Compare Stock Charts to Make Better Stock Picks
There are many variables involved when choosing the best investment. From fundamental data to technical analysis to on-line recommendations, each piece of information plays a part in your investment thesis.
Why Compare Stock Charts?
Once you have a set of stocks, ETFs, mutual funds or other securities that match your general investment thesis, using a stock comparison chart can give you valuable perspective. Charting all of your potential investments against each other improves your understanding of the individual investments and how they fit into the larger picture.
Comparison charts give you a strong, visual data point that you can use when ranking and choosing the investment that best fits your investment thesis.
A Technology Stocks Example
Let’s walk through just one way you might compare stock charts when choosing an investment.
Let’s say you’re interested in investing in the tech sector. There are lots of companies in this area to choose from. While doing your research (browsing investment websites, talking with colleagues, reading analyst recommendations, etc.), you’ve built up a special “Technology” Watchlist in StockMarketEye. This stock watchlist holds all of the tech stocks that have crossed your radar during your research and that seemed “investable”.
You may have come across other tech stocks, but for one reason or another, they didn’t make it into this curated list. (Although keeping a separate watchlist for the technology stocks that didn’t make your curated list is also possible as StockMarketEye does not restrict how many watchlists you can have, nor the number of stocks you can have in each watchlists.)
In StockMarketEye, this watchlist may look something like this:
You have also identified who the “big name” players in the industry are and placed them at the top of your watchlist. For our discussion, those “big name” technology players are:
- Apple Inc. (AAPL)
- Google Inc. (GOOGL)
- Yahoo! Inc. (YHOO)
- Microsoft Corporation (MSFT)
- Amazon.com Inc. (AMZN)
Adding Comparison Symbols to the Chart
To compare the stock charts of these potential investments, you add them as comparison symbols to the chart. There are multiple ways of adding comparison symbols.
The first way allows you to add each symbol individually using the chart menu, Chart Options -> Compare to… In the “Add Comparison Symbol” enter the ticker symbol to use for comparison in the field (you can type the symbol you want to add directly into the field, or use the drop-down selector to choose one of the indexes listed), then click OK to add it to the chart.
Alternatively, if you have more than one symbol you want to compare against, you can select all of them in the watchlist, then use the menu: Watchlist -> Add to Chart as Comparison Symbol. Note that this menu is also available by right-clicking (Ctrl-Click on Mac) on the watchlist.
Afterwards, your chart will look something like the following:
The chart of each stock starts at 0 on the left side of the chart. The y-axis shows the relative performance (in percent) of each stock since the first day of the chart. As you can see, over the last 6 months, AAPL has out-performed the others with YHOO a close second.
Comparing Other Stocks
But how do some of the other stocks compare to these big 5?
Clicking on one of the other stocks, such as FB, shows it as the main symbol in the chart. As you can see, over the last 6 months, Facebook’s stock (the dark blue line) has outperformed the stocks of the other “big 5”.
However, selecting P shows that Pandora (the dark blue line) has under performed even AMZN, being down close to 20% over the last 6 months.
Selecting IBM (the dark blue line) shows a similar chart for “big blue”, down more than 15% over the last 6 months.
What do comparison stock charts tell me?
IBM is down more than 15% over the last 6 months, but does that mean it is a buying opportunity or should it be avoided? Facebook is up almost 30% in the last 6 months, but does that mean it is too expensive or does it still have room to run?
Unfortunately, chart comparison alone can’t answer those questions. To make sense of the charts, you need to understand the background (earnings, economic factors, etc.) behind the recent performance.
Comparing the charts can help you to quickly identify the stocks that meet some aspect of your investment thesis. But you’ll most likely want to supplement that information with a deeper understanding of the specifics of the particular stocks you’re interested in.
Picking the right stocks to invest in is part art and part science. The science part focuses on the research into the fundamentals and technicals of the stocks, ETFs, mutual funds or other securities involved. The art part is your investing thesis and culminates in the final selection using information from your research. An integral part of that selection process is to compare stock charts, helping you to rank and differentiate based on your investment thesis.
If you’d like to add this technology watchlist to your StockMarketEye, you can download it as a CSV file here. Then watch this video for how you can import the watchlist into StockMarketEye. If you’re not already a StockMarketEye user, you can try it for free for 30-days, no strings attached.
(Full disclosure: I own shares of the following stocks mentioned in this post: AAPL, GOOGL, YHOO, MSFT, AMZN, P and FB.)