Technical Analysis vs. Fundamental Analysis

Tysonboss1 · 21 October 2010

tech/a said:
The only thing that matters in my view if you hold a portfolio of 1 or 50 stocks is that over a given period you can profit from that portfolio to an extent greater than you could have invested the moneys elsewhere.

I think if you hold more than 20 stocks it becomes difficult to out perform the market, so it my be easier to just hold an index fund.

tech/a · 21 October 2010

Tysonboss1 said:
I think if you hold more than 20 stocks it becomes difficult to out perform the market, so it my be easier to just hold an index fund.

Was just making a point perhaps with a little too much exhuberance.

Tysonboss1 · 21 October 2010

Synergy said:
When is your analysis proved wrong?

When there is a material long term change in the companies earning power or ability to continue to generate share holder returns.

If a company is generating strong cashflows and using these effectively to fund growth the share price will eventually follow.

Tysonboss1 · 21 October 2010

Re: Technical Analysis vs Fundamental Analysis

Rafa said:
actually there is a higher level of maths in technical analysis than in fundamental analysis...

fundamental analysis (and accounting) is just addition, subtraction, multiplication and division, the stuff you learn in primary school...

!

Thats must be why I favor fundamental analysis, Addition, subtraction, multiplication and division is the limits of my skills,

Trend following and T/A are both short term tools suited to traders.

Investing however requires a much more longterm approach, and T/A doesn't quite cut the mustard for a longer time frame.

Each to his own, we need both traders and investors in the market and each will use the right tool for the job, ( hopefully ).

Julia · 21 October 2010

So_Cynical said:
Trendy's need to make the most of there winners because they have so many losers....i can take 10 and 15% profits because i have lots of winners and the sooner i turn my money over the sooner i get the next winner.

This is the sort of silly remark that irritates me. You don't know any such thing. Give some proof of this allegation which, as far as I'm concerned, is nonsense.

There should be no reason why we cannot have a sensible discussion about different approaches. Why is there always this competitive sniping that's so childish? Newbies are going to be reading this thread and, instead of learning something, are probably going to be simply confused.

By the way Julia...hows that 8% Term deposit working out for you? :

I'm very happy indeed about it, given that rates have since fallen considerably.
You don't imagine I have locked all my cash away in a term deposit, do you?

Just on the passivity of having funds in cash, though, the last several months is the first time for years that I've had quite a bit still in cash and it's surprisingly addictive! Don't have to think about it, no decisions to make, while it quietly produces more than enough to live on. Certainly not a long term proposition, but it's very comfortable for while.

Tysonboss1 said:
Investing however requires a much more longterm approach, and T/A doesn't quite cut the mustard for a longer time frame.

Each to his own, we need both traders and investors in the market and each will use the right tool for the job, ( hopefully ).

Tyson, I understand what you're saying here, but trend following doesn't necessarily imply short term trading. If a stock continues in a steady uptrend, there's no reason not to hold it indefinitely.

Agree absolutely there's a place for different approaches, which is why the competitive sniping is so silly.

So_Cynical · 21 October 2010

Julia said:
This is the sort of silly remark that irritates me. You don't know any such thing. Give some proof of this allegation which, as far as I'm concerned, is nonsense.

There should be no reason why we cannot have a sensible discussion about different approaches. Why is there always this competitive sniping that's so childish? Newbies are going to be reading this thread and, instead of learning something, are probably going to be simply confused.

Perhaps your individual style of trend following differs from the mainstream of trend following? i thought it was common knowledge that trend followers typically have more losers than winners....necessitating the need to never average down, accept small (5% losses) and move on etc.

My key understanding of trend following is that the rules must be followed at all times, somewhat mechanically....and its the following of all these rules that enables the trend follower to profit even thought the majority of trades are losers.

Perhaps ive got it all wrong. :dunno:

--------------

As far as im concerned this is a sensible enough discussion and its probably best if you consider my "sniping" to be more light hearted as intended.

Boggo · 21 October 2010

Hey So_Cynical.

