Forum Archive Index - February 2004

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

One of the ways an F/A investor can be ruined is if they fall in love with 
a share.    If we define 'love' here to mean engagement of thought and 
depth of understanding then it is easy to see that the better the F/A 
investor is, the more liable they are to fall into this trap.

F/A investors tend to be optimistic.  After all why would you invest in a 
company unless you have a positive view of it?    Then as you do more 
in depth research on the company, like reading annual reports, you will 
find that management back your view.   The positive reinforcement 
loop has started!     You may even find that the figures in the annual 
report are expressed in such a way as to further reinforce that view.  
For example, at one stage Air New Zealand started quoting results in 
'EBITDRA'.      They looked good until you realised that the 'R'  in that 
line up of letters meant 'excluding rentals'.    Since Air New Zealand 
leased most of their fleet, and given that they would hardly have a 
business at all without their rental aircraft, this basis of comparing 
results was misleading, even though 'the figures made good reading'.  

My own 'love affair' with Air New Zealand has now ended.  I snapped 
myself out of it by going through all my investments and asking myself:
"Why am I holding this?"      In the Air New Zealand case it was 
because I wanted the income from it and because I wanted exposure 
to one of New Zealnd's biggest industries - tourism.   When the 
dividends ceased, and I realised that I had another investment in the 
tourism industry that was far superior, it was an easy decision to finally 
sell out completely.

The T/A people would chip in here and say that I could have saved 
myself a lot of heartache by simply looking at the charts.   Charts don't 
allow you to 'love' or 'hate' a share.   They are completely neutral 
representations of what Mr Market is telling you.     Thus as an 
'impassioned' observer you are able to make better decisions.    But 
are the T/A crowd as impassionate as they lead you to believe? 

I put the point that the T/A people are equally likely to 'fall in love' and 
be poorer money makers because of it.    While, T/A people are 
immune from falling in love with individual shares, they are heavily in 
love with their own methods.    I hear the call of traders on this forum 
who exort us to have absolute commitment to your trading plan and 
stick to it.     The idea that a certain trading plan in some situations 
may not work at all does not appear on the T/A person's radar screen.
The fact that profitable automated computer  trading systems with rigid 
rules have not been designed yet ( I exclude the case of selling black 
box software to a gullible public, which can be profitable) suggests to 
me that if you are too 'passionate' about your trading system it will 
ultimately end in tears.    

By contrast, with F/A there are several methodical approaches you can 
take.     Net asset value, growth at a reasonable price, earnings dogs 
of the DOW, dividend yield etc. etc.    The ability to look at a share 
from these different independent methods give F/A investors the ability 
to assess an investment from different perspectives, a breadth of 
perspectives that pure T/A practitioners lack.

In summary my proposition is that 'falling in love' is a problem that both 
F/A and T/A practitioners face.     What I would be interested in 
discussing is how *you*  get out of it.

SNOOPY





--
Message sent by Snoopy 
on Pegasus Mail version 4.02
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"Stay on the upside of the downside, 
Anticipate the anticipation!"




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