Why are value investor types so rigidly opposed to TA?

[bills217]

I mean, I get that they are philosophically very different (if not opposed), but I really do not understand the immediate dismissal of all things TA by a lot of value investors I have come into contact with recently.

Friday I met with a group of analysts at a value investing firm, and when I told one of them about my interest in TA, he chuckled and said to not even mention it to the other analysts.

That is just one anecdote, but it seems like I have been getting this a lot lately - and I am hardly an opponent of value investing.

Why are those types so ready to dismiss TA as worthless? How could so many people use it so successfully if it is really all smoke and mirrors? And why do valuation and TA have to be mutually exclusive when it comes to making buy/sell decisions? What's wrong with using a combination of the two?

Any insight would be appreciated.

[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.

[ImBetterAtGolf]

I'm going to assume that "TA" means technical analysis.

The first problem is that while there are many value investors with documented good track records, there are hardly any technical (not quantitative, but technical) investors with documented good track records. Most of the stuff you see on bookshelves is written by people who claim to have good track records, but usually have a conspicuous lack of documentation. The field is nonintuitive and arcane and there are few people who everyone can agree have been successful.

Another reason is that many people who practice this "art" are certifiably unsophisticated. That makes it easy for most professionals to look down on TA practitioners.

At best, I'm agnostic about the subject.

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

[/ QUOTE ]

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

[/ QUOTE ]

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.

[/ QUOTE ]

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?

[Isura]

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

[/ QUOTE ]

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

[/ QUOTE ]

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.

[/ QUOTE ]

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?

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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.

[DesertCat]

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

[/ QUOTE ]

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

[/ QUOTE ]

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.

[/ QUOTE ]

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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I'm pretty sure Buffett would tell you its worthless to him, that he doesnt think it has predictive value. But I don't think he would be presumptuous as to say something can't work for everyone.

And the problem with big successful funds like Renaissance is that no one really knows what they do. There are many trading strategies such as statistical arbitrage, pairs trading, other arbitrages, etc that have little to do with TA as most people define it, but they are quick to include the successful practitioners as evidence of TA's success.

[David Sklansky]

And the problem with big successful funds like Renaissance is that no one really knows what they do. There are many trading strategies such as statistical arbitrage, pairs trading, other arbitrages, etc that have little to do with TA as most people define it, but they are quick to include the successful practitioners as evidence of TA's success."

I was wondering if they have discovered stuff such as, "when a one hundered dollar stock is up 75 cents in the middle of the day, the expected value of where it will be this time tomorrow is $100.45. Because there is a good chance the 75 cent rise was a statistical blip." Roughly speaking. If so, a company with their resources can grab some of that 25 cents sitting there. If I am right it means that they are using pure price movements to help them make money. It wouldn't help any of us though.

[kimchi]

Also, I think many fundy types assume TA exclusively involves involves looking at charts and deciphering the patterns and predicting where prices are going to next. I buy and sell based on pretty basic TA but very little of my time is spent staring at the chart. It works and has worked satisfactorily for me so far and has been proven to be robust during testing.

I think much of the value investor's resistance to TA is often ignorance on TA methodology and people like to shun things they don't fully understand or have an interest in. I'm sure most/all TAs accept that FA works well in the right hands, but perhaps many FAs think that a successful TA is just running hot.

I think being a stubborn value investor and ignoring price and volume can really sting. There is a lot to be said in combining the two disciplines. A value investor can find companies whose valuations provide a set-up (can be short, too) and a TA can find an entry point whereby they can avoid buying over-sold companies still in the grip of a long-term bear move, or avoid shorting overbought companies still in a bull market frenzy. - shorting "overvalued" tech stocks during thelate 90s would have left a nasty scar, just as not buying the same overvalued companies could have resulted in a missed opportunity.

There have obviously been famous value investors (and I'm sure Desert Cat will chime in soon) and some perhaps less famous TA traders. I prefer what interests me. I find TA fascinating, but FA to be a frustrating trip into tedium.

There are a million and one ways to extract money from the market, but the trader's or investor's psychological methodology is more more important than their trading/investing methodology (IMO). Besides, I think FA is more suitable for investing whereas TA is more of a trader's tool. Apples and oranges.