Set out the steps by which a fundamental active equity strategy is built
The idea
A fundamental strategy is built in stages. The manager defines the investment universe, often the benchmark and nearby stocks, then pre-screens it with simple quantitative filters to reach a manageable research list. Analysts study the industry and the firm's competitive position, forecast its financials and value the business with discounted cash flow or relative multiples to reach a target price. Portfolio construction sizes positions by conviction and risk, and the manager sells when the target is reached, the thesis is realised or the thesis breaks. The common pitfalls are behavioural: confirmation bias, illusion of control, availability bias, overconfidence and becoming attached to holdings. A robust process builds in sell discipline and formal challenge of every thesis.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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