Which one do you use? Technical or fundamental analysis?

[bunyip]

Re: Which one do you use? Technical or fundamental analysis

What I will concede is that I can understand that a trader trading to a system that defines entries and exits and is combining that with money management doesn't necessarily need to be looking at fundamentals when deciding to trade a stock.

As I've said in this and other threads - whether fundamental, or technical, or a combination of both; - the key is following a plan and having the discipline to stick to the plan.

I also still don't see why it has to be an either/or situation - I'm more than happy to concede that technical analysis can complement a fundamental investment strategy.

It doesn't have to be either/or......there's no reason that both types of analysis can't be combined.
However, what most fundamentalists can't seem to comprehend is that technical analysis is actually a form of fundamental analysis.

Technical analysts believe 'THE TREND IS YOUR FRIEND'. Accordingly, they begin their analysis by identifying the trend of the stock or financial instrument in question.

Look at charts of big uptrenders of the past, e.g. GUD, BHP, WPL.
You could have comprehensively researched these companies to find out that their fundamentals were positive.
Alternatively you could have applied the most basic concept in technical analysis - TREND IDENTIFICATION - by simply looking at their charts and recognising that they'd recently begun a powerful new uptrend. And having recognised this powerful new uptrend, you could have put two and two together and realised that new uptrends are caused by the collective positive views of thousands of traders and investors, most of whom will have based their opinions on fundamental research.
A stock powering upward on the chart is a visual representation of investors and traders scrambling over each other to get a piece of the action, even if it means paying increasingly higher prices.
They do this because they believe the fundamentals to be positive.

Conversely, if a chart shows that a stock is sinking like the Titanic, it's a visual representation of investors and traders dumping the stock because they know something negative about the fundamentals.
Pull up charts of companies that went broke....PAS, HIH, SGW, ION. Their charts were heading south with a vengeance long before they went out of business.
Did you really need to fundamentally research those companies to find out they were in trouble?
Or could you have got that information simply by looking at their charts for five seconds? I'm sure you know the answer.

Regarding your comment about the risks of investing in a company that's on the brink of insolvency, consider this.....
If a company is in dire straits and is close to insolvency, do you think that maybe, just maybe, the research analysts might be well aware of this?
And that this information just might be known to the investment community?
And that investors, knowing this information, might be dumping the stock en masse, causing its price chart to be strongly downtrending?
No technical analyst worth his salt is going to buy a stock whose chart is strongly downtrending.
Technical analysts believe 'the trend is your friend'. Accordingly, they trade with the trend, not against it.

Finally, let me give you a couple of quotes.
The first comes from John Murphy, author of 'The Visual Investor', resident technical analyst on stockcharts.com, and considered one of the worlds foremost technical analysts................

"Chartists are cheaters. Why? Because charting is a shortcut form of fundamental analysis. It enables a chartist to analyse a stock or industry without doing all the work of the fundamental analyst. How does it do that? Simply by telling the analyst whether a stocks fundamentals are bullish or bearish by the direction its price is moving.
If the market perceives the fundamentals are bullish, the stock will be rewaded with higher prices."

The second quote is from Marty Schwartz, a man who made squillions on Wall Street and is featured in the book 'Pit Bull'..........................

"I always laugh at people who say they've never met a rich technician.
I love that! It's such an arrogant, nonsensical approach. I used fundamentals for nine years but got rich as a technical analyst".

I guess Marty Schwartz would have got a good laugh at the expense of Renee Rivkin, who was fond of saying "I've never met a rich chartist".
Rivkin, an avowed fundamentalist, was recommending PAS as a buy while one of my mates who owned PAS was dumping the stock as soon as it began downtrending.
Rivkin continued recommending PAS as a buy while it plunged towards oblivion.


Bunyip

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

Bunyip,

There is no doubting that charting or Technical analysis works. We know it can work.

However the stress, brokerage fees, tax, subscriptions, slippage, lack of dividends, and the number of small losses because of stops incurred means that most peeople make bugger all from it. Infact most people lose doing it.

Tech analysts themselves admit 90% of those that try it get washed out of the market fairly quickly. (Leon what's his name said it himself, Darryl Guppy as well)

Yet with fundamental investing the compounding, low tax, low brokerage, and regular dividends with diversification as a safety net means it is just about impossible to lose longterm.

