Forum Archive Index - February 2004

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

Hi Steven,
 
>
>Snoopy wrote: "I cannot explain why Steel and Tube is now trading
>around the $4 mark...I have a rule of thumb that says when a share
>gets to 20% above fair value you should look to the sell button and
>look at an exit strategy."
> 
>Therein lies the fundamental flaw of why using fundamental analysis to
>trade the markets is a losing game. 
>

I use F/A to *minimise* my trading.  I trade as little as possible to keep 
my costs down.   Did you know trading is a key indicator of 
underperformance?    Generally the more you trade the worse your 
overall return will be.

>
>If you try and trade the markets
>using what is fair value as a rule of thumb, you are going to miss out
> on some of the most substantial increases in stock market history.
>

True, just like Buffett did when he missed out on the tech boom.   He 
also missed out on some of the biggest losses in sharemarket history by 
staying out of an irrational market.

>
>People make their fortunes during these times, and if you're out of
>the market because of what you consider to be fair value, you're
>riding in the face of what the market is telling you and missing out
>on all the action.   
>

And if you get in without knowing what fair value is you are very likely to 
blow the lot.

>
>Why try and go against the market? 
>

Because contrarian value investment is a proven investment strategy 
which provides superior returns to chasing growth and trend following.

>
>Surely the
> object of the game is to beat the market. You can't do that if you're
> sitting on the sidelines with your eyes shut and hands over your ears
> saying the market got it wrong just because you think it is
> overvalued. 
>

I never said the 'market got it wrong'.    The price is always right on the 
market.   But the value may be undevalued or overvalued.    If you have 
a choice, and you always do,  you pick what Mr Market undervalues, not 
what Mr Market overvalues.

>
> True, you can make money buying undervalued shares and waiting for the
> market to catch up. But how long do you have to wait 
>

Mr Market decides that, not me.

>
>and what about
> the opportunity cost of money you could be making in the meantime? 
>

No opportunity cost.    The high income shares I invest in are paying me 
a much better return than bank interest while I wait.

>
>As Mike Moore said,
> its important not to be right before your time.  
> 

That all depends on how much time you have.    One definition of the 
sharemarket is a way to transfer wealth from the impatient to the patient.

SNOOPY




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