Forum Archive Index - October 2003

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

Hi Shardik,
 
>
>Can I suggest that once the very hard yards of T/A are
> learned and applied that there would be no way that you
> would want to  mix the two if you aspired 
>to be a successful trader? 
> 

I think if the purpose of this debate is to try to come up with an 'overall 
winner' between F/A and T/A, then it is futile.   Now let me explain why 
I think that way.

Let's suppose Macdunk (for example) decides to sell his building 
business.   Will the prospective buyers of this business use F/A or T/A 
to decide what they should offer him?    Clearly because there is no 
'Macdunk' listed on the New Zealand stock exchange there is only one 
choice: F/A.    Prospective buyers would have to go through his 
business books and decide what it is worth- to them.    The fact that 
T/A doesn't get a look in here, because there is no public market for 
'macdunk' shares, should be obvious.    But sometimes it is necessary 
to resort to the obvious to highlight the essential differences between 
F/A and T/A.

Proposition number one is that you need a market to make T/A work.  
A market is a snapshot view of 'hot opinion' on a share.     The share 
buyer has come to a view that at the market price they should sell, and 
the buyer has come to the view that they should buy at that same 
market price.   It is the relative weight of opinion on either side that 
determines which way the market price moves.   Put a series of these 
market price snapshots together and you have a moving picture, which 
I will call "the movie T/A".   If you have a view that T/A is of no 
importance at all in a market, then what you are saying is that watching 
this movie that I have called T/A is a complete waste of time.    
However, people do talk to friends colleagues and advisors about 
investment and are influenced by past stories of success.  So, to me, 
the statement that there is no connection at all between past market 
performance and peoples behaviour in terms of buying and selling 
investments does not ring true.    Sure, you can argue that from a pure 
F/A perspective that you *should not* pay any attention to past market 
performance when checking out an investment for yourself.    But to 
argue that because you 'should not' pay any attention to market 
performance so therefore T/A is useless, is to ignore the reality that 'all 
of us' *are* influenced by what others say or think, no matter how 
disinterested and dispassionate we like to think that we are.    When I 
use the phrase 'all of us'  I am using it in the collective sense of 'Mr 
Market'.    In other words even if you believe the market is primarily 
driven by staunch F/A financial drones, this doesn't stop other players 
in the market make Mr Market behave 'irrationally' at times.

If the market always behaved 'rationally' in accordance with information 
released into the public domain then it would never be overpriced or 
underpriced.  Clearly the market does not always behave 'rationally' as 
if it did then people like Warren Buffett wouldn't be able to pick up the 
bargains he does.    Now if F/A analysts do not always drive the market 
directly then what is happening?   Clearly the market must be moving 
because people have opinions outside the 'traditional' F/A domain.    
And it is a time series view of peoples opinions ( be they 'right' or 
'wrong') that is the essence of T/A.     Faced with a share that is being 
priced 'irrationally' what then is an F/A investor to do?    Effectively his 
investor tool-kit has become useless.     Put in this position, is it not 
better to pick up the T/A toolbox than to stumble on completely blind?
IMO to completely ignore T/A is to say that the collective opinions of 
people don't matter.  When faced with the daily reality of a market that 
seems a difficult proposition to uphold.

What the T/A vs F/A debate comes down to IMO, is the question of 
whether hard data on company prospects is all a potential investor 
should look at or the collective opinion of Mr Market is all the investor 
should look at.  If the purpose of this debate is to try and find out which 
shoebox you should slot yourself into, then I would back up one step 
and ask the question.

"Why are you trying to slot yourself into any shoebox?"   
"What is the point in doing it?"

It is when considering these questions, that I decided that for me there 
is no point in trying to win this F/A vs T/A debate because the ultimate 
goal of 'winning' (sticking yourself in one shoebox or the other) is 
actually rather undesirable.

In coming to this conclusion it is no secret that those who follow my 
postings on this forum will know that I put far more weight on the F/A 
side of things, and those that wonder why might like to ponder the 
following questions.

1/ Is it more difficult to manipulate 'Mr Market' opinion (as fed to us 
daily on the market) on a company, or the actual underlying 
performance of that company?

2/ Would you rather base your investment decisions that are based on 
data that is less easy to manipulate or more easy to manipulate?

Furthermore there is always a market for those wanting a fast track to 
wealth.    F/A cannot provide this, so there is always going to be a 
supply of posters, pushing the prospects of some obscure T/A black 
box system that can do the job.  Unfortunately there is always an 
endless supply of people willing to believe these modern day 'snake oil 
salesmen' .    That means if you want to distinguish between 'good' and 
'bad' T/A comment then there is always going to be an awful lot of 
dross to cut through..

SNOOPY

--
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on Pegasus Mail version 4.02
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