I will post my trading account technical analysis closed results and current open positions for this FY if you will post the same for yours based on fundamental analysis for this FY.

I'm game

tech/a · 21 October 2010

So_Cynical said:
Perhaps your individual style of trend following differs from the mainstream of trend following? i thought it was common knowledge that trend followers typically have more losers than winners....necessitating the need to never average down, accept small (5% losses) and move on etc.

My key understanding of trend following is that the rules must be followed at all times, somewhat mechanically....and its the following of all these rules that enables the trend follower to profit even thought the majority of trades are losers.

Perhaps ive got it all wrong. :dunno:

--------------

As far as im concerned this is a sensible enough discussion and its probably best if you consider my "sniping" to be more light hearted as intended.

If you have a winning trade Ill guarentee youve been riding a trend.
REGARDLESS of length of time---dont care what analysis you use.
Price has to have moved to above your entry price to reap a profit. (If trading long) wether that be in 5 minutes or 5 years.

The arguements are really stupid no point in arguing.

All anyone does in any form of analysis is place themselves in a position of potential profit which in the end proves correct or incorrect.

Nothing wrong with being in correct its the length of time you STAY incorrect which is important.

Boggo · 21 October 2010

Good post tech/a.

Because my 1000th post addresses your 9000th post I think I should probably retract my 999th post as it wouldn't really prove anything

Cheers

So_Cynical · 21 October 2010

Boggo said:
Hey So_Cynical.

I will post my trading account technical analysis closed results and current open positions for this FY if you will post the same for yours based on fundamental analysis for this FY.

I'm game

Id like to think that fundamental analysis is only a small factor in my investment decisions and i certainly don't consider myself a spokes person for the cause or a follower of the method, i class myself as a discretionary investor.

i post all my buys and sells in the relevant stock threads either on the day of sale or the day after so im very open and transparent in my investment activity's....while im sure we would all like to see your trading results i doubt whether mine would be of equal interest.

Anyway my FY10/11 results (7 sells and 4 buys) reflects my low level of activity, the last 12 months would at least give me something to write about, and be a more interesting comparison on a percentage basis at least.

Boggo said:
Good post tech/a.

Tech certainly has a way of cutting thru the crap.

tech/a · 21 October 2010

Nothing wrong with being in correct its the length of time you STAY incorrect which is important

This by the way is a Radgeism.
Not my original knife work.
Sifu Radge is the master.

robusta · 21 October 2010

Julia said:
See this thread:
https://www.aussiestockforums.com/forums/showthread.php?t=2737
Do learn how to do it. It makes replying to a post much easier and much clearer for readers.!)

Thankyou very much I Julia finally got it.

Julia said:
So why are you so happy to accept these lost opportunities?

That is just the thing I dont see them as lost opportnities.
Maybe a example would explain it better.
Back to the "short term voting machine, long term weighing machine" idea of the market.
If I can find a business with a intrinsic value of $1.00 this year, $1.20 next year and $1.44 the year after and the sp is currently $0.80 that to me is a great investment.
The sp could sit at $0.80 for a year, it could drop like a stone to $0.50 I have no idea what it will do short term, nor do I waste any energy trying to work it out. But eventually I am convinced the sp will reflect the value of the underlying business and my portfolio will earn very satisfactory returns.[/QUOTE]

Julia said:
Now this actually becomes interesting with regard the last three, all of which look very healthy indeed. How did you come up with these, robusta?
Seems like an instance where trend following and 'value investing' might coincide.

Yes I imagine we will often make money from the same stocks. These businesses (MCE, FGE, FRI) were all selected because they are all great businesses and at a discount to intrinsic value.
Take FRI as a example. I worked out intrinsic value is about $1.80 this year rising to $2.16 next year. Entry point a couple of months ago $1.06

Julia said:
CSL is another that seems to be dumped into most p/f's, despite it being flat for three years.

