that’s what it is. It’s looking at these charts and finding trends. And it sounds overly simplistic, but eventually the market has a funny way of making smart people do stupid things. In 2011, in fact, I subscribed to some of these systems in 2011 and the market whipsawed. So what a trend completely reversed.
And you end up losing a ton of money. What happens a lot of times is you test it with small money and you get some wins, and then you put in big money and get wins, and then you get overconfident and then you lose a lot of money. So that’s kind of a trend that happens in trend analysis.
But I’ll say all this if you have the time, the tools, the expertise, the emotional fortitude and systems in place, technical analysis can teach us a lot about investing. We can identify trends if something’s being overbought or oversold. So there is, I think, some place for it. And I prefer to have it institutionalized done within, you know, the scope of large institutions like Fidelity or Blackrock or inspire, where it can be done within boundaries, and it’s just not one rogue person.
So I do think that technical analysis that, you know, that you might have heard of head and shoulders, 200 day moving average, 50 day moving average. I do like having that information and knowing that information. And I think it’s helpful for your investment portfolio. I just think it’s it can be problematic if you individually are doing it with all of your money, but outsourcing it, knowing that it exists, knowing that there’s somebody out there on your behalf, looking at trends and considering those trends in terms of the investment process is a I think it’s healthy fundamental analysis of the second tool in the investment kind of construction portfolio modeling, things like that.
I’m a fundamental analysis kind of guy. It’s pretty much because of my accounting background. And that’s looking at the financials of a company. Remember there’s three financials like there’s the balance sheet, the profit and loss statement and the cash flow statement. And the balance sheet looks at a company and says okay it’s not there’s not a lot of debt.
There’s enough cash to weather some ups and downs. The profit and loss will determine if it’s profitable or not. And then the cash flow. There’s the cash flow worksheet that says there is enough cash coming in. So a fundamental analyst will be kind of that accountant nerd that says, hey, this is a very healthy company. The challenge that exists is that this is why I think even a technical analysis person and a fundamental analysis person can work together, because sometimes you can have a good company that’s just not trending well, like there’s no momentum moving the price of the stock up.
It’s like, I guess an Italian restaurant that has the best ingredients, but nobody knows about it. And so that actually exists right now because a lot in the marketplace is trending towards AI, artificial intelligence. And 99 when I first got into this business, people would make money just by putting a dotcom at the end of the name of the company, because that’s what was trending.
And so that is just the reality of life. You can have a very solid company where all of the financials look good, but the stock price isn’t moving because it’s just not popular. It’s just not getting the momentum it needs. And so that’s where I think maybe looking at the technical analysis to understand what’s what’s moving in the marketplace is helpful.
The third piece I think is worth noting is about, you know, portfolio construction is the valuation piece, buying companies at a good price. And that’s often hard. But I mean, it’s art and science. This is important to know historically.
People buy stocks at and this is just a roundabout number because it does have some variation to it 15 times the earnings, 15 times a company’s earnings. So right now the stock market is trading a little bit more expensive. So it’s 21 times earnings. So if you’re a pure valuation person like Warren Buffett you’re saying man the stock market is expensive.
And I am in the business of buying things cheap. I want something under 15 times. I want to buy something at ten times earnings. And that’s where you can find those. They’re out there in the market, but they’re not trending right now. They may be good companies fundamentally like the balance sheet and everything looks good but they’re not trending enough.
So that’s the challenge right now. Now you didn’t ask me this, but I’m going to share space because everyone’s asking me about space. The market historically traded around 15 times. Now it’s trading around 21 times on how you look at it. Space.
300 times like people are paying crazy amounts. Or at least this is the numbers that are still settling here. People are willing to pay 300 times earnings. Why are they willing to do that? For the potential of what space can do, not because of what its earnings are right now, not because of some special dividend, that is not, because of its potential.
So that’s our economy is very much made up of today’s companies that are potentially going to do well. And there’s some merit to that. But it’s hard for some people who have been trained to buy good companies that don’t have a lot of debt, that are making money, that are paying a dividend and not being rewarded for that because it’s not trending in the right direction.
So the skill sets of somebody who’s a technician, somebody who looks at trends and the skill sets of somebody who looks at the financial statements and the skill sets of somebody who looks for a company that is on sale are all different, but together work very well. And that’s often done when you buy a mutual fund or exchange traded fund.
It’s the responsibility of that, depending on the mandate of that fund, to work harmoniously in those three areas of practice to buy companies on your behalf, to grow over time.
It’s very much science. It’s very much art. And get this, this is what this is what makes it all kind of strange. It does. There are political implications, right? Whether or not the Federal Reserve lowers rates or there is, you know, whether or not there is a, you know, some stimulus or some, you know, tax. All of that factors into everything how people buy products or spend money or invest.
But get this right now.
Right now, it’s still AI, artificial intelligence that’s really driving the marketplace right now globally.
Artificial intelligence companies are there what ‘s called capital expenditures, what they’re spending on data centers and everything else is $1 trillion this year. That’s twice. That’s twice what the internet spent from 96 to 2000, and that whole fiber optic network was built out. You know, we had to get the fiber optic cable to make sure that we got all, you know, get that faster, dial up.
Some of you guys remember the AOL dial up. Well, to improve that dial up speed or to get the dial up speed even and then to make improvements, that was fiber optic investment. That was from 96 to 2000. That was a big investment on our infrastructure. Artificial intelligence is spending $1 trillion, which is twice as much as what was spent on the fiber optic from 96 to 2000.
So now let me go back to real quick, knowing that that’s happening, you start to think about, okay, where are the trends happening? Technical analysis, what companies are healthy enough to survive and maybe thrive? Fundamental analysis: what companies are reasonably priced? Valuation analysis. Don’t feel burdened by having to know all these three things. Just know that’s a part of the investment strategy that exists in many of your portfolios today.
To be able to participate in this next iteration of the economy, you can build wealth not just simply for being wealthy, but for making a difference in your lives. Being able to retire, send your kids calls, send your kids to college, leave inheritance, or just enjoy life in general. Thank you for listening today and remember you think differently when you think long term.
Have a great day!
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