Technical analysis for the Value investor?

[TheBull]

Hi All,

Hoping to get some feedback from dyed in the wool Value investors or day traders.

As a follower of value investing in finding companies whose intrinsic values are 30%> than share price and holding for the long term, which value investor's out there use TA to judge when a sound entry point should be?

It seems that Value investing does not value TA when it looks to me to be a valuable short term tool. If a stock has a downward trend (or whatever as I have no knowledge of TA and how to read charts) then why would a value investor buy? A value investor should be cogniscant of the trending and understand that waiting is in their interests as short term bear behaviour, for whatever reason will continue to drive the share price south and hence increase those lovely long terms gains.

Does anyone have any opinions here?

Thanks.

 

[explod]

In fact the contrary is true. Very many ASF members follow both in assessing investments or trades I make the distinction as in my view there is a difference. I am for example longer term than most so look for a healthy trend. However before embarking on a buy I do a very careful study of the company first. I also take into account the financial situation (where the markets may be heading) and soveriegn risk. ie. Oil Search being effected by problems with locals living in the area.

A great trade for me has been OGC, they are a producer, they are in New Zealand and gold also has been in a healthy trend. LGL I gave away some time ago due to its location, on a volcanic fault line and some soveriegn risk in my view too. They have more recently diversified but are being swallowed I think by Newcrest.

 

[-Bevo-]

I don't worry about fundamentals anymore just price action, you can go to Colin Nicholson's website probably purchase his book he has written alot about value investing and using T/A some of his stuff is very simple and works well it might be what your looking for.

http://www.bwts.com.au/

 

[tech/a]

Technically you buy a stock because you believe that at the time of purchase it isnt going to trade lower than your buy price until after youve sold it.
Technically you sell because you dont think a stocks price will continue to rise above that which your about to sell it at.

As has already been pointed out "Value" in a fundamental sense may not be evident in price as quickly as a technical
indicator or group.
Value may also alter to the point where todays value is tommorows TRUE value.

 

[TheBull]

Thanks for the responses.

So if I were looking for the ability to get a overview of TA so I can spot trends and ensure I do not buy a stock on the cusp of a downslide - where would I start? Any books anyone could recommend?

I did ask some Value investors and they dismissed my question as invalid as Value investors do not waste time with TA... Their words not mine.

 

[tech/a]

Thanks for the responses.

So if I were looking for the ability to get a overview of TA so I can spot trends and ensure I do not buy a stock on the cusp of a downslide - where would I start? Any books anyone could recommend?

I did ask some Value investors and they dismissed my question as invalid as Value investors do not waste time with TA... Their words not mine.

Buying a new high after "N" periods is a valid method.

If you have a stock which you find is Undervalued you could buy it on the next newest highest high of say 30 periods or 60 or 90 or whatever.
That way your buying your undervalued stock as its heading in the direction of your calculated fair value.

If ofcourse its making new lows then your current under valuation is probably going to become fair value
.

 

[Boggo]

Hi All,

Hoping to get some feedback from dyed in the wool Value investors or day traders.

As a follower of value investing in finding companies whose intrinsic values are 30%> than share price and holding for the long term, which value investor's out there use TA to judge when a sound entry point should be?

It seems that Value investing does not value TA when it looks to me to be a valuable short term tool. If a stock has a downward trend (or whatever as I have no knowledge of TA and how to read charts) then why would a value investor buy?

TheBull, a brief comparison of TA vs FA.
I would be more interested in the exit point of some of these fundamental stocks, there seems to be a tendency to hold because they are fundamentally sound.
Have a look at the TLS chart below, two options, use a bit of intelligence and save your money by getting out or stay in and complain on numerous forums about how the NBN, the government etc etc is costing you money on your Telstra shares, but you do get a 14 cent dividend

I don't worry about fundamentals anymore just price action, you can go to Colin Nicholson's website probably purchase his book he has written alot about value investing and using T/A some of his stuff is very simple and works well it might be what your looking for.

Agree Bevo. If you tip the TLS chart upside down for the same period (since last August) you will end up with a chart of SBM.

I know which one I would rather be trading.

(click to expand)

 

[TheBull]

Buying a new high after "N" periods is a valid method.

If you have a stock which you find is Undervalued you could buy it on the next newest highest high of say 30 periods or 60 or 90 or whatever.
That way your buying your undervalued stock as its heading in the direction of your calculated fair value.

If ofcourse its making new lows then your current under valuation is probably going to become fair value
.

This post was originally posted in the newbie section and was moved here. I posted in the new section as I am new to investing/trading - whatever.

Techa - your text above confused me but then the terminology may be misleading me. Why would I use TA to buy on the next highest high would I not want to buy it on the next lowest low? The logic seems reversed to me.

I just read this section from a tutorial on Investopedia - "Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved."

This is where I am coming from with the initial view of an investor and can see merits in a blending of both methods - rather than oil and water they are complimentary in my eyes.

Thanks for the comments so far.

 

[tech/a]

Techa - your text above confused me but then the terminology may be misleading me. Why would I use TA to buy on the next highest high would I not want to buy it on the next lowest low? The logic seems reversed to me.

Excellent you are questioning "The obvious" If all was that obvious then all would be successful---easy eh!!

If a stock is falling and you can tell me in advance where it will stop then you needn't worry about investing---you'll be very valuable!
Its not possible to know where a bottom is until it has moved away with enough conviction to be seen as a pivot low.
So yes you would be looking for either an established low spike OR an accumulation pattern (Period of flat trading base).Then a breakout from this low pattern.

You dont want to guess where the low is---you need to know with some certainty that the low is set.

 

[DeCal]

Colin Nicholson is an advocate of TA combined with FA over a longer time horizon. Look him up, he's got a decent newsletter, though I think it's become slightly less informative over time. He's got some great presentations posted on the ASX.

We have an interview with Colin and his style of active investing posted up here at www.student2trader.com/trader-interviews/active-investing

here's a great part:

Since that time you've been much more focused on combining technical and fundamental analysis to form your own unique investment style, would you be able to give our readers an insight into your investing strategy?

Actually, I am going to disappoint you a bit on this one. My complete investment plan is set out in my book Building Wealth in the Stock Market. You may not believe it (many don't), but EVERYTHING I do is in the book. So, to find out what I do, you need to read the book. If I tried to explain it all here, it would be a re-write of the book and take months.

However, I will comment on one very important aspect:

Fundamental analysis gives insights into relative value, but little with respect to timing. I use some key ratios to help me to buy relatively undervalued companies and therefore give me a margin of safety.

Technical analysis (charting mainly) gives insights into timing, but little with respect to value. I use charting to time my entry, position-building, sell stops and exits.

Using them properly in this way gives me the best of both worlds, because I use them for what they are good for.

I don't regard what I do as being unique. I have learned everything I know from those who have gone before me. None of it is original”š there are few truly original ideas in investing. The only thing that distinguishes my methods is the way I have combined all the elements into a complete investment plan.

Personally he was the start of my interest in technical analysis.

Regards
Decal