Which one do you use? Technical or fundamental analysis?

[wayneL]

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

So Buffet has never invested?

Oh man I must have my facts wrong, I could have sworn he'd bought some shares at some stage.

Buffet is an investor first and foremost and a hands off businessman secondly.

This is from Wikipedia. http://en.wikipedia.org/wiki/Warren_Buffett

Management style
Buffett views himself as a capital allocator above anything else. His primary responsibility is to allocate capital to businesses with good economics and keep their existing management to lead the company.

When Buffett acquires a controlling interest in a business, he makes clear to the owner that:

he will not interfere with the running of the company;
he will make the hiring and compensation decision of the top executive; and
capital allocated to the business will have a price tag (a hurdle rate) attached; this process is to motivate owners to send excess capital that does not return more than its cost to Berkshire headquarters rather than investing it at low returns. [citation needed] This cash is then free to be invested in opportunities that offer higher returns.
Buffett's hands-off approach has held strong appeal and created room for his managers to perform as owners and ultimate decision makers of their businesses. This acquisition strategy enabled Buffett to buy companies at fair prices because the sellers wanted room to operate independently after selling.

Wikipedia!! LOL

So Warrens doesn't have a say? LOLOLOLOL

The myth
Brilliant, Buffett has been deified by a media longing for color in the drab world of executive privilege and power. That he lives in the stucco house he bought more than 40 years ago for $31,500 in Omaha, Neb.; has modest Midwestern tastes for food and luxuries; drives his own American-made sedan; and plays cards with Bill Gates -- aw, shucks, he might just be America's grandpa, except for the fact he is not like you or me at all. He is the world's second-richest man.
You might have a weakness for chocolate. Warren, who controls See's Candies, likes private jets.
That the myth of Buffett is so pervasive is no accident. The "Oracle of Omaha" actually gives few interviews outside of his famous annual meeting in Nebraska each year. Those whom he does talk to, such as Fortune's Carol Loomis, are either on his payroll or don't dare criticize St. Warren lest they lose access.
But people as successful as Buffett don't accumulate $44 billion in wealth through charitable dealing. Long after the public turned on smoking and health, Buffett infamously explained his investment in the tobacco business: "It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty."
It's also a huge health problem in the regions where his philanthropy will now flow.
Buffett, the son of a congressman, has reneged on contracts in dire times. His companies eschew disclosure. He has been constrained by the forces of economics that we all face, and he has made hard choices.
'Act of war'
The most glaring of Buffett's transgressions occurred six days after Sept. 11, 2001. Earlier that year, Buffett's Berkshire Hathaway had agreed to pay more than 70% of face value for $500 million in bonds issued by bankrupt finance company Finova Group. He broke the contract after 9/11 by invoking an "act of war" clause in his contract, citing the World Trade Center attacks less than a week earlier.
It was that decision, to not honor an agreement at a time when the country needed to come together, that for me solidified the notion that Buffett was not, after all, an outsider, but the coldest of Wall Street operators to the core. As Roger Lowenstein once wrote, "Wall Street's modern financiers have got rich by exploiting their control of the public's money: their essential trick has been to take in -- and sell out -- the public at opportune moments."
Warren Buffett did that in the days following Sept. 11.
That was not the only time Buffett has been ruthless in his business dealings. From his early years in the 1960s, Buffett has favored managers who slash costs, often through layoffs, to shine up his investments.
BRKB3,033.80, +28.79, +1.0% ) was founded as a textile company, and Buffett closed the last mill in 1985, a route followed with many of his textile investments that have faced overseas labor-cost pressure. Job cuts are a painful part of capitalism, and Buffett would not be successful had he not embraced them. But he has embraced that option often during his four decades as a CEO.

 

[Realist]

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

What on earth are you trying to say Wayne?

Buffet is an investor - there is no doubt about that. He is also a businessman of course - who isn't?

Quite simply he made his money buying undervalued companies, kept them forever, reducing tax cause he never sold - what on earth is there to disagree with??


that opinionated blurb you posted is irrelevant. What was your point?

What do you disagree with exactly?

1. Buffet is an investor
2. he likes to hold forever (thus compounding, and not paying tax)
3. he bought companies when the price was in a downturn.

They are 3 indisputable facts.

