Forum Archive Index - May 2001

[Lyall Taylor <lyall.taylor@xtra.co.nz>]

I find it quite bewildering that people are adopting a 'head to head'
approach of comparing these two alternatives.  For a start, it the the
context, appropriateness, and method of implementation of these
stratiges that ultimately decides the success or failure of the method,
not the method itself.  There is a lot of bias going on with regard the
supporting or rejection of these methods, yet people are arguing from
quite different perspectives.  Here are my views:

There is no disputing that for evaluating long term investments,
fundamental analysis is the way to go.  As Buffett often asserts, a
company's share price can only out-perform or under-perform its
fundamentals for so long.  In the long run, the company's financial
performance will ultimately determine its share price performance. 
Hence, using technical analysis for long term investment appraisal is
useless.

In the short term however, share prices are not driven by the
fundamentals, but by emotions, including fear, greed, herd mentality,
and expections.  Using fundamental analysis for short term trading is
about as sensible as using charts to evaluate long term investments. 
Because the short term price has no correlation to the fundamentals, it
is obviously an inadequate trading method.  Charts help to determine the
market's mood, and short term opinion of a stock, and helps them ride
the volitile waves and hopefully generate good short term gains.

The problem with the current argument is that everyone is bias towards
their own method.  Most fundamentalists are long term investors, and
most traders are chartists.  Neither is wrong - they utilise the most
appropriate technique for their investments style.  Apples with apples
guys!


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