[OT] Re: [GP] Technical v Fundamental analysis
- At 12:29 16/05/2002 +0100, Peter Smith wrote:
> > Fundamental analysis would not have predicted the outbreak of foot andWhilst it is true that in the long term prices have a tendency to gravitate
> > mouth either.
>True - but it isn't meant to - Value analysis takes a longer term view.
>During the last Dutch Tulip bulb insanity (Internet stocks bubble) - while
>everyone was losing their shirts on crap.com, the Sage of Omaha - Warren
>Buffet was value investing in stuff like paint brush manufacturers - at
>the time everyone thought he'd lost it, but now his stock is ahead again.
back towards fundamental values, it is also true that in the long term
we're all dead.
The problem with fundamental analysis is that, closed-end funds aside, the
fundamental value of an asset is unknown. Was it really so rational for
Buffet to avoid the herd and miss all that money on the way up?
> >The theory behind technical analysis/behavioural financeCredit due for making such an unusual honest, open and valid point.
> > also makes the
> > assumption that people behave in a predictable way
> > *after* such
> > unpredictable shocks. For example, under/overreaction,
> > herding, etc.
>I couldn't make GP find anything interesting with technical analysis - but
>that doesn't mean someone else can't
More commonly, we get:
"I couldn't make money therefore the markets must be random; if you make
money that is purely due to luck."
"The markets are efficient due to lots of overconfident random traders; I,
however am significantly above average, which is why I've done so well."
>and I agree that there is clearly something to the ideas of behaviouralIf this is of interest, you may wish to join:
>My point was that the footTrue, but an "infallible" system is by no means necessary!
>and mouth outbreak demonstrated that future stock prices cannot be
>infallibly predicted from previous prices in the short term.
>With value investment, the foot and mouth is a short term glitch - whichAgreed.
>makes the company better value as a longer term investment as long as the
>unpredictable shock doesn't permanently destroy the company.
>I'm not convinced that GP is the best search paradigm for value investment*shudder*
>models because it involves delving through balance sheets.