I find the debate between fundamental and technical analysts to be one of the sillier things on Wall Street. As noted previously, if a tool has value and works for you, then why not make it part of your arsenal? This includes technical, fundamental and quantitatative approaches.
Which brings me to the recent gleeful TA bashing at RM: Wachovia, which acquired Prudential not too long ago, laid off the entire Pru Technical department. This was somehow taken as proof that "Technicals don’t work."
Not explained was the similar move by Wachovia closing their Economics department; I guess that means Economics doesn’t work either.
Since turnabout is fairplay, I want to direct your attention to the now bankrupt Delphi Automotive: Yesterday, the WSJ "Tracking The Numbers" column took a fascinating look at the Fundies who covered Delphi. Many of these fine folks maintained their Buys on the firm, even as it careened straight into bankruptcy:
"Right until Saturday, when the world’s biggest auto-parts supplier filed for bankruptcy-law protection, some Wall Street analysts maintained "buy" or equivalent ratings on Delphi stock. At least two issued bullish reports within the two days preceding Delphi’s Chapter 11 filing, citing the possibility that the company’s prior owner, General Motors Corp., might bail it out.
As of early last week, the consensus rating of 17 analysts who covered Delphi stock was "a little better than a hold," said John Butters, a research analyst at Thomson Financial in Boston. The analysts’ mean was 2.9 on Thomson’s five-point scale, in which one is a strong buy and five is a strong sell."
I can assure you folks who are enmeshed in this debate that chart readers were not long Delphi, which had long since given many a technical sell signal. Indeed, anecdotally there were quite a number of shorts in DPH, due to the technical signals.
Meanwhile, Analysts maintained a "buy" or an "overweight" rating on Delphi, even as the stock "tumbled into the single digits."
Apparently, this is not a first time occurence. The Journal notes that "Analyst also have held positive views on other stocks before they skidded into bankruptcy, including energy firm Enron Corp. in 2001 and, more recently, Northwest Airlines Corp."
This example will not resolve the Fundie/TA debate, which is quite silly. I suggest to readers that they sidestep the entire issue, and use what works for them.
My friend Kevin Lane is the Chief Market Strategist at "Techni-mentals" — an independent research firm that combines Technicals with Fundamentals (Get the name?). Their track record is superlative. Its proof enough for me that ignoring any tools that can help your performance is simply bad for returns, and reflects questionable judgment . . .
Source:
Despite Delphi’s Spiral, Some Analysts Said Buy
Bullish "Experts" Cited Possibility of GM Bailout Days Before Bankruptcy
KAREN RICHARDSON
THE WALL STREET JOURNAL, October 11, 2005; Page C3
http://online.wsj.com/article/SB112899372485965150.html
The problem with your analysis is to presume that sell-side analysts that had buys on Delphi were applying fundamental analysis (or indeed are proper proxies for the entire set of fundamental analysis). In fact, they were making a technical trading call based upon the optionality inherent in the stock versus a positive catalyst such as a union agreement or a GM buyout. Any true look at the fundamentals would have seen a tremendously overvalued equity. In addition, in light of the fact that double digit yields were available on Delphi’s bonds, you could not make a case for the stock on a relative risk-return basis either. Believe me, there were plenty of fundamentally focused investors that were short this dog.
A true fundamental analyst would never have called a buy on Delphi. For it has little intrinsic value. Therefore the current price represent no discount to its true value, and represent no margin of safety.
technicals will make you more money in the market than fundamental analysis.
that is because data and sentiment (recall both drive stocks higher or lower) that you will NOT see on the 10Qs or hyperbullish analysts reports feed directly into charts.
a week befroe nasdaq blows up, greenspan tells clinton things are great.
2 weeks before 1929 crash, irving fisher says stocks have reached their permanent plateau.
months before Enron implodes, sycophants at harvard b school publish a report calling Enron an example of great strategic thinking.
2 months ago goldman takes a commodities brokerage called REFCO public.
today, the feds move in, accusing the CEO of fraud….
experts don’t know jack.
read charts.
if you are still skeptical, buy one book and read it twice.
that book is calked “Stickky Charts.”
It is easy to read and geared for the person who doesn’t know a thing about charts.
I guarantee you will read this book and NEVER look at stocks in the same light.
And the best news?
The book cost $12 !
I think the real error is that sell-side analysts don’t get paid to make buy and sell calls. They get paid to do the heavy lifting for the buy-side folks. There is, after all, a reason they call it the sell side. Measuring the sell side’s mostly formalized ratings is fun, but it doesn’t tell you anything about fundamentals vs technicals.
Like most people who trade on fundamentals, of course I’ll look at a chart. I’ll look at lists of institutional holders, check insider trading history, guesstimate potential constituencies for the security under what I consider probable scenarios and all sorts of things you might not call “fundamental” analysis.
Having found some utility on the margins, I am thus loathe to mock the chartists the way academics might.
However, I also know better than to tell an audience that might include the skilled and succesful that “technicals will make you more money.” Turn that around, say “[blank] has made me more money,” and we can avoid the argument.
Back to Delphi, I can’t tell you what value guys were thinking who didn’t dump it when Chapter-11 Miller took it over. I can tell you that they were making a fundamental bet that was high-risk, low-probability and very dangerous without ever looking at a chart.
WCW said:
I’m not one for political correctness and soft, massaged opinions, my friend.
With that said, I stick to my bullishness on charts.
Charts would’ve allowed the average investor to avoid the Nasdaq March 2000 wipeout.
It is called a double top.
Not only did the NASDAQ double top in March ; a little while later that spring, almost as if to mock us,the index double topped again!
By then, if you weren’t out of the market, it was because
A. you didn’t read charts…
B. You weren’t in it to begin with
or
C. you were too drunk off the joyride to bother understanding the fundamentals (or lack thereof) of those BS telcos crowding your portfolio.
an inebriated main stream media (MSM) was still parading the market like there was no tomorrow.
That March, there was nothing other than that simple chart formation that would’ve told you the market was ready to blow and that it was time to get out.
Don’t get me wrong — it’s easy for me to step up to the plate here and berate chart-ignorers.
As the old adage goes, hindsight is always 20/20, right?
Nevertheless, operating in the market without charts is like driving cross country without a map.
You’re bound to get lost, or worse.
October 17 Carnival of the Capitalists
Welcome to part two of the second anniversary celebration of Carnival of the Capitalists. In case you missed the first part, at BusinessPundit, be sure to check it out. The first CotC was hosted two years and a week ago by Rob. His brilliant idea le…
http://blogs.heraldextra.com/airfare/