Just when I thought people were starting to like us:
Let’s make a crazy assumption and agree that investors are — at least in part — rational beings. Unless you exclusively worship the black magic of technical analysis, chances are your portfolio is built upon logical assumptions about the headlines and hard numbers like revenue, earnings and so on.
You know, facts.
-Jeff Reeves, InvestorPlace.com
So, my question is this: Can a “rational” person read this, this, and this, and still say that technical analysis is black magic? Sure, some approaches to technical analysis can’t be backed up by data (as is also true of some approaches to fundamental investing), but I’m not sure how a rational person can argue that relative strength has not been effective over time.
and let me add…”a pox on their house”. So these “facts” which are logical really helped them in Aug 2009 them.
Fair to skewer me, since perhaps I shouldn’t have been so derisive to chart watchers. Truth is I closely watch “softball” technicals like 200-day moving averages myself … even if, like William in ‘Mallrats,’ I can’t see the sailboat in the magic eye that everyone else does.
Though you have to admit, buying based on the charts in a vaccuum is a risky proposition. Much like believing fundamentals without watching sentiment or relative strength, true?
All this is to say that article was making the point that investors who ignore numbers and balance sheets do so at their peril. And you are fair to say the same thing about technical analysis.
The smartest folks know how to take the best information from both methods.
Relative strength is a fact, just as much as any numbers on a balance sheet. Numbers reported on a balance sheet are actually subject to a fair amount of discretion, whereas the CFO has no discretion about what stock prices the exchange reports for his company. I would readily admit that some charting methods cannot show evidence that they work, but relative strength is not one of them. Most fundamental methods cannot show they work either, else everyone focused on numbers and balance sheets would outperform. Buying stocks using technical or fundamental analysis alone or together is a risky proposition. Buying stocks is a risky proposition, period-which is why the returns are often so good. I’m sure it’s possible to do well with judicious use of either method alone or in combination. There is more than one way to skin a cat. Just because fundamental analysis can work is not a reason to deride technical analysis, or vice versa. We routinely discuss how relative strength methods are best used in a portfolio by mixing them with deep value managers.