One of the most daunting aspects of security analysis for fundamental analysts is the incredible growth in global equity securities. Even for those fundamental managers with a mandate of investing in only a slice of this universe, segmented by size or style for example, trying to gain a working understanding of each of the company’s financial statements, company management, industry trends, and geopolitical considerations is an overwhelming task to say the least.
The figure below shows the total number of equities available in the global market. This total is 8,462 which is based on those included in the MSCI ACWI. This index provides a useful proxy and includes the majority of stocks traded on the major exchanges around the world. The market capitalization of this universe was approximately $27 trillion at September 30, 2009.
Source: BNY Mellon
Looking at this another way, the figure below shows the break-down by percentage of world market capitalization.
Source: BNY Mellon
For the technical analyst, it is a different story. In the context of relative strength models, the more the merrier. Price is the only input used to construct the relative strength ranks which in turn determine the buy and sell decisions within the model. If a given investment universe expands by 20% over a period of time, our models are no less comprehensive in their analysis. I doubt that the same can be said for the fundamental analyst.
