Todd R. Walsh is the CEO of Alpha Cubed Investments, the firm’s chief technical analyst and a member of the investment committee.

Russ Alan Prince: You recently wrote a book called Exponential Gains. What is the main message of the book?

Todd Walsh: The goal is to help investors get a simple process in place to protect them. Too much money has been lost by investors relying on their gut, or guessing, or listening to other people hyping something they don’t even own.  

During the pandemic we saw stocks like Peloton, Zoom and many others rise as much as 1,000%, only to then drop by 90% or more. The line between speculation and actual investing has never been more blurred. The book is designed to help investors distinguish between the two and build a path to finding the next great companies that can transform their portfolio.  

Prince: Tell me what a simplified version of a subjective and an objective investment plan would look like for the average investor.

Walsh: The first step to successful investing is to get some rules in place. Having a written investment process and building on it is an important key to success.  

Your emotions are extremely powerful. When it comes to investing, they are going to pull you in all the wrong directions. So to start with, if there are no net earnings, that is a problem. You need to be able to make money after all is said and done.  

Of course, high-growth companies may not have net earnings to show, as they are reinvesting every dollar towards growth. In those cases, look for companies that have massively growing revenues and a clear pathway to profitability. If you can’t justify these elements, then you are probably speculating.  

After that, here is a subjective checklist:

• Academically highly accomplished leader 

• Hypercompetitive leader/demanding, perfectionist leader

• Revolutionary product or service

• Huge or global market potential

• Rapidly growing revenues and market share

• Hot IPO

• The more boxes you can check off, the better

The problem with this checklist though is that it is highly subjective. Well-intentioned people can debate each component in real time and come up with completely different conclusions. That’s why we added an objective checklist driven by technical analysis.

Prince: Why is it important to combine fundamental analysis with technical analysis?

Walsh: Most investors are familiar with fundamental metrics like price-to-earnings (P/E) ratios and others. And then there are macro inputs like Fed policy, GDP and CPI. The hard part is determining when the fundamental news matters.  

We get bad news all the time, like government shutdowns, geopolitical crises and many others. For example, last year we had the regional banking crisis—which led to some of the greatest regional bank failures since the Great Depression. Talk about scary! 

I call these “news boomerangs,” which force us to confront the question most investors consider in times of trouble: “Should I sell my portfolio before things get ugly?” How is an investor to know the difference between when the news matters, and when it doesn’t?

The answer is: technical analysis. At Alpha Cubed Investments, we view technical analysis as performing like the instrument panel on an airplane in a rainstorm, it can help filter out the bad inputs and prevent you from crashing. It’s an objective tool that can help determine when the news matters.  

Here are a few monthly technical indicators that can help filter out some of the “noise”:   

• Relative Strength (RSI)

• Momentum

• Money Flows

• Stochastics

I’d recommend looking at these and others one at a time and learning how they work and ultimately assembling and building a group that work for you. We also discuss this in great detail in my book Exponential Gains.

Prince: What are some of the main areas investors should be looking at for the next great companies to emerge?

Walsh: First, of course, is artificial intelligence (AI). We are witnessing the beginning of a revolution in how we work and live similar to the development of the PC ecosystem in the 1980s and the Internet in the 1990s. We think the same thing is going on right now.  

AI promises to change how we live and work. Billions of dollars are going into the development of AI, and we believe it will be a theme to watch for great investments for a decade to come.  

That absolutely does not mean to go out and buy all the AI ecosystem names today. We’ve got a long road ahead of us and there will be plenty of volatility, so dollar cost average into the leaders using that volatility and watch for other players to enter around the margins like data centers, chip development, and robotics.

Innovation drives growth, so we can’t only focus on AI. Other sectors that should be watched closely include:

• Autonomous driving

• Battery technology innovation

• Biotechnology

• Carbon capture technology

• Cybersecurity

• Quantum computing

• Robotics

• Space exploration

• Water purification/desalinization technology

Remember to create your own objective checklist and integrate it into your investment process. By doing so, you can leave emotion at the door and establish a strong foundation for identifying and managing future opportunities in great companies.

Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.