 

[Julia]

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

This is for Julia

He was of the belief that as long as the market undervalued them relative to their intrinsic value he was making a solid investment. He reasoned that the market will eventually realize it has undervalued the company and will correct its course regardless of what type of business the company was in.

Oh God. I'm just not going to go over this yet again. If you want to hold on to some "undervalued" unrecognised sweetheart of a company, then do so.
I find it hard to care any more. My point, briefly, was that while you are waiting for the market to recognise the brilliance of this contender, you could have been actually making money somewhere else.

Julia

 

[wayneL]

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

What on earth are you trying to say Wayne?

Buffet is an investor - there is no doubt about that. He is also a businessman of course - who isn't?

Quite simply he made his money buying undervalued companies, kept them forever, reducing tax cause he never sold - what on earth is there to disagree with??


that opinionated blurb you posted is irrelevant. What was your point?

What do you disagree with exactly?

1. Buffet is an investor
2. he likes to hold forever (thus compounding, and not paying tax)
3. he bought companies when the price was in a downturn.

They are 3 indisputable facts.

It shows that anyone who thinks they are buffetologists are off with the pixies. Determining intrinsic value in a company, public or otherwise would require forensic accounting to cut through the garbage designed to decieve the plebs.

You *can't* invest like Buffett. Therefore the private investor must employ a host of other techniques to optimize his or her investment practices.

I strongly suggest your technique is suboptimal and that you are probably the least qualified on this board to comment on other techniques due to your religious adherence to a dogma promoted by those hitching a ride on the Buffett myth.

Your studious avoidance of pertinent points reveals a narrow mindedness that is breathtaking to behold.

Indeed you are also a troll and have alluded to that fact yourself. My strong advise to you is to desist in trolling activities forthwith. We do our best to avoid having an aggravated community here and you seem to be doing your darndest to p!ss everyone off. Fair Warning!

 

[cuttlefish]

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

Determining intrinsic value in a company, public or otherwise would require forensic accounting to cut through the garbage designed to decieve the plebs.

Thats a fairly paranoid attitude, almost implying that anyone running a public company deliberately provides misleading information in their annual accounts. There are obviously exceptions to the rule but on the whole many small and mid-cap company accounts are reasonably straightforward, unless I've been being duped for years.

It shows that anyone who thinks they are buffetologists are off with the pixies.

For someone that claimed there wasn't criticism of a fundamental investment approach on this thread this post sounds like criticism to me. (unless being 'off with the pixies' is a good thing lol)

You *can't* invest like Buffett. Therefore the private investor must employ a host of other techniques to optimize his or her investment practices.

A smaller investor can't buy a whole business (though in some small caps it doesn't take that much of an investment to appear on the top 20 shareholder list) but they can adopt investment strategies that are based on principles espoused by Graham and Buffet succesfully, which are based largely on treating a stock investment as a partial investment in a business and attempting to buy value when buying a partial business investment.

 

[It's Snake Pliskin]

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

Or they read Graham or Buffet and have a religious epiphany!

..and try to proselytize only to cop an interdiction.

 

[MichaelD]

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

I'd like to make an attempt to bring this thread back to something that there is actually a point in discussing (rather than wasting time on circular arguments).

A while back, BSD posted a rather interesting question.

"Why dont the investment banks just hire a team of chartists with etrade accounts and margin loans?"

This has got me thinking. Why don't they run funds like this? Here are some of the reasons I can think of;

1. Chart trading requires the psychology to accept losing most of the time. Most people cannot handle this. Put an extra layer on top of this - the investment banking bureaucracy - and you have two layers or more of psychology to get through before being able to handle trading this way. I'd argue that the chances of this sort of culture existing in an investment bank are close to zero. To put this another way - I'd argue that few people in the investment bank industry know how to trade and rather rely on very deep pockets to survive at sub-index performance.

2. The people investing their money in this endeavour would need to be able to cope with drawdowns. The natural behaviour of most people is to put their money into outperforming funds and pull their money out of underperforming funds. This is exactly the wrong thing to do for trend following. This will lead to problems of having to close positions at the wrong time for a fund in order to cover withdrawals from the fund. In other words, there is a third psychological layer to get through.

