I'm gonna make a Motza today - the Bull is rampaging!

[cuttlefish]

interesting. so trading systems have fashions and trends as well. A trading system (e.g. DOW) that worked in the 30's became too popular in the 40's and no longer worked - meaning everybody would have started to move away from it - allowing someone (a countercyclical investor) to start using it again succesfully later on. Thus leading to a new rise in its popularity causing it to not work anymore and people to leave it again.

Similarly a trading system developed in the 70's attracted so much attention it became useless, but maybe reapplying it now in the 2000's when everyone's forgotten about it could work.

In fact the same logic could be applied to value (aka Graham) style investing - which the traders would say is just another trading system - maybe if it becomes too popular it won't work either - people will recognise value situations arising and start to buy before the stock reaches a true value point - until ultimately they are buying when its not actually valuable and the whole thing defeats itself.

So realist - its true what you say - find something of your own that works, and do it and ignore everybody else.

and if it sounds like I'm rambling its probably because I've had a couple of glasses of wine ... (plus the odd beer before that )

 

[wayneL]

In fact the same logic could be applied to value (aka Graham) style investing - which the traders would say is just another trading system - maybe if it becomes too popular it won't work either - people will recognise value situations arising and start to buy before the stock reaches a true value point - until ultimately they are buying when its not actually valuable and the whole thing defeats itself.

Precisely!

In fact, I think that is evident even as we speak. Where is the value? There certainly is no value in the market as messrs, Graham, Buffett, Munger, et al would define it. Today we have mostly spec value, even in the stalwarts.

I think Ducati summed that up rather well with his BHP and RIO valuations over at RC.

Cheers

 

[cuttlefish]

Precisely!

There certainly is no value in the market as messrs, Graham, Buffett, Munger, et al would define it. Today we have mostly spec value, even in the stalwarts.

I think Ducati summed that up rather well with his BHP and RIO valuations over at RC.

Cheers

dead right - I don't see any Graham style value around and haven't for a couple of years (not that I've been looking hard though). I'm mainly cash apart from a few smallish holdings and mucking about with options. I've sold some property as well 'cos I don't see value there either. I missed commodities altogether though (apart from shorting it over the past month or so).

Be interesting to see if cash comes around.

 

[mit]

"From 1938 on the Dow theory operated mainly by taking its practicioners out at a pretty good price but then putting them back in again at a higher price. For nearly 30 years thereafter, one would have done appreciably better by just buying and holding the DJIA"

Ben Graham, Intelligent Investor page 191

However...

He admitted up to 1938 it did infact work. And took people out 1 month before the biggest crash of all in 1929 and kept them out till the bear run was over.

The fact is, as soon as Wall St. recognised and accepted the Dow theory it then did not work. Which is no coincidence. If everybody worked out petrol was alot cheaper on a Monday - everybody would start buying on a Monday, eventually service stations would cotton on, stop discounting on Mondays to make some money, and discount on other days to get buyers to come to their empty stations. Thus Monday is no longer the cheapest.

To succeed on Wall St you need to do what others aren't.

If you'd read my link

Over the 70-year period, the Dow theory system outperformed a buy-and-hold strategy by about 2% per year. In addition, the portfolio carried significantly less risk. If compared as risk-adjusted returns, the margin of out-performance would increase.

this study would have been done after Graham's books. Also as a technical indicator it would lag too much, but is good to give signals to long time investors so they could conserve their money to buy bargains near the bottom of the market.

I think a lot of people come to these forums with a single idea and defend it to the death.

I like to separate myself from my ideas. I have read a lot of t/a books I have also read a lot of books on fundamentals. I have read studies on trading opposite to the usual fundamentals (There was a study that bought p/e stocks which outperformed the market). I have read "A random walk down Wall Street" and read the studies that debunk a lot of what is in there. I've also been skeptical. I look at fibs and think how could they work but after spending some time with charts see that they do work.

I think that to be a superior trader or investor you need to challenge your own ideas honestly and not just read things which bolster your own view and use logical fallicy "Argument from Incredularity".

MIT

 

[wavepicker]

I disagree..

Any buy and hold investor who sells because of some old technical theory is a fool.

Tax and Brokerage would reduce any gains (or avoidance of losses), if there were any.

It can't predict war breaking out, a huge uranium find in Olympic Dam, interest rates for home owners, Chinese govt policy, governments compulsory superannuation, or a hurricane taking out US oil. These things are in the hands of the gods - not in some old theory.

Hey Realist, get real

When does a buy and holder know when to fold them? No entry strategy, no exit strategy, just hold on, and have love affairs with companies!! No plan at all. If I followed your regime I would still be in the doldrums, from 15 years ago. It took a nice bear campaign to wake me up, that this takes work and effort.

A technical theory does not need to predict war, hurricane or any other event. Only to help with probabilities of price movements.
If you like to hold and wait for the next bad news report to tell you when to get out then good luck


I think both TA and Fundematals have each good and bad points going for them. It's up to us to utilize them

 

[shasta]

Hey Realist, get real

When does a buy and holder know when to fold them? No entry strategy, no exit strategy, just hold on, and have love affairs with companies!! No plan at all. If I followed your regime I would still be in the doldrums, from 15 years ago. It took a nice bear campaign to wake me up, that this takes work and effort.

