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I thought we cleared up this issue and let it rest a ways back, but this keeps coming back again and back again. Allow me to clarify some points..
1)TA is the study of price movement/price action. That's it. It is not rocket science and I am unsure as to why people have such a difficult time understanding what it is and why they are overcomplicating the matter. Is it an exact science? Nope, just like FA isn't an exact science, for if it were, then I guess everyones picks would be right 100% of the time, which they are not. No one is always right.
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the question is what constitutes price action/price movement?
is it TA to backtest strategies regarding how certain stocks/sectors etc. react to various changes in various variables over time? the indicators there are their "price movements" or "price actions" as related to possibly fundamental changes in either the economy, other stock prices, other market movements (fixed income, gold, etc.).
some of those are clearly fundamental but some aren't. those that aren't you can't clearly define as TA or FA. thats what i have issue with. i'm not needlessly complicating this here i don't think. would you classify AQR as a technical analysis shop?
look at the research they do here:
AQR Reserach Page
some of that is clearly fundamental and some is clearly NOT fundamental (in terms of valuing stocks etc.). so is the stuff not fundamental (momentum strategies), TA?
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2)This is a question for Desert Cat. You found a stock that is trading at 1/3 book value and think that it will take 2 years to get to full book value. My question is why two years? Why not one year? or five years? or even at all? One of the aspects of FA that turns me away from that kind of analysis is the fact that it completely ignore the driving force of the market...TRADERS.
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actually, liquidity is the driving force of the market. traders are its vehicle.
also, buying pressure comes from tons of areas, many of which operate through traders. saying traders are the ones moving the market is like saying the droplets of water coming out of a damn are the driving force of the river beneath...nevermind the fact that the damn is the actual thing driving the force of the river beneath.
similarly, the buying pressure comes from somewhere. traders are simply the expression of it in the market imo.
there is definitely no doubt though that liquidity, not so much information, drives prices. those seeking it are more concerned with time rather than price, those supplying it are more concerned with price rather than time.
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The only thing that will drive that price up, is buying pressure. That's it. Without buying pressure, that stock will not hit your projected bookvalue. Why will traders buy that stock? What is compelling them to do so? I have no clue, nor do I care. When I see buying or selling, it doesn't matter to me why they are doing so, I'm only concerned that they are buying and selling. Why, is extremely unimportant, from a TA perspective. The FA model has many incorrect assumptions, and the key assumption that people will act rationally is wayyyy offside.
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people acting rationaly is not an assumption of FA ... if people were acting rationally there would be no FA.
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The model also assumes that EVERYONE will have this economic model and everyone will eventually realize the undervalue of that particular company. The fact is 1)everyone uses different methods of coming up with an economic value using different metrics analyyzing liquidity, profitability, etc, so their model may not be like yours 2) just because everyone has a particular model, doesn't mean that they will act "reasonably", people act in a million different ways for a million different reasons. I am not looking for their motivations, I just assess what is happening in the market. As an example, simply because a company has blowout earnings doesn't mean the stock will go up 10% on the open. Sometimes they have blowout earnings and the stock tanks hard. Ultimately traders, and only traders will make your stock go up, and traders buy stocks for millions of different reasons. If they don't have those economic models as you do, or if they do and don't believe in them, your stock will not go up magically because it is trading under book value.
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you are forgetting one major thing, the fact that FA is tried, tested, and studied with conclusive results that state without a doubt that prices of stocks chosen by good fundamental analysis converge to their estimated price over time.
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3)Buffet.. let's just move beyond this. Who cares? Buffet doesn't like TA? Wow, big surprise? But so what? Just because he doesn't understand it doesn't invalidate it on any level. There are many private investors who do extremely well using TA? Why aren't they billionaires, because those billions you see made by the typcial Forbes FA billionares are a function of creating an investment company, attracting investors and all the work and stress and pressures and issues that are related to that buisiness and not as a result of personal investing. Some people just want to trade and don't have the ability to market themselves and raise capital, nor want to. Make no mistake, Buffet is a billionaire through Berkshire, NOT becaue through investing personal funds 40 years ago. It started with him raising $500,000 and moving from there and rasining more money. Those billions were a result of raising a ton of money and from that base investing well with it, and not some guy that started with a paltry $10,000 portfolio.
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interesting...so buffet hasn't made many more billions since he stopped taking money from other people? i don't think berkshire has had any offerings anytime recently...not to mention he should get MORE credit for starting with billions and, through investing, turning it into many many many more billions. that is far harder than starting with $10k or $1mil. so please show where buffet continued to take money from others similar to hedge funds (what you say is like a hedge fund growing through new investments rather than appreciation of its current capital stock).
and as you said, lets move beyond buffet. how about now you deal with benoit mandelbrot...one of the smartest people of the 20th century, friend to and admired by albert einstein for his deep insights...founder of much of the mathematics behind much of chaos theory (fractal geometry)...and creator of the multifractal model of price changes.
it was with that last model that he fooled TAs. how do you explain that his simulations were so good that veteran technical analysts were pointing him towards all o fthe price action you speak of? how, if traders are the ones driving the market in all cases, can their actions be so amazingly closely be described by an entirely random process?
brownian motion and all other financial estimations don't fool TAs...but this one does. it has every single aspect of real price charts but is driven by a completely random process.
how can you explain that? to me it seems like TA can work, but its foundation can only be explained, imho, by luck in using its indicators as proxies for the psychological effects that prices, price changes, volume changes, have on future price changes.
the actual logical foundation of TA though, thanks to mandelbrot, has, in my mind, been exposed as nothing.
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Lastly, at the end of the day, I tell people this...trade what you know and what you are comfortable with. I am not here to convince you that TA is the best and FA is the worst. However TA is the best...FOR ME. I am comfortable with it, understand the logic behind it and do well with it given my investment objectives and time frames in which I trade, which is typically short term trading (days to a week max). This would not work well with people who are FA oriented which is more the long haul.
Hopefully we can all put an end to this pissing contest and just have threads which will be TA oriented and others FA oriented..it's all about making money...
THE HUN.
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true, it is.
Barron