Most money managers are not in my league: I have outperformed the S&P 500 in each of the last 12 years using my quantitative model. Most money managers struggle to beat the market 50% of the time. Most money managers did not attend Wharton nor do they have 19" biceps....they fail miserably when compared to me.
Price itself is a great indicator in and of itself. In a sense, it incorporates all FA, sentiment and market conditions, et al, and distills it. It's not used, however, to help ascertain what an equity's share price may be 3 years down the road, as FA may be used. The problem is that things happen during the holding period to change the prospects of such as a longer term hold. Case in point, MSO. In 2002, the company was a brand name leader, no debt, had been consistently growing earnings for a few years, was establishing new markets via new products, media and expansion into Japan, and despite a sluggish economy, was the one publishing outfit asking for and getting higher CPM revenue, which said a lot about the company. The stock did well, until Martha lied to the Feds, as we all know, about her IMCL stock sale -which had not a thing to do fundamentally with MSO except that she's so closely tied to it. So with FA, keeping up with changes is essential. With TA, it's already in the price, so to speak: when the price started waning off it's peak and dipping into s/r, 50/100 moving average and what not, then that provided the update needed. But of course it's essential to consider that the horizon and aims are different for both groups as well and that has a part that plays in all of this too: How can one think in terms of FA when one is entering a trade that will last but a few moments or a few days? Now, despite likening TA traders to rats and FA investors to higher brainpower, which is a nonsensical analogy and perhaps meant more to rile the readers, it could be noted that rats do very well for themselves, as they seem to prosper, while many analysts have been known to be way, way off the mark, even misleading, at times. Then there's the statistic that roughly 80% of all actively managed funds underperform their index. That's in any year. What's also noteworthy is that it is a minute minority of money managers who *consistenly* outperform their index year after year. It's not the same 20%! It changes every year. For the majority then, their analysis doesn't seem to help them stay on top. Both TA and FA require brainpower, obviously. The technical trader as well as the fundamental investor both wish to profit and that can't be done without thought, ideas and action. To intimate that one group does and the other doesn't require brainpower is, again, nonsensical. Now as I start to peel the arguments as laid forth, I'm wondering why I ever thought this might be an earnest discussion in the first place, besides the fact that it's Earnest's discussion... The conclusion that "average returns are for average investors, superior returns are for superior investors", while maybe could be a truth stated in and of itself, really is spurious as a conclusion to the hypothesis given. There is not any connection I know of that proves FA provides superior returns or is the method used by superior traders, nor that TA provides average returns and is only used by average traders, which I believe is what was implied or close to what was implied. Perhaps mrmarket would like to cite the studies that prove conclusively the assertions he made.
GMS...I enjoyed your thoughtful and cogent analysis. I agree with most of what you said. Thanks for sharing.
Glitz and trophy wives??? Is this the nirvana you seek?? Time for a values check bucko.... Your first sentence mentioned my wife and 3 kids...guess what, that's infinitely more wealth than anyone can get trading stocks, no matter if you use TA or FA.. You want wealth? Try an extra inning game of wiffle ball with your 3 kids someday, and think about what really is important. Your post has to be the most disappointing thing I've read on ET since I've been here, and I've seen a lot of whacky stuff. Oh, since you mentioned private schools...I left out the fact that I graduated from the Roxbury Latin School which is the oldest and best private school in the country, placing the highest percentage of graduates into Harvard, Yale and Princeton (23%) than any other high school in the world. There, now I didn't leave it out.
... or being "surprised by a sneak attack" with the splash from a water balloon, which of course required a frontal assault of my own with the garden hose. Even a losing day is righted by the smiles and laughter of my kids. ooops, did I say 'losing day?' What I meant to say was a day where one of my 500 daytrades does not make as much money as the others.... yeah that's it.
When do you think you will improve enough to pick up your pace to trade in the league of amateurs who get the job done?
Thanks. I've read it - good book - but the quoted thoughts about money managers I had read some time ago in Random Walk Down Wall Street, I think it was. Should add to that thought that there also is 'survivorship bias' in the 80% figure. There, now I've tied in Fooled by Randomness.
You're still comparing apples to oranges. Traders are not investors and while many investors delude themselves into believing that they are "active" traders (something to do with the "thrill", the "glamour", and the "freedom"), it is a world of difference. Do you really believe that those traders in the pit really give a flip about fundamentals? THEY'RE TRADERS. Geez, learn the difference. They aren't trading for their frigging 401K account in the hope of investment returns. They're making ACTIVE income by trading. Do you calculate your salary based on annualized returns? Sheesh.
Two thoughts... MrMarket, you mentioned something on the theme of knowing more than the markets etc...I wonder if this is an impossibility tautologically...the markets have a price at close today for any stock you want to name...and the bottom line is, if you own that stock today, that's what you can get for it. Whether the prospects for appreciation are x or y for any given stock, the market is the final arbiter and the closing bell (disregarding afterhours trading of course) is the bottom line today. I understand FA and agree that finding "value" in a company and a high probability of a target in the future if everything goes as planned are skills to some extent, honed with experience and some hard work and yes, a bit of intellectual acumen necessary to Think ahead. But until any given stock truly does grow at such and such a rate, and produce earnings for this quarter or that quarter, it hasn't managed it yet and the market says: "here is what i'll pay you today for that company." In 4 to 6 weeks (your standard targeted time I *think* from your posts) the market may say different. But at no time in the 4 to 6 weeks, or before, or after, was the market ever wrong about the price or value of any company. Potential value is just that, potential....and Sept. 11ths, Martha Stewarts, Enrons and other sundry smaller incidents like the suicide or car accident claiming the life of a CEO can all impact Potential value, regardless of due diligence. You play probabilities well according to things that "make sense" to you. I just don't think its a matter of being ahead of or better than the market itself. Second thought...whether its "average" or not, or involved "superior" intellect..a guy like John Henry, net worth 600 million to 1 billion, has used a very simple technical trend following system, as have many turtles. Whatever one thinks of the turtles, one can't dispute that a truly simple set of mathematical rules, (i.e. buy at new 40 day high, stop at last 20 day low, etc etc) hasn't produced signifant returns and fortunes for many. I'm not knocking your FA with a smidge of technical signals that are the precursor to you even engaging in the FA, but to say that TA alone is "lesser", well I think that's naively dismissive of what the power of TA, properly understood by some and applied by some, can achieve on its own. We all know the world of CNBC is populated by those who can't use either FA or TA very well quite often. Most traders can't either, no matter what their timeframe...but just as most people can't hit a bullseye with every dart throw, the flaw isnt in the dart, its in the people. Just some thoughts...