Why are value investor types so rigidly opposed to TA?

[DesertCat]

Hard core value investors view the markets short term movements as mysteries and don't feel they, or anyone else has special insight into them. If you want to work for one bear that in mind. Review Buffetts comments for detail, his quote about he stopped using TA when he got the same predictions when he turned the chart upside down, but most importantly the Mr. Market parable that is the basis of value investing.

And no one mentioned one reason TA is so popular. Value investors are lousy clients for brokerages, TA driven traders are great clients, so brokerages hire TA types to provide free research to clients because it promotes trading, same as they hire Abby Cohen macro predictors to get you to rebalance your portfolio.

I have had a few times where I felt I had special insight into price movements, basicly when I knew a large shareholder would be forced to sell lots of shares. Beyond that I don't have a clue and its led me to scoff at TA in the past. But as I get older I realize that some large quant operations have so much data and smarts they might have an edge over many securities, and a smart two plus twoer might be able to find a single stock where they can focus on they can develop an edge. But lots of what I hear from TA types seems too simple to be useful. I buy or sell illiquid microcaps ever day, and I create discernable patterns in their price movements because I typically push to close orders at days end. But if you try to use this predictively you will fail because you won't know when I start, when I am done, and when I was too hung over to open my laptop or when I had to take my daughter to her gym class. Multiply that by hundreds of participants and it seems almost impossible.

[DesertCat]

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Why are those types so ready to dismiss TA as worthless?

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because they are poor value investors and have a strong need to validate themselves.

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Neither of this applies to Buffett or dozens of value managers with multi-decade records of beating the market. These guys don't use TA, and don't need any more validation. Whether TA works or not, they'll tell you they never needed it.

[stinkypete]

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Why are those types so ready to dismiss TA as worthless?

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because they are poor value investors and have a strong need to validate themselves.

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Neither of this applies to Buffett or dozens of value managers with multi-decade records of beating the market. These guys don't use TA, and don't need any more validation. Whether TA works or not, they'll tell you they never needed it.

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i don't consider buffett et al "those types" - and (correct me if i'm wrong) i don't think buffett would claim that TA is worthless to everyone.

[Mark1808]

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Why are those types so ready to dismiss TA as worthless?

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because they are poor value investors and have a strong need to validate themselves.

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Neither of this applies to Buffett or dozens of value managers with multi-decade records of beating the market. These guys don't use TA, and don't need any more validation. Whether TA works or not, they'll tell you they never needed it.

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i don't consider buffett et al "those types" - and (correct me if i'm wrong) i don't think buffett would claim that TA is worthless to everyone.

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

[spider]

The are a few problems with TA (all of which are really the same thing):

1) There are a variety of definitions of TA, many of which contradict each other.

2) No one can ever explain why TA (regardless of definition) should work, only that "it just works". Which by the way, is a viewpoint sorely lacking in evidence.

3) As mentioned, it is kind of curious that all of the long term great investors practiced some variation of FA.

[DcifrThs]

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The are a few problems with TA (all of which are really the same thing):

1) There are a variety of definitions of TA, many of which contradict each other.

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this is the one i have the most trouble with. wtf is TA? lol.

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2) No one can ever explain why TA (regardless of definition) should work, only that "it just works". Which by the way, is a viewpoint sorely lacking in evidence.

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well on some definitions of TA there is definitely documentation and studies that prove it works over time but can't be expected to in the future. the reason is because it has been documented to have worked over time LDO.

my favorite viewpoint on the subject is from Benoit Mandelbrot. he is arguably one of the smartest people of the century (20th) and certainly contributed a ton to mathematical and statistical undertakings.

he wrote that with is methodology of replicating price charts, he fooled many technical analysts who immediately showed him supports, reversals etc. etc. etc. thinking that the price charts were actual market data instead of a totally made up random simulation.

he refused to believe that TA is worth while simply because he could so easily fool its practitioners.

he did concede though, and i do as well, that TA seems to work in some instances and there is one logical reason i can think of: one unchanging factor of TA seems to be human reaction to price movements. there are psychological factors that imo cause humans to act a certain way and TA uses proxies (unknowingly possibly) of those traits in its practitioning.

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3) As mentioned, it is kind of curious that all of the long term great investors practiced some variation of FA.

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yet some great hedge funds use TA and are killing it (here you have to include quantitative strategies as TA since they are based on arguably non- fundamentel factors) ... i.e. renaissance, shaw etc.

it doesn't take mathematicians to do fundamental analysis but simons only hires the absolute creme de la creme from the math/stat world (for the most part he doesn't even look at US PhDs...which says something about our education in that subject). so i think he's pretty much a TA type, but again, goes back to wtf is TA???

great post btw spider.

Barron

[Mark1808]

There are people killing the lottery too.

[DcifrThs]

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There are people killing the lottery too.

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horrible analogy for the guys killing the markets i mentioned. simons isn't some lottery winner. neither is shaw. there are TONS of TAs though that of course this analogy could very aptly apply to ... but simons and shaw aren't two of them.

Barron

[mrbaseball]

I use a lot of technical analysis. Not so much from an investing standpoint (although I do look for support and resistance levels for entries/exits) but more from a trading standpoint. Then again I am a trader. You can't really play the swings and use fundamental analysis for market making? Momentum, support, resistance, trendlines etc. are all technical and the weapons that market makers use. Crude oil for example is down more than 4 bucks right now. What fundamentally changed from yesterday? Who the hell knows! But technically you can see the weakness and get a hellova ride!

[CrushinFelt]

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I use a lot of technical analysis. Not so much from an investing standpoint (although I do look for support and resistance levels for entries/exits) but more from a trading standpoint. Then again I am a trader. You can't really play the swings and use fundamental analysis for market making? Momentum, support, resistance, trendlines etc. are all technical and the weapons that market makers use. Crude oil for example is down more than 4 bucks right now. What fundamentally changed from yesterday? Who the hell knows! But technically you can see the weakness and get a hellova ride!

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