Forum Archive Index - June 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus,
>
>
>Technical Analysis is often used for short-term trading. Because of
>this, many people assume that it is not suitable for the long-term
>investor. This is not correct. By using Trend Indicators, and
>selecting long time periods, useful long-term entry and exit
>signals can be generated. 
>
>

Those who have been reading this forum over the last month will know 
that I am in no way a 'Technical Annie'.   Nevertheless, I am 
impressed with the clarity and patience, Phaedrus, with which you 
explain different charting process to the Sharechat group.   Also I 
think that it would be very sad if whatever camp one tended to lean 
towards (be that fundamental or technical) one would close themselves 
off to new ideas from the other.   I have to admit your post on 'long 
term technical analysis' made me think!

>
>
>The chart below is of Ebos Ltd. (EBO,
>NZ) This stock made good gains for 3 years, but has done nothing in
>the 4.5 years since. If you bought in 1994 and held, you would have
>made a capital gain (excluding dividends) of 272% in 7.5 years. 
>
>

Call me easy to satisfy if you like, but I'd be happy with that :-).

>
>
>The use of a few Trend Indicators would have signalled an exit after
>3.8 years, giving a 326% gain in that time. 
>
>

Isn't this where the tax man spoils the party?  If you are 'trading 
for a living', then your 326% gain actually reduces to 249% (after 
the initial 3.8 years).   Taking 33% of your gain as tax, leaves 
(326-100)*0.66 which equals 100+149= 249% of your original 
investment.

>
>
>Another trade lasting
>16 months was signalled, which would have given another 50% gain on
>top of that. 
>
>

Then if you hold that money and only reinvest at the appropriate buy 
signal your 249% grows to 373% which is again reduced (by 33% tax) to 
249+(373-249)*0.66= 331% of the original investment. 
  
>
>
>
>That's all - just two trades in nearly eight years.
>
>

Which nevertheless still incurs twice as much brokerage as a single 
buy and sell.

>
>
>Even if all you did was exit after the initial uptrend, your annual
>return would be well over double that of buying and holding this
>stock.
>
>

Granted, this strategy produces greater returns than 272% earned by 
using the 'buy and hold' strategy.   But if you throw in the two 
years of missing dividends (which even as a long term trader you 
don't get as you were out of the market at those times) the gap 
closes even more.

So I'd debate the 'well over double' claim if the tax man got 
sniffing into your affairs.   But each to their own.   And if you can 
get even a marginally better return  by following this sort of 
strategy, then good luck to you.   Good post Phaedrus. SNOOPY

 
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