A technical theory does not need to predict war, hurricane or any other event. Only to help with probabilities of price movements.
If you like to hold and wait for the next bad news report to tell you when to get out then good luck


I think both TA and Fundematals have each good and bad points going for them. It's up to us to utilize them

yep agree wavepicker

there's nothing wrong with buy and hold investors selling when medium to long term trends change and hence take advantage of the compounding affect of selling close to the peaks and buying again at lower prices close to the next trough

and I agree with using both TA and FA

 

[cuttlefish]

When does a buy and holder know when to fold them? No entry strategy, no exit strategy, just hold on, and have love affairs with companies!! No plan at all.

don't know about buy and holders, but a fundamental investor still knows when to fold 'em - and thats when the value isn't there any more - either because profits have fallen or the stock price has risen way too far.

 

[wavepicker]

don't know about buy and holders, but a fundamental investor still knows when to fold 'em - and thats when the value isn't there any more - either because profits have fallen or the stock price has risen way too far.

You have some valid points,

but sometimes if there is even a slight smell of a poor formal announcement about profits, then it may be too late.

Also about a stock rising, how far is too high a price anyway? How are you measuring price and in relation to what datum?

 

[mit]

don't know about buy and holders, but a fundamental investor still knows when to fold 'em - and thats when the value isn't there any more - either because profits have fallen or the stock price has risen way too far.

A technical investor would say before he bought a stock. It's currently going nowhere at the moment so I'll wait for it to start moving before I buy it. I know that I will miss some of the move but I wont get caught if the business goes bad before it moves up.

A technical investor holding a stock would also say if it goes down a certain amount, I'll sell. I'll do something else with my money and wait until it comes back up and buy back in.

So the main difference is that a technical investor will say instead of capturing the entire run, I'll go for 50% of the trend but I'll do it more often not having money tied up in stocks that are going nowhere or going down.

 

[cuttlefish]

Also about a stock rising, how far is too high a price anyway? How are you measuring price and in relation to what datum?

fundamental investors can apply metrics in the same way as traders. I'm not about to go into details but suffice to say that if you have a way of valuing a stock then you have a way of saying its over valued.

Any form of investing is the same - a proven system applied with discipline and taking out the emotion. Removing emotion is always the difficult part to my mind - its what causes people to deviate from their system (thats if they even have a system, I'd bet that the majority don't).

but sometimes if there is even a slight smell of a poor formal announcement about profits, then it may be too late.

that definitely applies with an overvalued stock. with an undervalued stock it can also apply, but from my experience if you're doing your research you've got a fair idea of the state of play before the black cloud descends, and again as long as you can take the emotion out of it (waiting for things to get better) you can usually manage to get out ok.

 

[cuttlefish]

A technical investor would say before he bought a stock. It's currently going nowhere at the moment so I'll wait for it to start moving before I buy it. I know that I will miss some of the move but I wont get caught if the business goes bad before it moves up.

A technical investor holding a stock would also say if it goes down a certain amount, I'll sell. I'll do something else with my money and wait until it comes back up and buy back in.

So the main difference is that a technical investor will say instead of capturing the entire run, I'll go for 50% of the trend but I'll do it more often not having money tied up in stocks that are going nowhere or going down.

This is my take on tech vs fundamental (lifted from a post I made in the tech vs fundamental thread). I think a combination of both is the ideal, though I'll always put precedence on fundamentals.


A fundamental investor is trying to pick assets that compare well to other assets that are available (including other stocks, bonds, property, cash etc.)
They do this based on looking at the income that can be received when compared to the cost of the asset (income doesn't have to be dividends - the profitability of the company is income), and the potential growth of that income compared to income growth that can be achieved from other assets.

Capital gains are not a strong focus for a fundamentals based investor, but often are a by-product of fundamentals based investing.


A technical trader is trying to pick the current market sentiment/psychology surrounding a particular stock or sector. All people that have bought shares are aware of the power of emotion, and as a result 'crowd' behaviour is to some extent predictable and follows repeatable patterns. These are the patterns that chartists look for. They then try to capitalise on a particular psychology by either backing a trend (e.g. identifying a breakout and running with the herd untill it runs out of steam), or trading against the psychology of a trend (e.g. selling at the top of a range bound stock and buying at the bottom of that range -i.e. against the psychological trend).

There is plenty of room for both techniques - one is a more active process and more akin to running a business. The other is a more passive approach.

 

[Realist]

A technical trader is trying to pick the current market sentiment/psychology surrounding a particular stock or sector.

A fundamental investor is doing that but doing the opposite.

They are trying to find a good longterm sustainable industry that is very much out of fashion and performing badly at the moment - hence it is cheap.

They then buy and hold, sure enough their stock may become the fashionable stock eventually and possibly become overvalued and they will consider selling then.

A Fundamental investor would now consider the wine industry, telecommunications, maybe steel, property, etc.

