Posted by: JavaBeans January 19, 2013
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My views are purely fundamental nagan. I am neither intelligent enough to truly understand how technical and macro investing works nor can I make any future predictions.
Some background on why that is so - there was a fair bit learning curve I had to go through to have been able come up with that conclusion. During the tech boom of the late 90's my admiration for chartists and tech analysts were sky high. They had us going on how right they were until, of course, the subsequent bust in early part of the millennium. Many macro and tech analysts didn't realize that it could be so short lived and failed to call out the warning signs. There were many factors to blame for the bust obviously - among them irrational exuberance for example (which I am also guilty of - I invested with a herd in mind most of the time) - but my point is that I have learned over the years that I tend to stick with market dynamics I really understand and let go of others I don't. And there will be occasional black swans where no one can really do anything about (due to systematic forces). During that period, the analysts who kept invested in companies with sound fundamental characteristics were rewarded up until the real estate bust. And then came the GFC with which most investors are still struggling with. Any chartist or a macro analyst who may claim to have pointed out a selling opportunity at Mar 2002 or a buying opportunity at Mar of 2009 is no doubt a kin of Nostradamus - it just can't be done. There have been lots of studies done in the past to promulgate the negative impacts on one's overall return due to market timing.
A few comments on your views:
Technical indicators - since I've never used any of these for my investment decisions I am unable to say much on the subject - but it seems to me that all tech analysts and chartists have similar type of information in front of them whether it's resistance, support, candlestick chart or moving averages - these of course are the product of volume and price volatility. No matter how one slices and dices the data the end result should be same - thus, any investment idea born out of technical analysis becomes futile to the detriment of one's ability to be the 'first' to execute an order - this has now become 'you will succeed if you have the right trading tools' motto as opposed to being rewarded for a unique idea that has a direct link to company's assets or earning power. This is why you will see a few successes at trading desks of bulge brackets and large hedge funds - primarily due to deployment of huge trading capital on narrow spreads. Retail investor's chances are close to nil. In a few instances where a unique view from a technical analysis do arise - it may or may not be realized by the market in the short term as technicals tend to be time driven.
Debt ceiling and macro views - These are overwhelming concerns on the public debt but can I really tie that in to make an investment decision? Probably not. My belief is that there are too many factors and stakeholders that come into play to be able to come up with somewhat reasonable analysis of the debt. For example, if I make a prediction that the debt ceiling won't be raised in Mar due to political structure of the Senate (Republican controlled and in opposition of any more raises) and let's say I short the treasury - but what are the chances that Congress won't come up with a budget reform bill to reduce spending in Mar? I can't assess that properly. And thus, I can't do it. There was a publication from Economist a while back which outlined a prediction conundrum - surveys from leading international banks whose head economist's predictions were wrong 95% of the time for a two year prediction. More than half were wrong for one year predictions. For example, in the middle of 2007 economists predicted 2.5% GDP growth (taken as a consensus) up to next year - but in reality the actual growth for the year up to middle of 2008 was -1.6%. Their clients would have been better off flipping a coin - a probability of 50% in being right. Predicting the economy or the macro trend is a dangerous game in my opinion.
Corporate earnings - this is fair game if an analyst has a good knowledge of a sector or industry and thus the individual companies which can sink or swim within that eco system. There are many variations of corporate earnings at different times due to cyclicality and business cycles. So it would be reasonable to assume that corporate earnings are worrisome for this particular sector in the coming quarter (as industries are much easier to follow than an overall economy) - but almost redundant if you mean any and all businesses in the economy as a whole.
I know of investors who like gold as investments particularly due to eroding value of currency in relation to inflation. My views are similar except that the investment should be made towards a productive asset - and gold, to me, is not a productive asset - therefore, I don't see a reason to invest in it. I think most gold investors tend not to pay attention to the 1% per annum return for gold in the past 50 years leading up to the beginning of the millennium - the point after which most gold investors have made gold investing a recent phenomenon. I see its use mostly as jewellry (although it has a few good applications such as in technological equipments).