3. One of the edges a private trader has over an investment bank is size. By and large traders can enter and exit positions without moving the market. This is impossible once you get above a certain size and would make it harder to be profitable as a large scale trend trader. I believe Soros has a word for this phenomenon, but it slips my mind at the moment.


I note with interest that in the US there are boutique funds that do indeed invest technically and even mechanically - I am unaware of any such funds in Australia.

Food for thought.

 

[ghotib]

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

A smaller investor can't buy a whole business (though in some small caps it doesn't take that much of an investment to appear on the top 20 shareholder list) but they can adopt investment strategies that are based on principles espoused by Graham and Buffet successfully, which are based largely on treating a stock investment as a partial investment in a business and attempting to buy value when buying a partial business investment.

Whew!!! Thanks Cuttlefish, you've just stated the core of my (current) investment strategy.

One of the Buffet (though not Graham AFAIK) principles that's important to me is that I want to know the people who are running "my" company, so I'm staying with small companies where those people sometimes even answer their own phones. Not that I want to distract them from the details of "my" business, but I like to know that I could.

Dallee, if you're still there, I'm a beginner investor working with very small capital (about $10K). I'm also a late beginner; I'm well into my fifties and I have a healthy amount in super being managed by professionals. Your post sounded as though you're starting at a much more sensible age than I did, but the other side of that is that you might find your other commitments are less flexible than mine are and that they pick the worst possible times to interfere with your stockmarket education. Something to keep in mind when working out your approach.

Ghoti

 

[It's Snake Pliskin]

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

It shows that anyone who thinks they are buffetologists are off with the pixies.
Agree Wayne.

I strongly suggest your technique is suboptimal and that you are probably the least qualified on this board to comment on other techniques due to your religious adherence to a dogma promoted by those hitching a ride on the Buffett myth.

Sadly it may take 20 years for the troll to realise it.

Your studious avoidance of pertinent points reveals a narrow mindedness that is breathtaking to behold.

Still waiting on an answer for Nick`s question.

Indeed you are also a troll and have alluded to that fact yourself. My strong advise to you is to desist in trolling activities forthwith. We do our best to avoid having an aggravated community here and you seem to be doing your darndest to p!ss everyone off. Fair Warning!

A just call here Wayne!

 

[It's Snake Pliskin]

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

Although its copped a fair bit of criticism in this thread, a fundamentals based approach will teach you a lot.

What will it teach a beginner? I`m interested in the content here.

There's probably no clear safe option for a beginner entering the market, because the first thing to overcome in sharemarket investing is your emotions which will come into play regardless of your approach, but investing in companies with sound fundamentals is likely to lower your downside risk.

Downside risk is ever present like a barking dog tied up next door wanting to rip your leg off whenever you walk past.

There ain`t nothing like the feeling of assurance.

 

[wayneL]

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

Thats a fairly paranoid attitude, almost implying that anyone running a public company deliberately provides misleading information in their annual accounts. There are obviously exceptions to the rule but on the whole many small and mid-cap company accounts are reasonably straightforward, unless I've been being duped for years.

I think it is demonstrable that there is a significant degree of "creative" accounting. To be sure, one must develop techniques to look behind the published numbers. This is beyond the capability of most investors, and we certainly cannot rely on analysts because of vested interests.

For someone that claimed there wasn't criticism of a fundamental investment approach on this thread this post sounds like criticism to me. (unless being 'off with the pixies' is a good thing lol)

It depends on which pixies we're talking about. There are good pixies and evil pixies. The good pixies are actually very good company. Seriously, I am *mildly* critical of FA , but only from a personal point of view because I have neither the capabitities nor the desire to analyse company accounts to the extent necessary. However, only a fool would criticize FA outright. Fundamentals DO ultimately drive price... apart from those interludes of pure insanity like the tech boom.


A smaller investor can't buy a whole business (though in some small caps it doesn't take that much of an investment to appear on the top 20 shareholder list) but they can adopt investment strategies that are based on principles espoused by Graham and Buffet succesfully, which are based largely on treating a stock investment as a partial investment in a business and attempting to buy value when buying a partial business investment.

Buffett doesn't actually espouse very much at all. Most of what is written is by those on the periphery.

