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Lizard
30-06-2007, 03:46 PM
TA versus FA and trading versus investing seems to be a perpetual source of entertainment on share forums. Recently I was searching the old ShareChat forum for information on setting stops, when I came across some 2002 posts I really liked. Given the debate on another NZX thread, I thought others might enjoy reading these posts too.

Firstly, from "Nick", a sharechat post (http://www.sharechat.co.nz/archives/2002/09/msg00179.shtml) I could really relate to:

[quote]quote: WHY I WONT BE AROUND MUCH ON THE FORUMS FROM NOW ON

I have been a fundamental investor for many years, and have been a regular contributor to this forum since its inception. I moved to New Zealand from the U.K in 1990 and invested some money in corporate investments (montana) together with GPG and a few other stocks. I have been fortunate with those and have seen my portfolio rise from around 10000 to over 100000. All from buy and hold.

Around a year or two ago i noticed my investment patterns were starting to change, i was holding for shorter times, acting on tips, selling on talk. In short my investing was being adversly affected by spending to much time on the internet hanging around stock forums.

At around that time the big T.A versus FA debate was raging and although highly sceptical i have to admit i was tempted. In the U.K i was always fascinated with horse racing systems and did some serious study on the subject in a MENSA special interest group which led to a two year career as a professional gambler (another story). So being attracted to gambling it was only natural i should have a go at T.A

Having rather an obsessive personality i read everything i could find, spend hours backtesting, pouring over spreadsheets etc.
I then decided to use 20% of my savings 20000 and open a trading account. I opened an online account, managed to score a free copy of metastock and was ready for action.

In the first six months i tried a number of methods , you name it i tried it, systems based on oversold, momentum, trends etc. The results were mixed but overall i was slightly up. I then settled on a fairly simple system aimed at taking advantage of short to medium term trends. It was at around this time (early this year) that the markets were tanking, still i did ok, managing to stay in the few stocks that were holding up and letting my stops take me out of the declining ones.

By May i had been using the approach for a year, the results were not too discouraging , my original 20000 had turned into 23000. Now apparantly 90% of traders lose money in the first year so maybe it wasnt so bad , especially as it was such a bad year for stocks.

However when i sat down and analysed the the years trading i started to see ominous signs which led me to abandon the experiment.

1. When i added up all the commisions, the price of books , data subscriptions etc it soon became clear to me why there are so many people touting technical analysis. The allure of easy money atrtracts many who are tempted to trade and there is huge monetry gain to be had by supplying these people with the necessary equipment etc.

2. I could see many Technical "experts" who knew far more than i did who did not make money from trading, but made money telling other people how to trade. I had a look at the stock and commodity magazine, the magazine for traders, it seemed to consist mainly of advertisments from firms wanting you to spend money on get rich quick software etc.

From my old horse racing days i knew to be wary of any field of endeavor where the main source of income is derived from telling other people how to be rich. If anybody truly has a way to great wealth which involves competing against others the last thing you would do would be to write a book telling everybody how to do it. Quite simply it removes any edge your system may of had.

3. ALthough i did not lose any

Halebop
30-06-2007, 06:01 PM
A great couple of posts Liz.

There is an irony that Nick swapped out of trading, where he earned +15% in a year when the NZX delivered a negative return. As a benchmarking exercise, he did OK I suspect (I'm not sure what return the NZSE returned that year off the top of my head but big chunks of 2001 and 2002 were pretty cr@p).

Instead his biggest concerns seemed to be personality based - it was all consuming for him - rather than "this doesn't work". A stance I can happily accept rather than some quite ignorant views (in the true sense of the word, believe it or not I'm not trying to be offensive) of TA, probability and trend analysis.

The great irony is Nick's switch from $20,000 in trades to $20,000 in WHS in the name of Buffett. The price of WHS the day before his post was $7.40 (around 5 years ago) vs $6.00 today and a more recent peak of $7.32 in April 2007. Worth remembering that buy and hold doesn't deliver if your assumptions are wack.

I use TA and FA. I trade and invest. I interchange freely between them and appreciate the strengths and limitations of each. It need not take a lot of time to use charts and / or trade - some days I spend a few hours, others a few minutes. A recent trade, ADY, took me 5 minutes between filtering the ASX and buying (It took me longer than that to post the chart image here!). In terms of fundamental analysis I'd previously spent a couple of hours looking at ADY. They both contributed to the return but TA provided the efficiently timed entry (The FA of ADY at present is after all subject to a lot of assumptions). I haven't yet found a really quick methodology for qualitative FA.

