Why are value investor types so rigidly opposed to TA?

[DesertCat]

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How come there are value investors in the Forbes 400 but no TA types?

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John Arnold for one. Youngest on the Forbes list, was a trader for Enron and now has his own hedge fund.

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He's in commodities, which is different than stocks because commodities don't really have intrinsic values, so traditional FA isn't possible. But just because he's called a trader doesn't mean he uses TA.

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Arnold said he looks to place bets when he thinks a market has become "biased," moving prices away from what he considers fair value, according to a February report about the annual meeting by Platts Power Markets Week.

marketwatch article


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He places bets when price is different from value, that's more FA like than TA. He takes on contracts based on risk analysis, using a full time meteorologist on staff to help, that's FA. At Enron, he made almost risk free money as a market maker, i.e. arbitrage, i.e. FA.

And remember, Brian Hunter at Amaranth was also a top trader and headed for billionaire status until he blew Amaranth up. Whatever his techniques, Arnold needs to stand the test of time before we can crown him.

[Moseley]

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This morning I was telling my wife about this great stock I found that I'd trading at one third book an will likely take two years to reach book value. So I have to wait around for a couple years, checking and rechecking to make sure I didn't make a mistake.

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Well, since you are now invested, could you share the name of the Co.? Our investing in it, will only help you, since you are already in.

[ArturiusX]

A good blogpost a friend of mine made in regards to TA v FA. Both can be traded to a profit. Being opposed to one and pro another is stupid:

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Anyone that exclaims that there is a “magic” bullet that is going to create a return on your account day after day, year after year, across all types of market conditions, probably has a big flashy website full of pop-up ads and “SPECIAL OFFERS!” willing to give it away to you for the all-time low price of $99.95 too.

But that’s not to say that consistent returns, day after day, and year after year are not possible. The difference is in understanding the statistical implications of trading.

Statistical trading is no different than betting on the statistics of anything in life. It isn’t magic, it’s learning to think statistically and understanding enough of the mechanics of what moves price to create systems that prove statistically profitable. You could sit out on your porch everyday from 9-5 with a notepad and document how many cars of each color drive by. You may notice that after doing this for a 30 days, 70% of the days in the past 30 days at least 5 blue cars drove by. Looking closer at your data, you might notice that additionally, it seems that of those 5 blue cars that drive by 70% of the time, it seems that they all drive by within a 2 hour time period of each other on the days that they drive by 100% of that 70% of the time, and the other 30% of the time that you don’t see at least 5 blue cars, the ones you do see don’t drive by within that 2 hour time period of each other.

So you formulate a system. Your system says that when you see the first 4 blue cars drive by within a 2 hour period, you open a bet that you will see another blue car drive by before 2 hours passes from the time you saw the first blue car drive by. You know that this happens 70% of the time, so you know that based on your data, you should be correct at least 7/10 times, and that should be your profits if you leave it at that. (I have received several objections to this last point, however this is in fact NOT “Gambler’s Fallacy” as Gambler’s Fallacy refers to independent or “random” events.)

This is technical trading.

Now, a few weeks later you happen to be walking down the street from your house and notice an auto body shop a block off the main street that you hadn’t noticed before. You look in the garage and notice 3 blue cars being worked on, as it turns out this auto body shop restores the body’s for a couple of cars that the city uses, which they happen to paint all blue. You look at the hours the auto body shop is open, and they take weekends off with one alternating day every other week depending on their work load, which works out to them being open roughly 70%. You realize that the reason your statistical system works is because on the days the auto body shop is open, it’s constantly working on the city’s cars, and when they’re done they drive by your house back to the city parking lot.

These are the underlying fundamentals.

Obviously you don’t need to know the fundamentals if you can think statistically, but you get my point. The faster you can learn to think like this, the faster you can learn to trade properly.


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