However, I agree with what you say about trying to purchase value; very sensible. I am a value investor where value exists. But I don't see a helluva lot of it around atm.... especially with my opinion of where the economy is headed. :batman:

Cheers

 

[wayneL]

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

For those interested:

A blog on Buffett style investing

http://berkshireruminations.blogspot.com/

Chew on this: Small investors have a huge advantage over the Oracle of Omaha. While his returns may be limited because of the sheer size of his company, the typical individual faces no such limitation. This blog is about applying the wisdom of the Oracle to the small portfolio.

Enjoy

 

[cuttlefish]

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

Buffett doesn't actually espouse very much at all.

In his letters to Berkshire shareholders he does, these were summarised in a small book at some point (I read it a while ago, can't remember if it was 'annotated' by the author or not, but was mostly raw extracts from the Berkshire letters). As far as I know the Berkshire letters are the only writing Buffets done, its the only stuff by/about him that I've read.

 

[cuttlefish]

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

What will it teach a beginner? I`m interested in the content here.

It'll teach them to think about what it is they're actually buying when they buy a share, and think about why they are buying that share. It'll cause them to start to think and act independantly.

 

[Realist]

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

Unfortunately that is up there with other market misconceptions.

I am happy to debate but I, and no doubt others, would like a sensible answer. There are 3 cornerstone attributes to profitability and I do say that every trader/investor on the planet does pocess them. I'll give you two, you give the the third, then we'll discuss.

1. Win %
2. Win / Loss ratio
3. ?

Sorry, I missed this question Nick. (Snake reminded me)

Well I'm guessing number 3 is the amount invested.

You may say the number of trades though?


I'd say you need to include both, but the amount is the key in my opinion.

1000 trades of $100 will get you nowhere, tax, brokerage and stress will kill you. But 1 trade of $1 Million with a 100% win is a great result obviously.

 

[professor_frink]

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

Realist,


The more important part is the number of trades. The first 2 attributes nick mentioned are used to calculate expectancy . From there, the number of trades determines how much you can make. For example, if you are evaluating 2 trading systems with the same expectancy, the amount the system trades will determine which should be more profitable overall.

 

[Realist]

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

Thanks Prof.

Definately in percentage terms the number of trades is important.

And I'd day it is easier to get many quick 20% wins, than it is to get one 200% win.

But in monetary terms one trade of $40,000 with a 20% return is worth 8 trades of $5,000 at 20% return. So amount and number of trades go hand in hand.

And that is where holding comes in:

$40,000 held for over 1 year with a 20% return = $5970 profit after tax and brokerage.

$5,000 traded 8 times quickly, all making 20% returns = $3920 profit after tax and brokerage.

That is why I say the more you trade the more you lose.

 

[professor_frink]

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

$40,000 held for over 1 year with a 20% return = $5970 profit after tax and brokerage.

$5,000 traded 8 times quickly, all making 20% returns = $3920 profit after tax and brokerage.

Interesting example.

$3920 profit on $5000(which is min requirement for your trading example)= 78% return

$5970 profit on $40000 invested= 15% return.

Alternatively, if both have the same $40 000 bank, then the trader will have a lower return, but his risk is much lower- $5000 maximum loss vs $40 000.

That is why I say the more you trade the more you lose.

Not quite. If you are trading with positive expectency, then the more the system trades, the more you make.

 

[Realist]

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

Interesting example.

$3920 profit on $5000 (which is min requirement for your trading example)= 78% return

$5970 profit on $40000 invested= 15% return.

Good point!!

But you have $40,000 in total and only put $5,000 on each trade the return is only $3920 on $40,000. It all depends what you do with the other $35,000.

Prof, if you have $40,000 to your name - how much would you place on each trade?

If I had $40,000 - I'd invest between $20,000 and $30,000 in about 6 to 8 different shares. $10,000 sits in the bank - as a safety net and incase I see a great opportunity to buy.

My return would be about $10,000 * 0.05 from my bank account. And $30,000 * 0.12 from shares. So about $4000.

Say 10% after all taxes and expenses. (more in bull markets, less in bear markets)

 

[mit]

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

Why is the trader not using the $40k eight times quickly? That's more the reality. I probably turnover my capital 7 times a year (more actual if you take account of leverage).

Yes I hate paying the interest and brokerage but it's still very profitable and "consistant"