Lizard
01-07-2007, 07:51 PM
quote:Originally posted by Halebop
I use TA and FA. I trade and invest. I interchange freely between them and appreciate the strengths and limitations of each. It need not take a lot of time to use charts and / or trade - some days I spend a few hours, others a few minutes.

Sounds great, Halebop. I'd like to get to that point one day. My own experiments with TA have seemed rather like a complete series of "Mr Bean tries Trading".... Hardly a stop goes by without being triggered. In fact, I have discovered that while bad FA can lose money fast, bad TA can lose money even faster - even on "good" stocks.

Now, I suspect that this may have something to do with my attitude. Or perhaps my methodology. Probably I should not have employed the "read the instructions only when all else fails" approach which has become the norm in a world of Chinglish instruction manuals and overblown OSH safety exortations, But there is some kind of excrutiating mental torture involved in using TA - well at least in my form of "bad" TA.

For me, investing has always been about believing in a business, its management and being excited by the price you can get it for. When you no longer believe in its prospects, its management or are excited by the price you can get for it, then you exit. But TA comes in like an overrider, telling me I must be wrong and tying me up in mental knots. I can no longer believe my analysis because the TA says I am wrong. Yet, within days of me reluctantly accepting a TA signal, the TA changes it's mind. Now living with that kind of moodiness is enough to light my fuse....

So, for me personally, it is back to a big emphasis on FA. Back to buying stocks when I like them and selling them when I don't. And if the TA doesn't agree with me - well, perhaps I will take an extra hard look. But for now at least, it's no more stops!

Halebop
01-07-2007, 08:51 PM
quote:Originally posted by Lizard

...My own experiments with TA have seemed rather like a complete series of "Mr Bean tries Trading"....

:D

Sounds like me and making frothy milk for coffee. It always ends up looking like something a dog drooled. As an aside, I used to do a mean Mr Bean impression too. The linkage in case you are wondering, was that Bean prompted Coffee out of the dark recesses of my mind.

For me the annoying thing about the TA vs FA debate is that I see no difference between the two. I use exactly the same trending analysis / probability techniques for both. The trick with this stuff is that it is actually very low brow, and unfortunately its one of those things that works because it works, not because the concept can be easily demonstrated. The probability of a confirmed trend, depending how risky you want to be, requires between 7 and 9 points of corroborating data to provide a valid "low risk" trend pick. How do "they" know this? Because they measured lots of trends across all sorts of subject matter and found this range to be more dependable than "random" selection. The "why" does not matter. It just works more often than it doesn't. What do I do? Look for 7+ corroborating pieces of data. That's it. Nothing more to it. Buffett wouldn't describe it like this but this is essentially his big hitter analogy - he's playing probability when he buys simple businesses with long histories of profitable trading and organic growth.

So when I'm measuring FA, I want a long trading history so I can see those trends over 7+ years. When measuring TA, likewise I want to see a few "hits" line up those 7+ times so I can feel comfortable there is a pattern or trend. Is it always dependable? Nuh-uh. But apply these concepts to some strict Buffet-like qualitative criteria and a few basic charting tools and my failure rate (at least during a bull market) has been negligible. A gratifying and directly consequential lack of regular losses and a few 100%+ pa profits ensure a benchmark performance that has kept me happy.

But in terms of TA I'm sure Phaedrus and "pure" techies would find at least some reasons to be unhappy with my "techview" of the world - make use of very few indicators, look for trends and patterns rather than aberrations, corroborate with FA data. Even on a more "pure" technical call like ADY - not an obvious FA buy for me - I was still satisfied that there is more upside fundamental potential than down.

The real test will be during a bear market. Will spotting the reverse of good fundamentals and strong up trending data allow me to avoid costly mistakes or even profit from short selling? (The later a concept I'm not entirely comfortable with because I prefer to eschew debt but I'll keep an open mind).

limegreen
02-07-2007, 10:46 PM
I think I am yet to develop any sort of sensible stock selection strategy, TA, FA, or otherwise. I guess I sort of look for tips here or in broker or internet recommendations, and then have a look at the chart (so I guess there is kind of a TA element).
I'm slightly more committed to TA in terms of looking for investments going sour. Although when you're looking a long term trend change, it always seems very unclear.
It's certainly a great improvement on my previous 'system' (broker advice). I am happy to let my winners run, and I really can cut losers. I don't think I really have the TA of sweet sweet entries sorted out BUT I certainly don't have terrible timing. I'm very happy with my overall investment performance, however.

