Equal-Parts Technical and Fundamental Selection Model
Combine business value with market behavior before allocating capital
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 97%
This model evaluates an investment through two complementary lenses. Fundamentals estimate what an asset or sector should be worth by examining valuation and whether expected earnings are achievable. Technical evidence evaluates what market participants are actually doing through price momentum, earnings-revision momentum, breadth, divergence, and major trend changes. The investor first defines the decision horizon because short-term calls rely more heavily on technical confirmation, while forward valuation remains fundamentally driven. For sector and industry selection, the two sides receive equal weight. Agreement strengthens conviction; disagreement becomes a risk signal that demands caution rather than narrative rationalization. The model's central mechanism is error correction: fundamentals keep price action connected to economic reality, while technicals expose when the market is rejecting an otherwise persuasive thesis.
Origin
Extracted from Masters in Business, where Gina Martin Adams describes combining her CFA-based fundamental training with her CMT-based technical practice in sector and industry allocation.
Core principles
- 01Use fundamentals to assess value and long-term potential
- 02Use technicals to evaluate timing and market confirmation
- 03Match each signal to the time horizon it explains best
- 04Let market evidence challenge a compelling narrative
- 05Combine independent signals rather than relying on one analytical worldview
How to run it
- 1
Define the Horizon
State whether the decision concerns the next several months, the next year, or a longer structural cycle. Use that horizon to determine which indicators are most informative.
Pro tip Write the horizon beside the thesis so short-term volatility does not silently change the objective.
Watch out Do not use a short-term chart signal to answer a long-term valuation question.
- 2
Evaluate Fundamental Value
Assess valuation and whether forecast earnings are realistically achievable. Form a range of reasonable values rather than treating one estimate as certain.
Pro tip Examine whether valuation itself is trending instead of assuming immediate mean reversion.
Watch out A cheap valuation can become cheaper when the underlying thesis deteriorates.
- 3
Measure Market Behavior
Review price momentum, earnings-revision momentum, breadth, and confirmation or divergence. For longer trends, inspect major moving-average crossovers and persistent relative performance.
Pro tip Use several related indicators to distinguish a durable trend from isolated price noise.
Watch out Do not reinterpret every adverse signal merely to preserve the original story.
- 4
Balance the Evidence
Give technical and fundamental inputs equal consideration for sector or industry selection. Classify the evidence as confirming, mixed, or conflicting.
Pro tip Increase conviction when independent fundamental and technical evidence agrees.
Watch out Do not average contradictory signals mechanically without investigating the disagreement.
- 5
Set the Allocation and Exit Logic
Choose an allocation proportionate to the combined evidence and specify what would invalidate the decision. Continue holding a supported trend, but respond when market behavior demonstrates that the thesis is failing.
Pro tip Record both fundamental and technical invalidation conditions before entering.
Watch out Avoid watering losing positions while prematurely selling positions whose evidence remains intact.
In the wild
A portfolio team compares healthcare and technology. Healthcare appears inexpensive but has weakening estimates and falling relative momentum. Technology is more expensive, yet its earnings estimates are achievable, revisions are improving, and price momentum is broad. The team gives both analytical lenses equal weight and selects technology with predefined technical and fundamental exit conditions.
→ The allocation reflects both economic quality and observable market confirmation.
An investor owns a company whose business narrative remains attractive, but relative performance, momentum, and breadth deteriorate materially. Instead of defending the original valuation case indefinitely, the investor reduces the position and waits for market evidence to stabilize.
→ The investor limits damage when price behavior invalidates an otherwise compelling story.
Common mistakes
Treating Valuation as a Timing Signal
An investor buys solely because an asset looks inexpensive relative to its historical mean. The approach ignores that valuation regimes and price trends can persist.
Trusting the Story Over the Market
A persuasive fundamental narrative is used to dismiss sustained deterioration in price behavior. This allows a manageable loss to become entrenched.
Using Signals Without a Horizon
Short-term momentum and long-term fair value are compared as though they answer the same question. The resulting decision mixes incompatible time frames.
Is it for you?
Best for
It is best for investors making medium- or long-horizon sector, industry, or equity-allocation decisions with access to both market and fundamental data.
Not ideal for
It is not ideal for investors who lack reliable data, cannot define a decision horizon, or require a purely rules-based single-factor strategy.
From the transcript
“I use technicals more for timing and fundamentals more for long term.”
“it's equal parts technicals and fundamentals.”
“sometimes the technicals tell you that you're wrong, and we need to respect that.”
From the episode
Interview With Gina Martin Adams: Masters in Business (Audio)
Gina Martin Adams