Forum Archive Index - November 2001

[Phaedrus <Phaedrus@techemail.com>]

 I read Mary Holm's column regularly, and agree with a lot of what she says. 
Every so often, though, she will make statements that are so totally at 
varience with my personal experience that I wonder if we inhabit the same 
planet. 
 The silliest thing I have read in a long time is her closing statement that 
"The only way to win in the long term is to sit quietly with what investments 
you've got" (!) This must take the passive investing approach to a new low. 
Anyone holding a portfolio of poor quality stocks would be particularly 
ill-served by this "advice". Their continued poor performance would be 
absolutely guaranteed.
 The dogmatic statement that there is "only one way to win in the long term" is 
patently absurd. I have a friend who has successfully day-traded the US market 
for years. I tried it, found it very stressful, disruptive and unprofitable. 
Another friend is the quintessential value investor.  He is very happy with his 
results, and the method suits him. I personally know two successful "swing" 
traders. A near neighbour has made a living from the market for years, using an 
approach that is so eclectic it defies classification. It do not personally 
know any arbitrageurs, but that is yet another way people make a living from 
the markets. All these people have found a system that suits them, their 
personalities and their situation. My preference is to use technical analysis 
to trade (medium term) stocks that I have identified as good quality using 
fundamental analysis. 
 My path to technical analysis has been a very long one. I began as most people 
do by buying whatever my broker advised. After several years of mediocre 
performance, I changed my broker. Several more years of mediocre performance 
followed. During this time I was studying classical fundamental analysis, and 
learning to decipher balance sheets. Finally I felt ready to make my own 
investment decisions. While I was no better than the brokers, I was at least no 
worse. For me, the most frustrating thing was to see my fortunes rising and 
falling (sometimes dramatically) with the tides of the overall market. I was 
always 100% invested. I was a buy-and-hold man, without any exit strategy at 
all. An example of my investment prowess was CEM. I bought at $4.20, and was 
gratified to watch it rise steadily to $9.50 over two years. I continued to 
hold as CEM went into what became a very long downtrend. I finally sold at 
$1.42, about 5 years after I bought. I lurched on, making every mistake in the 
book, plus a few more of my very own. These were expensive lessons, but I 
learned them - paid my dues. I obviously had to monitor my investments more 
closely, and be more active. The easiest way to follow a shares price is with a 
chart. These provided me with new view of market dynamics, and I delved deeper 
and deeper into technical analysis. My overall results slowly improved to the 
extent that after some years my gains were large enough and consistent enough 
to enable me to give up my day job, and concentrate on what I most enjoyed. 
Trading. I have done this for quite a few years now, and relish the lifestyle 
this affords me. Now then, what hope do you think you have got of convincing me 
that, in the words of Mary's headline "Charting Tactics are a Game for Losers" ?
   Mary states "Whenever markets are falling desperate people start believing 
in all sorts of magic....."  Falling? From where I sit the markets are all 
rising. I have just had the best 2 months profits I have ever had, and if this 
continues (if) 2001 will be my best year ever. And remember, I took part in the 
boom years of Chase and Equity Corp etc. Still have my Chase share 
certificates, come to that!
   Mary is mistaken when she speaks of chartists "Buying and selling shares on 
the strength of forecasts"  Many TA systems (mine included) make no attempt 
whatsoever at predicting future price movements - they are totally reactive, 
responding only to the current situation, in a predetermined manner. 
   I share Mary's suspicion and scepticism of "black box" systems. She appears, 
however, to be judging the worth of all technical analysis on the basis of 
attending a single black box sales pitch!
   Whenever I see someone mentioning brokerage expenses as a significant factor 
in trading, I wonder if they realise how much times have changed. I was once 
paying 2.5% - now I pay 0.05% or less. How could anyone see that as a 
significant expense? Similarly, I have never understood the problem with paying 
tax on capital gains. The more tax I pay, the happier I am. (True). Do people 
ever curtail any other types of income, on the basis that they would have to 
pay more tax? Of course not.
   I was deeply touched at the altruistic concern expressed in the letter from 
the Christchurch gentleman over the impoverished retirements we have coming, 
and can only but admire the strenuous efforts he has made to save us from our 
folly. Writing to Mary Holm (an acknowleged opponent of technical analysis) was 
a stroke of genius.
   There is a rich irony here - this man claims to be a former money market 
dealer. Did he trade Forex? Is there any other way to do this than by technical 
analysis? In any event, Mary assures us that that it is not possible to make a 
living doing this. Perhaps that is why he gave it up.

                  Phaedrus.

PS I don't mind being called a zealot, but irrational? That hurt.

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