SP could be flat for another couple of years but the intrinsic value is rising. CSL was expensive three years ago but the value has caught up with the sp

Julia said:
JBH was a fantastic buy if you bought it Nov 09. Not so keen on it now..

The best of JBH growth is behind it, but still plenty more to come.

Julia said:
What does this mean:
What does the $112.99 refer to?

That is me being tired and not thinking clearly. OK to compare a equally weighted portfolio to a indice you can not just add up all the sp x one stock of each and compare changes in that total to the indice. A child would know a small % change to a $50.00 stock would move the total more than a larger % change to a $0.50 stock.
To track this portfolio I will either have to start with say $1000 of each stock or track the % change of each stock and work out the average.

robusta · 21 October 2010

So_Cynical said:
Ok here is my 6 at today's close (i own stocks with *)

BPT 0.615*

CPU 9.71*

TSI 0.665*

PTM 4.75*

CIF 1.15

APN 1.95

Portfolio total $18.84 were gona include dividends in this?

Intersting portfolio CPU and PTM I particularily like. Getting a bit late now but I would like to do a bit of research and put forward my thoughts on these.

Up to you with the dividends, maybe if not to hard we could come up with two numbers, capital gains or losses and total portfolio return.

How often do you want to update it monthly?, quarterly?

Julia · 21 October 2010

robusta said:
Back to the "short term voting machine, long term weighing machine" idea of the market.
If I can find a business with a intrinsic value of $1.00 this year, $1.20 next year and $1.44 the year after and the sp is currently $0.80 that to me is a great investment.
The sp could sit at $0.80 for a year, it could drop like a stone to $0.50 I have no idea what it will do short term, nor do I waste any energy trying to work it out. But eventually I am convinced the sp will reflect the value of the underlying business and my portfolio will earn very satisfactory returns.

OK, so let's say you buy this stock at 80 cents. Above you discuss its potential rise alongside what you see as the intrinsic value after two years of $1.44.
What would you therefore expect the SP to be to represent your 'great investment' at the end of this two year period?

What would the stock have to fall to, below your 80 c purchase price, for you to sell it?

Do you have a set percentage profit on your 80c per share at which point you will sell it? Or is this open ended?

SP could be flat for another couple of years but the intrinsic value is rising. CSL was expensive three years ago but the value has caught up with the sp

So given that it has been flat for so long and is showing no signs of rising, how are you making money here? I haven't checked, but I have a vague memory that CSL's yield is pretty low, so you wouldn't be holding it for the yield.

robusta · 21 October 2010

Julia said:
OK, so let's say you buy this stock at 80 cents. Above you discuss its potential rise alongside what you see as the intrinsic value after two years of $1.44.
What would you therefore expect the SP to be to represent your 'great investment' at the end of this two year period?

I would expect the SP to be a lot closer to $1.44 but it would not bother me too much if the SP was still lower as long as the IV of the business was still rising at a satisfactory rate. It could take five years. If after three years for example the IV was $1.72 (I am using 20% compounded by the way) I would still hold on and eventually the return would come. Also remember the entry point of $.80 gives both margin of safety and turbo boosted returns.

Julia said:
What would the stock have to fall to, below your 80 c purchase price, for you to sell it?

All things being equal if the sp falls significantly I would buy more. If it was a bargain at 80c how much more of a bargain at 50c. 25c? good grief Christmas time time to go in boots n all

Julia said:
Do you have a set percentage profit on your 80c per share at which point you will sell it? Or is this open ended?

Tysonboss put it better than me.

Tysonboss1 said:
When there is a material long term change in the companies earning power or ability to continue to generate share holder returns.

If a company is generating strong cashflows and using these effectively to fund growth the share price will eventually follow.

The only other two reasons I would have to sell are:

1) The share price moves significantly ahead of the IV. ie the company is overvalued

2) There is a bigger bargain to be found. (see example above)

Julia said:
So given that it has been flat for so long and is showing no signs of rising, how are you making money here? I haven't checked, but I have a vague memory that CSL's yield is pretty low, so you wouldn't be holding it for the yield.