The difference between fundamental buy and hold investing and trading is that most people win doing the first and most people lose doing the later.

 

[cuttlefish]

Re: Which one do you use? Technical or fundamental analysis

I can see the technical argument, but a fundamentals based approach is so strongly built into my psyche that I can't imagine entering a stock without doing a fundamentals based assessment. But I'm exploring the use of technical to help time entries better and also to add a trading component to stocks that meet my fundamentals criteria.

The comments about the trends in stocks that fail is interesting, and worthy of a separate discussion - I think it'd be interesting to look at the charts of all of the stocks that have been delisted over the years and see what they looked like technically in the period leading up to the de-listing. Its a pity the charts are so hard to get hold of because they've been deleted from the various databases.

 

[bunyip]

Re: Which one do you use? Technical or fundamental analysis

Bunyip,

There is no doubting that charting or Technical analysis works. We know it can work.

However the stress, brokerage fees, tax, subscriptions, slippage, lack of dividends, and the number of small losses because of stops incurred means that most peeople make bugger all from it. Infact most people lose doing it.

Tech analysts themselves admit 90% of those that try it get washed out of the market fairly quickly. (Leon what's his name said it himself, Darryl Guppy as well)

Yet with fundamental investing the compounding, low tax, low brokerage, and regular dividends with diversification as a safety net means it is just about impossible to lose longterm.

The difference between fundamental buy and hold investing and trading is that most people win doing the first and most people lose doing the later.

The figures arrived at from broker research are that almost 90% of stock market players lose money. No doubt there are both fundamentalists and technicians among them.
By far the majority of market players are fundamentalists. Therefore it seems highly unlikely that most fundamentalists win.

There are very few capable technical analysts. Most of them try to over-complicate it by having half a dozen technical indicators on their charts. The way to implement technical analysis is to keep it simple. Identify the strong trenders, have one or two simple setups to signal and entry into a trend, get out before serious loss if the trade goes goes haywire, ride the winners as long as the trend keeps going your way.

Do it this way and it's difficult NOT to make money from the technical approach.

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

The figures arrived at from broker research are that almost 90% of stock market players lose money. No doubt there are both fundamentalists and technicians among them.
By far the majority of market players are fundamentalists. Therefore it seems highly unlikely that most fundamentalists win.

I disagree that most people are fundamentalists!!

I'd suggest most "Mum and Dads" do neither Fundamental nor Technical. They just buy a share in a company they like. Or get offered Telstra or NRMA or TAB shares and take them without doing any fundamental or technical analysis at all.

I also disagree that 90% of people lose on the sharemarket. I do agree that 90% of traders do lose though.

I still state that it is very very difficult to profit to any significance doing Technical analysis and very very hard to lose if you do fundamental analysis, hold for long periods and diversify widely.

But I'm exploring the use of technical to help time entries better and also to add a trading component to stocks that meet my fundamentals criteia.

Fundamentalists should ignore charts completely.

A stock that is in a downtrend is what Fundamentalists like. Turn a chart upside down first if you want to use them for Technical analysis!!

Have a look at CMI Cuttlefish.... it came right..

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

The comments about the trends in stocks that fail is interesting, and worthy of a separate discussion

It is the one and only argument techs have.

"Only buy and 'hope' investors lost on HIH and Enron so there, nah nah nah"

Yeah well I can't imagine many traders did lose on those 2 so they are right to some point.

BUT...

Like the recent Westpoint collapse where 'Mums and Dads' lost their all life savings one thing saves Fundamentalists - DIVERSIFICATION.

If you own at least 20 widely diversed shares, diversified across sectors and even markets and countries, and even have money in cash and (deposits)bonds as you should do, and all your companies make profits year after year and pay good dividends, and not too much money is in any one company or sector it would be basically impossible to lose your life savings, infact just about impossible not to make a profit longterm.

Diversification rules out any chance of buy and 'hope' investors going bankrupt.

And it rules out the one and only argument traders have against investors!

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

I still state that it is very very difficult to profit to any significance doing Technical analysis and very very hard to lose if you do fundamental analysis, hold for long periods and diversify widely.

Hmm

$30000 to $310000 in 4 yrs purely technical.
Pretty damned easy I thought.

