Capital Flow Analysis: Step by Step Tutorial

Lesson: 21 |22 | 23 | 24 | 25 | 26 | 27 |28 | 29 | 30

Investment Theory: Capital Flow Analysis Tutorial: Investor Education Capital Flow Analysis: Step by Step Tutorial

These ten lessons provide a practical guide on how to use Capital Flow Analysis to reveal the forces that drive securities markets.

Reading time for this module is from five to nine hours.

For a thorough understanding, follow the links and read books on the lists.

To check your progress, take self-quizzes on each page.

Lessons in Capital Flow Analysis

21:  Reading Flow Sheets

This lesson explains how to use this site for Capital Flow Analysis and the basics of reading flow sheets.

You learn the difference between sectors and instruments, levels and flows, and how to organize your research sources for quick analysis.

Lesson213,700 words. 5 pages. 15 to 25 minutes.

22:  Are Prices Reasonable?

Once the sector table for the market you are studying is located, along with supporting resources, the next step is to identify the motivated sectors.

An understanding of the Motivation and Irrationality Axioms is fundamental to Capital Flow Analysis.

Lesson223,300 words. 2 pages. 12 to 22 minutes.

23:  Big Player Flows

Some players are more important than others when trying to explain security price trends.

Aids on this site, such as coding conventions on flow tables and the "Last Quarter Summary", help to quickly identify the most important players in a particular market.

Lesson 232,800 words. 2 pages. 11 to 20 minutes.

24:  Explaining Flows

There are two levels in the process of explaining the flow of funds for the purposes of Capital Flow Analysis. 

The first level is simply reading the flow tables and understanding the obvious implications.

Lesson 242,800 words. 5 pages. 11 to 20 minutes.

25:  Seeking Motives

We can not properly interpret flow of funds data unless we know the motivation of sectors that are acquiring or disposing of assets, and borrowing or paying down loans.

Problems in determining sector motivation and in discussing motivation with clients are explored.

Lesson 254,100 words. 4 pages. 15 to 30 minutes.

26:  Spotting Weakness

With a thorough understanding of flow of funds trends and sector motivation, capital flow analysts are in a position to note structural weaknesses in the market.

Spotting institutional cracks and recognizing common triggers for crises, gives the analyst an advantage in predicting market trends.

Lesson 263,700 words. 4 pages. 15 to 25 minutes.

27:  Flows in Context

The product of Capital Flow Analysis is the synthesis of observations from reading flow of funds accounts in the context of prices, asset values, and historical and sociological trends.

In presenting an opinion, the analyst should be aware of likely objections from practitioners with other views.

Lesson 274,700 words. 5 pages. 20 to 30 minutes.

28:  Watch the Horsemen!

Price trends driven by capital flows may be reversed by 'exogenous factors' that we call the 'Five Horsemen of the Investment Apocalypse'.

To keep a forecast current, we may use Internet resources and supplemental reading to watch the 'Five Horsemen' for triggers that might reverse price trends.

Lesson 283,300 words. 3 pages. 13 to 22 minutes.

29:  Asset Allocation

Capital Flow Analysis aims to use medium and long-term market forecasts to guide asset allocation decisions.

Market price covariance is the foundation for both Modern Portfolio Theory and Capital Flow Analysis.

This lesson discusses the various kinds of asset allocation decisions relevant to Capital Flow Analysis.

Lesson 295,600 words. 2 pages. 22 to 37 minutes.

30:  Innovation

The capital flow analyst will normally notice areas in which the health of the market might be improved by new products, institutional changes, or better government policy.

This lesson highlights some important innovations in the U.S. financial market over the last fifty years.

Lesson 304,400 words. 2 pages. 17 to 30 minutes.

Case Study: Brazilian Equities, 1971

The brief six-month bubble in the Brazilian stock market in the first half of 1971 was driven by a well-defined set of capital flows that went unrecognized by many market players at the time.

This case study shows how the principles of Capital Flow Analysis may be applied even in markets without national flow of funds accounting.

Case Study Brazil 1971: Practical Capital Flow Analysis38,300 words. 26 pages. 2 hours 33 minutes to 4 hours 15 minutes.

Case Study: U.S. Equities, 2000

Historic turning points, such as the market top of 2000, do not occur that often. Capital Flow Analysis provides reasons on when to stay invested and when to get out of a market.

This case study shows an application Capital Flow Analysis relevant to the themes, essays, and lessons on this site.

Case Study USA 2000: Practical Capital Flow Analysis4,900 words. 3 pages. 20 to 33 minutes.


copyright | privacy | home