Some background on why that is so - there was a fair bit learning curve I had to go through to have been able come up with that conclusion. During the tech boom of the late 90's my admiration for chartists and tech analysts were sky high. They had us going on how right they were until, of course, the subsequent bust in early part of the millennium. Many macro and tech analysts didn't realize that it could be so short lived and failed to call out the warning signs. There were many factors to blame for the bust obviously - among them irrational exuberance for example (which I am also guilty of - I invested with a herd in mind most of the time) - but my point is that I have learned over the years that I tend to stick with market dynamics I really understand and let go of others I don't. And there will be occasional black swans where no one can really do anything about (due to systematic forces). During that period, the analysts who kept invested in companies with sound fundamental characteristics were rewarded up until the real estate bust. And then came the GFC with which most investors are still struggling with. Any chartist or a macro analyst who may claim to have pointed out a selling opportunity at Mar 2002 or a buying opportunity at Mar of 2009 is no doubt a kin of Nostradamus - it just can't be done. There have been lots of studies done in the past to promulgate the negative impacts on one's overall return due to market timing.
A few comments on your views:
Technical indicators - since I've never used any of these for my investment decisions I am unable to say much on the subject - but it seems to me that all tech analysts and chartists have similar type of information in front of them whether it's resistance, support, candlestick chart or moving averages - these of course are the product of volume and price volatility. No matter how one slices and dices the data the end result should be same - thus, any investment idea born out of technical analysis becomes futile to the detriment of one's ability to be the 'first' to execute an order - this has now become 'you will succeed if you have the right trading tools' motto as opposed to being rewarded for a unique idea that has a direct link to company's assets or earning power. This is why you will see a few successes at trading desks of bulge brackets and large hedge funds - primarily due to deployment of huge trading capital on narrow spreads. Retail investor's chances are close to nil. In a few instances where a unique view from a technical analysis do arise - it may or may not be realized by the market in the short term as technicals tend to be time driven.
Debt ceiling and macro views - These are overwhelming concerns on the public debt but can I really tie that in to make an investment decision? Probably not. My belief is that there are too many factors and stakeholders that come into play to be able to come up with somewhat reasonable analysis of the debt. For example, if I make a prediction that the debt ceiling won't be raised in Mar due to political structure of the Senate (Republican controlled and in opposition of any more raises) and let's say I short the treasury - but what are the chances that Congress won't come up with a budget reform bill to reduce spending in Mar? I can't assess that properly. And thus, I can't do it. There was a publication from Economist a while back which outlined a prediction conundrum - surveys from leading international banks whose head economist's predictions were wrong 95% of the time for a two year prediction. More than half were wrong for one year predictions. For example, in the middle of 2007 economists predicted 2.5% GDP growth (taken as a consensus) up to next year - but in reality the actual growth for the year up to middle of 2008 was -1.6%. Their clients would have been better off flipping a coin - a probability of 50% in being right. Predicting the economy or the macro trend is a dangerous game in my opinion.
Corporate earnings - this is fair game if an analyst has a good knowledge of a sector or industry and thus the individual companies which can sink or swim within that eco system. There are many variations of corporate earnings at different times due to cyclicality and business cycles. So it would be reasonable to assume that corporate earnings are worrisome for this particular sector in the coming quarter (as industries are much easier to follow than an overall economy) - but almost redundant if you mean any and all businesses in the economy as a whole.
I know of investors who like gold as investments particularly due to eroding value of currency in relation to inflation. My views are similar except that the investment should be made towards a productive asset - and gold, to me, is not a productive asset - therefore, I don't see a reason to invest in it. I think most gold investors tend not to pay attention to the 1% per annum return for gold in the past 50 years leading up to the beginning of the millennium - the point after which most gold investors have made gold investing a recent phenomenon. I see its use mostly as jewellry (although it has a few good applications such as in technological equipments).