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Think like a fundamentalist, trade like a technician

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Deal Addict
Aug 1, 2006
1005 posts
100 upvotes

Think like a fundamentalist, trade like a technician

Hi,

I found an interesting point of view in this article:

http://www.nationalpost.com/scripts/sto ... ?id=302192

While I don't personally believe in technical analysis and chartists (horoscopes and astrology? :) ), the perspective expressed could also be applied in a broader sense. I would consider it a mix of the two worlds: value investing and something which I call "market reality-oriented". With the later aspect not necessarily associated to daytrading. But related in some degree to market timing, yes.

"Buy high and sell higher" seems to be a more realistic principle than "buy low and sell high" (which works only in theory).

An interesting philosophy IMHO: why consider yourself only from one side of the line - bargain buying (like in a store anouncing sales/discounts) and not also benefit from the other "side" of the situation - make the stuff that doesn't sell well available for others at a reduced price? Something like selling stuff you no longer need on ebay or craiglist.

A combination between Graham/Buffet and Loeb (see "Battle for Investment survival").

So far, I admit that I'm identifying myself with that person buying and buying in order to low the averages :) And now it made me reflecting a bit, maybe it's not good what I did.

The most difficult things in implementing this strategy would be, in my opinion these:

1. HOW to know that you indeed made a mistake when you decided to buy a particular stock? That is, how to know if the stock has potential value or not - in order to not get "false signals" (noise) for relatively shorter time periods (when we know the market is only a voting machine)?

2. For a stock which let's say proved its value along time, can you really get a benefit by trying to get outside the market when it goes down and re-enter after - by noticing when the big institutional investors make the stock out of favour, or start buying again)? What would be the gain (if this timing could be accomplished)? A gain in time?

3. HOW to know to move in sync with the big, institutional investors? (Related to this, I've recently finished reading a book "Rule #1" making interesing points on this topic).

The bottom line: how to distinguish between a situation where the greedy professional traders intentionally speculate and even drive a market down, and scary the people to sell their stock in panic and thus the professionals will buy those almost for nothing (I'd say in a way they don't deserve, because they didn't really put sweat/work for it) VS. the situation where it's feasible to sell because the stock doesn't prove its value anymore (if many few years ago it proved it) and you wish to correct your mistake in minimum time ("cut your losses short").

Any thoughts?

[P.S.: I consider the "market reality-oriented" view very nicely expressed by the last sentences from that article: "The most important principle is that price trumps every other consideration." "Price trumps value, price trumps economics, price trumps everything. Price tells you whether you're right or wrong."]
3 replies
Deal Addict
User avatar
Sep 26, 2007
3960 posts
146 upvotes
SC
it's not unreasonable to question the old buy low and sell high way of going about

i'd have to agree that buy high and sell higher isn't much better.
the example they use with the owner selling red dresses and blue dresses... doesn't make a whole lot of sense. with stocks and esp mutual funds, we're not really the owner here are we? we have no control over the prices. we can only buy and sell whenever the time is right, we are really more like the consumer here.

i don't think that way of thinking as if you are the owner can indoctrinate what it really is to be the owner. to use your phrase, we're out there shopping for bargains, we're the consumer looking for the best prices. and i would agree and wonder how would we really know what goes on behind closed doors...
Deal Addict
Aug 1, 2006
1005 posts
100 upvotes
xlfe wrote: with stocks and esp mutual funds, we're not really the owner here are we? we have no control over the prices. we can only buy and sell whenever the time is right, we are really more like the consumer here.
We may not be the owner, but even in the example mentioned in the article, the owner doesn't in fact have so much control over the selling price. The market/demand will determine him to sell lower in order to reduce the inventories.

The fact that we have no control over the prices is thus a "constraint" in the system and we should sometimes consider the decision to sell at a loss maybe a healthy thing.

Thank you for your comments.
Sr. Member
Oct 21, 2004
543 posts
94 upvotes
I disagree. firstly I think retail investors have no business "trading". buy and hold is the only way to go. if they don't have the patience, training or time to do the research to implement a decent buy and hold strategy, they need to park their money in a good fund and forget about it. for me, value investing is tough enough to understand, I can't afford to cloud my thinking with technical analysis - which I believe is rubbish anyway. only a businessman like approach to investing makes sense.

Gartman always amuses me. I find it amazing that Buffett - probably the world's greatest investors and a great mind on investing - says that he only has a few good ideas in a year and sometimes years go by without a good idea. and yet Gartman manages to write about new ideas EVERY single day. many of the world's best investors do a lot of sitting on their hands and reading. what they don't do is cook up a new half-assed idea every day and push it out the door. there is a reason why you see more investors than traders (are there any traders at all actually) on the list of the richest people.

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