Must admit CSL does bother me a bit. Have held it for 6 months and did not buy at significant discount to IV. (got greedy for future growth broke my rule re margin of safety). I am looking for capital gain with this business I guess I will have to answer your question in a couple of years.

So_Cynical · 22 October 2010

robusta said:
Intersting portfolio CPU and PTM I particularily like. Getting a bit late now but I would like to do a bit of research and put forward my thoughts on these.

Up to you with the dividends, maybe if not to hard we could come up with two numbers, capital gains or losses and total portfolio return.

How often do you want to update it monthly?, quarterly?

I'm going to put our selections in a couple of watchlist's so its easy to keep track of, best to include dividends and distributions...im probably gona need em.

robusta said:
Must admit CSL does bother me a bit. Have held it for 6 months and did not buy at significant discount to IV. (got greedy for future growth broke my rule re margin of safety). I am looking for capital gain with this business I guess I will have to answer your question in a couple of years.

If you have a look a few pages back in the CSL thread you will find my trades in fact i just remembered i posted a chart of my trades that ill post up just for the hell of it...buy in green selling in red.
~

~
With CSL ya really need to be buying the bottom of the range (under $30.30)...considering how its ranged for over 2 years. one of my better trades, pretty much bottom to top. just another winner posted in real time.

skc · 22 October 2010

So_Cynical said:
If you have a look a few pages back in the CSL thread you will find my trades in fact i just remembered i posted a chart of my trades that ill post up just for the hell of it...buy in green selling in red.
~

~
With CSL ya really need to be buying the bottom of the range (under $30.30)...considering how its ranged for over 2 years. one of my better trades, pretty much bottom to top. just another winner posted in real time.

I like to know how people work out the intrinsic value of CSL... in order to do that you will need to make some fairly long dated assumptions about exchange rates and blood plasma prices, not to mention take a view on the court case they have in US.

Certainly not easy and it will at best give you a range of values... and I dare say that buying at $30 and selling at $35 is unlikely to be true fundamental-driven investment, given the uncertainties involved.

To me So_C's strategy seems to be to "trade" only a small universe of stocks which he believed/researched to be fundamentally sound companies, then buy at support levels based on chart. It feels very much like a hybrid FA and TA strategy... Or in simpler terms - swing trading good companies by buying support and selling resistance.

Nothing wrong with that - just wondering if that's something anyone else has picked up.

Julia · 22 October 2010

Agree, if the CSL management is an example. If you had a decent no. of shares there, So Cynical, that was well done. Presumably you sold half at the earlier point and then the rest at the top of that chart?

I suspect many of us do things more similarly than it may at first seem, just describe it differently.

I'm tempted to respond to Robusta's philosophy of the brilliance of averaging down, but might leave it alone. Someone else might be brave enough to take this up?

moreld · 22 October 2010

The problem with averaging down is that you end up with the largest investment in your greatest losers.
Even great investors are only right about 70% of the time, so sticking firmly to a mantra of averaging down will soon see you getting your fingers seriously burnt.

If your follow a FA approach, which I do in the main, if a stock falls a significant percentage it is wise to redouble your research. If you can't determine why others are valuing it lower than you and why it is falling then you really don't understand the company and what is happening. Too many investors delude themselves that they're Bill Miller, Warren Buffett, Seth Klarman and so on and KNOW what the intrinsic value of a company is. IV is a philosophy not a hard knowable $ amount.

While I think buying with a margin of safety is a smart high probability way to success, realising that you're often wrong and can always buy back later if you sell will save you from some major disasters.

Each to their own.

Boggo · 22 October 2010

moreld said:
The problem with averaging down is that you end up with the largest investment in your greatest losers.

Did that once on a delightful stock called AED (still going), only once, never again.

It was probably the best $9000 + that I have ever spent (lost) because it has saved me far more than that since then.

I have to laugh when I see people write about how they average down or when they say that they are funnymentalists and then put up a chart of what price they usually enter at because the chart shows what range it usually bottoms at

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