All are cheap at the moment and will surely have their time in the sun in the future. In 30 years time people will drink wine, go to Westfield or rent a building, own property and use phones.

I only get interested in a stock if it goes down - the exact oppoiste of a tech analyst.

Show me a company/industry that is making a profit but the share price is going down and i'm interested.

 

[michael_selway]

I think Ducati summed that up rather well with his BHP and RIO valuations over at RC.

Cheers

whats RC?

thx

MS

 

[Realist]

In fact the same logic could be applied to value (aka Graham) style investing - which the traders would say is just another trading system - maybe if it becomes too popular it won't work either - people will recognise value situations arising and start to buy before the stock reaches a true value point - until ultimately they are buying when its not actually valuable and the whole thing defeats itself.

Value investing has never and will never be in fashion.

Just like eating healthy and regularly exercising will never be the weight loss fashion.

It is too simple and too boring and requires far too much discipline.

People love to make simple things difficult.

People want to make money quickly. The very idea of buying a share, reinvesting dividends and forgetting about it for 40 years is abhorrid to most people. Why not day trade yourself into an instant millionaire instead?

The very idea that you have to eat healthy and regularly exercise every day for the rest of your life is unpallatable, people want to just buy an AB-blaster and excercie for 4 minutes a day and be slim forever.

People want and need instant gratification. There is no way most people will ever patiently invest and eat healthy and exercise daily.

 

[GreatPig]

whats RC?

ReefCap

GP

 

[wavepicker]

All are cheap at the moment and will surely have their time in the sun in the future. In 30 years time people will drink wine, go to Westfield or rent a building, own property and use phones.

Anyone can buy and hold for 30 yrs. Hell!! I will be dead in 30 yrs!! How boring.
After the crash of 29 many folks had to wait 25 yrs to get their $$$$ back. More recently, the in Japan, people are still waiting. So what do most do when they come square, what comes natural, sell. That is when they should keep holding. But who is gonna wait another 25 yrs!!!

 

[MichaelD]

People want to make money quickly. The very idea of buying a share, reinvesting dividends and forgetting about it for 40 years is abhorrid to most people. Why not day trade yourself into an instant millionaire instead?

Sounds good in theory but this is simply not true. The majority of market participants in Australia are buy and hold investors. Unfortunately, a lot of them bought and held Telstra 2.

 

[Realist]

Sounds good in theory but this is simply not true. The majority of market participants in Australia are buy and hold investors. Unfortunately, a lot of them bought and held Telstra 2.

No they aren't.

The majority are large organisations who buy and sell. Not buy and hold forever.

Yes mums and dads lost on Telstra - who has not lost on a share at least once?

As long as they diversified so that no more than 5 to 8% of their portfolio was in Telstra they were not out of pocket - at least the dividends were ok. The other 95% of their portfolio probably included winners like BHP, CBA and others somewhere as well. They'd be well ahead, infact probably doubled their money in the past 3 years alone.

It is simply impossible for a buy and hold investor to lose (inflation indexed) over the longterm (30 years or more) if they buy large successfull companies that have made good profits over the past 10 years. If they buy them when the price is down a bit and they diversify widely across sectors even across countries and hold for as long as possible but sell if the company makes a loss, and reinvest dividends.

Maybe they'd have HIH, Telstra and some other duds, even still it'd be almost impossible to find 20 companies that consistently made profits that went under without making a loss first.

Just like it is impossible not to lose weight if you are overweight and eat healthy and exercise every day.

People wont do it though.

Anyone can buy and hold for 30 yrs. Hell!!

Actually virtually no-one can. People want to live in the moment. Warren Buffett is a freak - he drives a boring car, lives in a cheap house, he is not driven by what money offers him - bascially everyone else is.

The thought of being rich in 30 years is not appealing. We want to be rich now!!

 

[shasta]

..........It is simply impossible for a buy and hold investor to lose (inflation indexed) over the longterm (30 years or more) if they buy large successfull companies that have made good profits over the past 10 years. If they buy them when the price is down a bit and they diversify widely across sectors even across countries and hold for as long as possible but sell if the company makes a loss, and reinvest dividends...................

Technically you'd have to be very unlucky or stupid to not be infront after 30 years but you could still 'lose' if you take 'opportunity loss/cost' into account.

After 30 years a stock might be only 200% (including divs) up on what you bought which equates to an annual return of only 3.73%pa compound.

What was talked about earlier is the affect of compounding that even long term buy and hold investors can use by selling close to medium/long term peaks and buying again in the subsequent medium/long term troughs and hence increas their returns greatly over the long term over someone who simply buys and holds and never sells.

I use both technical and fundamental analysis to help time these sell/buy points

 

[wavepicker]

No they aren't.


It is simply impossible for a buy and hold investor to lose (inflation indexed) over the longterm (30 years or more) if they buy large successfull companies that have made good profits over the past 10 years.

This is simply not true. In the market ANYTHING is possible. The market will do what it wants. Not what you expect, hope,or want it to do.
Just look at ENRON and god knows a how many other companies throughout history that have gone belly up.
What seems logical in the market is usually what does not happen