There is one Fundamental method currently running for 6 mths
certainly not in profit--but hey in 3 yrs it may well be.

A stock that is in a downtrend is what Fundamentalists like.

And why most make a loss or get caught holding "Bottom Draw stock"
Whey the hell dont fundamentalists wait for the "Undervalued" stock to show significant reason to be purchased before they buy the thing!!

Seriously if people think they can value a Company from its published Balance sheet they are DREAMING.

What is it with trying to pick a bottom!

Buy high sell higher

 

[lesm]

Re: Which one do you use? Technical or fundamental analysis

Realist,

With all due respect, I think that you appear to have an extremely biased view and it wouldn't matter what any TA said you will always take the negative.

As there does not appear to be any discussion, except for you expounding your views.

You appear to fail to acknowledge that trading is being conducted from both a fundamental and technical perspective. Any reference to the statistics related to the success or failure in the markets takes both camps into account.

Don't confuse investing with trading, as you apppear to have a naive and ill- informed view of the market place, trading in general and the methods used.

If you take into account the entire range of markets worldwide, who do you think the players are and what methods do you think they are using?

To have a meaningful discussion/argument as to the merits of each approach is one thing, but this constant one-sided diatribe is really a waste of bandwidth and provides no real value.

Trading from the technical side is a lot less stressful than you may think. Why don't you try asking some meaningful questions and try getting yourself more fully informed than you currently appear to be.

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

Hmm

$30000 to $310000 in 4 yrs purely technical.
Pretty damned easy I thought.

so a 1033% return!!

Before all taxes and brokerage and fees in a fantastic bullmarket of course.

(Traders love to leave out real expenses when quoting their success)


Tech/a - what are the chances of another 1033% return on your $310K over the next 4 years?

(I'll give you a clue - NONE)

Why the hell dont fundamentalists wait for the "Undervalued" stock to show significant reason to be purchased before they buy the thing!!

Cause they love sales. They buy their designer sunglasses in winter and ski jackets in summer, before the trend followers start looking at prices rise.

Seriously if people think they can value a Company from its published Balance sheet they are DREAMING.

So if you were buying a business for your family to own outright and run for your livliehood what would you look at it?

I sure as hell would look at the balance sheet!!

Your statement is one of the most laugahble statements I've ever seen. What sort of businessman would buy a business without looking at the balance sheet?

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

Realist,

With all due respect, I think that you appear to have an extremely biased view and it wouldn't matter what any TA said you will always take the negative.

As there does not appear to be any discussion, except for you expounding your views.

You appear to fail to acknowledge that trading is being conducted from both a fundamental and technical perspective. Any reference to the statistics related to the success or failure in the markets takes both camps into account.

Don't confuse investing with trading, as you apppear to have a naive and ill- informed view of the market place, trading in general and the methods used.

If you take into account the entire range of markets worldwide, who do you think the players are and what methods do you think they are using?

To have a meaningful discussion/argument as to the merits of each approach is one thing, but this constant one-sided diatribe is really a waste of bandwidth and provides no real value.

Trading from the technical side is a lot less stressful than you may think. Why don't you try asking some meaningful questions and try getting yourself more fully informed than you currently appear to be.

Thanks for your rant Les.

Please in future remember to argue the point and not the person.

What points have I made exactly that you disagree with?

What points do you have to add?

Please no more personal attacks, argue the point, or not at all. There's a good boy.

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

When youve actually been involved in serious investment and can make serious comment,you may gain the respect you obviously seek.

Your comments belie the total novice you obviously are.

If you spent nearly as much time learning from those who are in the position to add to discussion you may actually one day be in the position to pass on some wisdom.

You are doing yourself justice with uninformed rehetoric,but as you can see it is not of the quality you desire.

You need to learn only one thing.
"There is a time to be silent"

 

[mit]

Re: Which one do you use? Technical or fundamental analysis

Trading from the technical side is a lot less stressful than you may think. Why don't you try asking some meaningful questions and try getting yourself more fully informed than you currently appear to be.

lesm,

I wouldn't worry about Realist. Some people want to learn others don't. I know I would rather make money every year and not just rely on bull markets (Rosella has made over 30% a year every year since before 2001 if I remember rightly). I know that if the 1970s style market returns again while the fundamentalist only people are repeating the two mantras:

"The market is wrong and I am right"
"It's not a loss unless I sell"

While the technical traders will quietly make money on the swings.