Turtle
03-07-2007, 08:16 AM
The real test will be during a bear market. Will spotting the reverse of good fundamentals and strong up trending data allow me to avoid costly mistakes or even profit from short selling? (The later a concept I'm not entirely comfortable with because I prefer to eschew debt but I'll keep an open mind).
And the last 5 words say it all! If what you've got works and you know why it works, do it. If you find something better and know why it's better, do that.
I combine TA (finds targets) with some FA (why do people think this is good), "chuck in" some disciplined money management techniques and Bob's your Aunty.

duncan macgregor
03-07-2007, 08:36 AM
I have a system which is a mix of both FA and TA. I Look for a rising sector in the market place, with rising prices due to demand. The company is a secondary choice. I wont buy into a company unless its trending up at that time. That is my mix of FA and TA at the buying end. I run a 5% stop loss at the start Ta style, which gets dropped to lower levels when the sp trends up. My stop loss might end up being 20% below the last highest high, in a steep trendong company, as long as it is still higher than my origional time line.
An example of this is MCR, which has more than doubled in share price in six months, with a buy price of $2-15 a high of $4-85, and a stop loss at $3-88. If the fundamentals change I sell straight away.
I also like to buy in parcel lots,not buying all at once but adding to up trending shares by selling downtrending or doing nothing shares.
I find it very important with my investing style to know which is my best trending share percentage, and which is my worst. I use direct broking super charts and news section for all my FA and TA analysis.
I print a company chart out stick it on my drawing board, and have a sliding bevel set at 20% rise pa annum which tells me at a glance how the company is trending.
I never have more than five companies at one time its not how many companies you have that decreases the risk, its your ability to pick winners, and know when to sell up and get out of one or the lot if it goes wrong.
Incidentely unlike common sentiment i think you can time the market i do it all the time. Macdunk

ratkin
03-07-2007, 09:51 AM
That Nick talks lots of sense !!!!

For those with a foot in both camps there is a book i really recommend , the aggressive investor by Nicholson. He screens for stocs that are making 12 month highs then selects those paying a decent dividend and with a below average P.E .
He uses good conservative stops so that the trade is allowed plenty of time to develop , all going well the holding is for years rather than weeks.
The book includes CDS which are very useful for explaining his methods , one of the few books i have read where the author really does reveal all in a way that is easily understood

Phaedrus
03-07-2007, 11:18 AM
quote:That Nick talks lots of sense !!!!

People, you may not be aware that "Nick" [u]IS</u> Ratkin!!!!!

That is just one of the [u]eight</u> aliases he created on ShareChat to provide himself with popular support there! Typical quote "I'd have to agree with Nick". Nothing changes!

Halebop
03-07-2007, 11:55 AM
That Halebop talks a lot of sense too! ...and he's so good looking!

Edit: Damn! wrong user account. Let me see, how do I spell that other one?... S N O O P...

ratkin
03-07-2007, 12:00 PM
It is me , i was hardly denying it was i . Hence the Nick talks lots of sense !!!!!!!! remark.

No need for you to get all hot under the collar Mr P . Relax , take a chill pill, we dont want you turning this thread into a childish slanging match , we have had enough of that on RBD and SLG

duncan macgregor
03-07-2007, 12:25 PM
quote:Originally posted by ratkin

It is me , i was hardly denying it was i . Hence the Nick talks lots of sense !!!!!!!! remark.

No need for you to get all hot under the collar Mr P . Relax , take a chill pill, we dont want you turning this thread into a childish slanging match , we have had enough of that on RBD and SLG
Thats telling him RATKIN we are all on your side whoever you might think you are at the time. Its a bit like kissing yourself in the mirror. I expect you would be able to have great conversations with yourself, without some bastard interupting saying you were wrong.
I am interested in your other six aliases are you big enough to let us in on it. Macdunk :D:D:D:D:D

ratkin
03-07-2007, 12:29 PM
Im sure Phedorus will point them all out.

Shame you both choose to shoot the messenger rather than listen to the message.
Im not interested in a slanging match , i didnt start thi9s thread off,

and my attempt at humour " Nick talks a lot of sense!!! has clearly missed you both

duncan macgregor
03-07-2007, 12:37 PM
quote:Originally posted by ratkin

Im sure Phedorus will point them all out.

Shame you both choose to shoot the messenger rather than listen to the message.
Im not interested in a slanging match , i didnt start thi9s thread off,

and my attempt at humour " Nick talks a lot of sense!!! has clearly missed you both , but thats to be expected i suppose, especially as you follow Mr P around like some love sick puppy
Which messenger to shoot is the problem there are six of them we only have one cartridge. PHAEDRUS and i have had our debates in the past [ask him about my time line].:D:D:DMacdunk

Lizard
03-07-2007, 06:17 PM
quote:Originally posted by Phaedrus
People, you may not be aware that "Nick" [u]IS</u> Ratkin!!!!!


Lol! Now that explains why one of Ratkin's posts reminded me of Nick's one!