You might think that, in an era when so much information is available online, using special investment-related software is a waste of time and money. Not so.
Many financial websites and online brokers offer investors basic share price charts. However, specially designed investment software can offer them functionality basic investment tools can’t: it can call on data of great breadth and accuracy and accomplish even highly sophisticated tasks at great speed; some products can screen data according to preset criteria; and most investment software can carry out portfolio accounting chores, including capital gains tax calculations and performance measurement.
The market divides naturally into two broad product categories: generalist products, most of which incorporate fundamental data as well as technical analysis indicators, and a second category (which I’ll cover next month) that includes more specialised programs that perform proprietary share valuation, use market timing techniques, value options and provide support for a number of other trading methods.
Generalist software includes a couple of big names – Sharescope and Updata. Sharescope has been heavily marketed over a number of years and has many users. In recent years, Updata has focused heavily on the professional investor market.
Both companies use a subscription-based model for their offerings, which are available in a range of variants, depending on whether users want real-time, delayed or end-of-day data updates. Both firms’ products incorporate fundamental data on a wide range of shares into their calculations. Sharescope’s comprehensive offering has recently been modified to incorporate economic data and US share prices.
Sharescope’s products are marginally cheaper. The company charges £36 per month including VAT for 15-minute-delayed data, while Updata charges £49 per month plus VAT for its equivalent, Trader Pro, product. Sharescope also offers an inexpensive end-of-day data option for £18 per month. However, a one-off £79.95 membership fee is levied on all Sharescope subscriptions.
Whether you need real-time, delayed or just end-of-day data will depend on the type of investor you are. If you deal long term and don’t trade actively, end-of-day data is sufficient. Active traders, dealing several times a day, need real-time data. Internet delivery of data makes the updating process easy.
However, what all investors really need from software providers is consistent, accurate data. Sharescope’s general manager, Tim Clarke, says: “You want to be confident that you are making a decision based on high-quality data”.
Opting for lesser-known products from smaller suppliers can work out cheaper in the long run, partly because of the way the data is priced. For example, Meridian Software’s Stockmarket Investor 3 program costs a one-off £129.95 plus VAT, but a subscription to its data service for closing prices only costs a further £35.95 plus VAT per year.
This program incorporates most of the basic chart-drawing and analysis functions offered by Sharescope and Updata software, but no fundamental data is included. The program also has a sophisticated portfolio management module that allows easy calculation of profits, losses and capital gains liabilities, as do others in the Meridian range.
“Most programs started off as charting software and then added a portfolio management aspect later. We did it the other way round, and we think our way is better,” says Meridian’s Andrew Lewis.
Winstock Software’s product, The Analyst, includes a portfolio management module and a reasonable range of chart formats and analysis tools. The package also includes a modest amount of fundamental data in the form of company results. The basic cost of £129.95 plus VAT includes daily price updates by email. It’s worth opting for a price scanner add-on, which costs an extra £69.95 plus VAT.
Your choice of investment software will depend on the depth of your pocket, the sort of investor or trader you are and whether you want features such as sophisticated portfolio accounting, capital gains tax calculations, fundamental data and market scanning. Most software companies have a page that summarises the features of their products on their websites. Some offer a free trial or demo compact disc so that you can try before you buy.
Take advantage of a free trial before you purchase any software. No amount of paper comparisons can substitute for getting to know a product and how it works in practice. Ease of use is important. If a product is clunky and cumbersome to use, you probably won’t get value for money from it.
There are several ways of using investment software to improve the performance of a portfolio:
• The market can be scanned for shares that satisfy specific technical analysis criteria.
• Shares can be selected according to predetermined fundamental criteria and share technicalities examined to determine the optimum time to buy and sell.
• The software can be used to determine the most promising investment ideas.
Sophisticated software can scan a list of shares for those that meet specific technical analysis criteria with ease. A typical search might seek out shares where the 10-day moving average has just crossed the 30-day moving average and where both averages are rising, an unequivocally bullish sign known as a ‘golden cross’. Many traders look to automate this type of pattern recognition approach and trade quickly on the back of positive signals.
The more sophisticated products incorporate wizards or input screens that allow investors to set up filters to identify these patterns as frequently as required.
Most investment software packages, irrespective of their cost and sophistication, can be configured to provide audible or visible alerts when shares hit certain key chart levels, drop to a fancied buying price or rise above a predetermined selling price.
Sharescope’s software is particularly good at using fundamental data as an initial filter. The product has a data-mining feature that allows a shortlist of companies displaying particular characteristics to be generated.
You might, for example, want to look at all FTSE 100 (UKX) companies with a yield greater than 6% and projected dividend cover greater than 1.5. Using the software, only four companies in the FTSE 100 satisfy this screen: Resolution (RSL), Aviva (AV.), Standard Life (SL.) and National Grid (NG.).
Each company can then be examined in turn to see which has the most promising share price pattern, based on technical criteria such as support and resistance, the relative position of moving averages, share price momentum, regression analysis and other techniques.
Of the four shares, only National Grid looks to be in an intact uptrend and is below its long-term trendline, although at the time of writing the share’s recent appreciation had arguably extinguished some of the short-term potential.
Using media share tips can be a mistake. Inevitably, error creeps into the selection process. You might not see the best tip or you might pay too much attention to an unreliable tipster.
However, any tips you may be tempted to use should be checked out thoroughly against fundamentals, recent news and the technical position of the share price. Sharescope is a good product for doing such a quick and comprehensive check.
The golden rule here is to only buy when everything checks out. You might miss out on some of the more speculative opportunities, but your investment decisions will be sound.
Above all, have a firm idea of the point at which you will exit if things go badly, and set an alarm that will trigger when this price is reached. Taking losses quickly is a crucial part of improving the investment odds in your favour. It’s best to do this in such a way that the emotion is taken out of your decision making. An alarm from a piece of software that you use every day can help do that.
Investment software jargon buster
Technical analysis: the use of share price movements to attempt to predict future price movements, and to time buying and selling decisions
Fundamental analysis: the use of data from company accounts and other information to establish a correct underlying share value
Moving averages: the creation of a chart from share price averages over a set number of days to eliminate random ‘noise’ from the data
Price scanning: a feature available with some investment software that allows many price charts to be examined for technically significant patterns
Support and resistance: key levels on a price chart where previous buying and selling actions might create share price ’stickiness’
Regression analysis: a statistical technique that calculates a trendline and measures the confidence with which trades can be initiated at specific prices.