Forum Archive Index - September 2003

[Phaedrus <Phaedrus@techemail.com>]

 Initially I based all my investment decisions solely on fundamentals. I made 
profits but became increasingly disillusioned by the perverse and illogical 
reactions of the market. Good news could easily trigger a fall in prices just 
as bad news was sometimes met with a rise. I also observed that trending stocks 
often overshot their "fair" valuations - rising stocks went "too high" and 
falling stocks went "too low". I decided that the market's perception of value 
was more important than mine. Inevitably these thoughts and observations led me 
to the use of technical analysis, which suited my pragmatic scientific approach 
quite well. (What is, is, and what aint, aint). As you would expect, I had 
mixed success, but slowly began to notice that I had more wins and bigger wins 
with sound stocks that had good fundamentals. I began to restrict my 
technically based trading to a list of "approved" stocks with acceptable 
fundamentals and found that my returns improved to the point that I became able 
to support myself solely on my trading profits. My experience here conflicts 
with the Woody's opinion that a compromise is not possible, that you must use 
TA or FA, not both. As I have often quoted, in his  book investigating "What 
Works on Wall Street" James P. O'Shaughnessy found that strategies combining 
value and momentum outperform either of these approaches used alone. My 
experience also is that a TA/FA combination works best, though I accept that 
this is not a universal truth. The answer is to develop a system that suits 
your personality, skills, aptitudes and circumstances. This will not be the 
same for everyone. I accept that Woody is a successful day trader for example, 
even though I have tried and failed to make money daytrading.

 For some reason, many people seem to think that TA is unsuitable for long-term 
investing. I strongly believe that this is not so at all. TA provides some very 
effective tools to aid in monitoring long-term trends. I could give many 
examples, but the charts I have posted on TLS are nice and clear. My views on 
longterm TA have not really changed much since I wrote this article a long time 
ago :-http://www.sharechat.co.nz/archives/2001/06/msg00165.shtml

           Phaedrus.

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