What Is a Market Strategist

A market strategist is a financial professional who uses one of three broad categories to choose which asset classes—for example, stocks, mutual funds, bonds, or ETFs—to invest in. Those three categories are sentimental analysis, technical analysis, and company fundamentals or fundamentals analysis.

Key Takeaways

  • The three major types of analytical frameworks market analysts use are sentimental, technical, and fundamental.
  • Sentimental analysis starts from the assumption that most investors are wrong. They are also called contrarian analysts.
  • Technical analysts focus on price movements of assets as they are reflected in charts.
  • Fundamental analysts look at a company's fundamentals, like its debt-to-income ratio and its sales growth, to make a decision on whether the company is a good buy or not.

Understanding a Market Strategist

The term is relatively new in the financial arena, born from the need for big-house brokerages and advisors to show clients future strategies and plans for a changing market landscape. Over the years, volatility has become the norm, leading to a broad change of philosophy from buy-and-hold to one that can adapt to different climates for profiting in bull markets and protecting when a bear rears its ugly head.

Examples of Market Strategists

Sentimental Analysts

Often referred to as contrarians, sentimental analysts are not longing for a simpler time in the past; rather, they believe that markets are moved by investors' feelings more than their rational decision-making.

Market strategists and those who use sentimental analysis base many decisions on the assumption that the bulk of investors are wrong. For example, if the price of gold is trending high, these strategists might take a short position believing that the valuable metal has reached its peak.

Technical Analysts

Technical analysis involves buying any asset class based on actual data that reflects price movement, moving averages that identify up and down trends and resistance levels, etc. These can take the form of line, candlestick, point or bar charts, and more. This is most closely aligned with market timing where buy and sell signals are triggered on a fairly regular basis.

Fundamentals Analysts

Finally, market strategists often have an eye on company fundamentals, like one of the most successful investors of all time: Warren Buffett. While his Berkshire Hathaway holding company portfolio changes from time to time, his philosophy for buying stocks is cast in stone.

Buffett stresses to focus on what you know about a company today, and do not take "unknowns" into account. Zero in on size, market share, profit margins, return on equity, earnings, free cash flow, debt and price relative to earnings, and book value. Additionally, he says ignore wars, government rhetoric, climate change, upgrades, downgrades, and any other noise surrounding the stock market. He also believes that fundamentals eventually pay off and can actually protect against uncertainty in the market.

A Blend of Strategies

Though these systems are broken into three components, market analysts will often employ a combination of them when making decisions about how to invest their own or their clients' money.

Investment banks, brokerage firms, and financial services companies commonly employ market strategists. Despite what these professionals claim, it is not actually possible to predict the movement of stocks and other financial instruments. According to William J. Bernstein's book The Four Pillars of Investing, market strategists have historically been incorrect about 77% of the time.