Did you know that if you bought the DOW index at the bottom of the market ofter the 29 crash until now you would have only made an average of 1% over the cash rate. If however you used a simple EMA cross system you would have averaged 17% a year (absolute not over the cash rate).

MIT

 

[professor_frink]

Re: Which one do you use? Technical or fundamental analysis

Did you know that if you bought the DOW index at the bottom of the market ofter the 29 crash until now you would have only made an average of 1% over the cash rate. If however you used a simple EMA cross system you would have averaged 17% a year (absolute not over the cash rate).

How did you come to that figure mit? what cash rate are you talking about.
I just did a quick test on amibroker

enter 8/7/1932 @ 41
exit yesterday @ 11225

annual return of 16.59%.

Or did I do the test wrong?

 

[Julia]

Re: Which one do you use? Technical or fundamental analysis

Realist

You are beginning to sound rather shrill and hysterical by being so defensive about your approach.

No one is suggesting you relinquish your preference for fundamental investing.
Bunyip has repeated the essence of a post he made some time ago which changed my attitude towards stock selection and timing. As a result, I am considerably more profitable.

All the others have made reasonable and eminently helpful comments also.
I'm honestly puzzled by your determination to resist learning something which could genuinely improve your profitability.

Even if you were just the hottest fundamental investor to ever grace the ASX with his presence, and frankly I doubt this, I think its arrogant in the extreme for you to attempt to rubbish the opinions of people who are experienced and very profitable, and moreover, are good enough to attempt to share some of their experience with you.

Julia

 

[mit]

Re: Which one do you use? Technical or fundamental analysis

When youve actually been involved in serious investment and can make serious comment,you may gain the respect you obviously seek.

Your comments belie the total novice you obviously are.

If you spent nearly as much time learning from those who are in the position to add to discussion you may actually one day be in the position to pass on some wisdom.

You are doing yourself justice with uninformed rehetoric,but as you can see it is not of the quality you desire.

You need to learn only one thing.
"There is a time to be silent"

I think that it is a bullmarket thing. I started lurking around forums in 2002 (you were there) and there was nary a FA to be seen. I think some got so scared with the paper loss that they stuck their shares in the bottom draw and forgot about them.

Rivkin made his famous statement about giving up pure FA after a particularly bad market call. There were no end of articles in magazines telling people to watch price action as well as fundamentals because people had such large paper losses.

MIT

 

[mit]

Re: Which one do you use? Technical or fundamental analysis

How did you come to that figure mit? what cash rate are you talking about.
I just did a quick test on amibroker

enter 8/7/1932 @ 41
exit yesterday @ 11225

annual return of 16.59%.

Or did I do the test wrong?

I'll have to try and find the original source of the statement as you are right based on 41 it wouldn't make sense.

MIT

 

[lesm]

Re: Which one do you use? Technical or fundamental analysis

lesm,

I wouldn't worry about Realist. Some people want to learn others don't.
MIT

Hi Mit,

I'm not.

Yes, that's true, you can't help some people.

 

[professor_frink]

Re: Which one do you use? Technical or fundamental analysis

I'll have to try and find the original source of the statement as you are right based on 41 it wouldn't make sense.

MIT

If the calculation starts at the peak in sep 29 before the crash the return drops to under 10% so that may be what they were referring to. From an investing point of view, that makes an interesting case for not starting your investing career during a raging bullmarket!

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

Its sound trading business to design methods of taking advantage of Bullmarkets as thats the direction of the market the majority of the time.

Just as its sound business to identify and take advantage of housing Bullmarkets.

You dont have to be a hero and trade stocks in every direction.
However if your a Futures/Commodities trader then Trading fluctuations would/could be sound practice.

Go where the Money is and go there OFTEN

 

[ghotib]

Re: Which one do you use? Technical or fundamental analysis

Realist darling,

Why on earth should you care that everyone else is wrong?

If all the world did value investing, there wouldn't be any undervalued stocks for value investors to buy. Are you being just a little over-generous in trying so hard to turn all those misguided techies from their road to profi... I mean ruin.

Personally, I think there are as many ways to apply fundamental analysis as technical, and it doesn't matter what you call them as long you know what you don't know.

Where's the Moet,

Ghoti