From: Max More (max@maxmore.com)
Date: Fri Oct 22 1999 - 02:35:40 MDT
At 01:42 PM 10/21/99 -0400, you wrote:
>
>I'm not sure what you mean by "technical analysis" here.
>(I presume you don't mean than you dislike analyses
>which contain numbers.)
Hi Robin,
You might want to read a primer on technical analysis if you want to know
what people mean when they say they don't trust technical analysis. The
term has a specific meaning in the world of stocks -- it most certainly
does not mean anything like academic or scientific studies. It involves
pouring over charts of moving averages, MACD, Bollinger Bands, Stochastic
Occillators, On Balance Volume, and so on.
I see no verified evidence that investors relying on this kind of technical
analysis make more money than those who buy and hold based on fundamental
analysis (which could just as reasonably lay claim to the term "technical
analysis"). I am willing to agree that technical analysis in this form of
charting may possibly sometimes be useful in giving the investor a
(fallible) guide to *short-term* stock price movements. But over the medium
to long term, it is not patterns on a chart that determine stocks prices,
it is things like changing profit margins, new product introductions,
changes in competition, rising or falling expenses, management changes, and
external economic factors such as interest rates and inflation.
So, no, disliking "technical analysis" does *not* mean "disliking analysis
that contains numbers". Good fundamental analysis (contrary to technical
analysis) *does* involve looking at lots of numbers -- gross and net
margins, debt-to-equity ratios, growth rates, return on equity, net cash
flow, and price/sales and price/earnings ratios.
The only thing that looks at all like "technical analysis" that I give any
credence to are back-tested stock screens (the most well-known being the
"Dogs of the Dow". Many of these I would not touch, but those that make
sense in terms of underlying fundamentals have value because they give you
a mechanical buy and sell strategy, thereby minimizing emotional investing
(buying or selling based on greed or fear being a major cause of poor
returns).
Max
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