My technical analysis tells me we have a high coming up around high 5400's on the ASX200 a retreat and then a final high around 5500 to end wave 2 over the next 2 weeks or so. Wave 1 from 5986 started in April 2015 and ended in February this year at 4706. Wave 3 down should destroy a huge amount of wealth, which hopefully good technical analysts can avoid. Feel free to tell me how wrong I am in a year or 2.
Surely, as with most things, the real world is somewhere in between, right? Technical analysis is perhaps a good predictor of trends, but there's no better way to make the most of a trend than knowing which companies in which parts of the economy will do best. I do think some guys take certain analysis which has only ever happened in this modern style of economy a handful of times or less and state as a fact it means X when it is not so black and white, but surely it has its place.
P.s. the long-term valuation indicators indicate awful returns for the U.S. stock market for the next twenty years and strong returns for the Russian and Greek stock markets.
Trew that is not quite accurate. I have read the intelligent investor and Security Analysis. Ben Graham advises investors to have between 25% and 75% of their money invested in shares and between 25% and 75% in bonds. With the ratios fluctuating with the amount of opportunity available i.e. when there are lots of bargain stocks you should be at 75% stock exposure and when bargain stocks are scarce you should be at the bottom end (25%) stock exposure and and somewhere in between when the opportunity set is more average. Also Ben Graham did talk to some extent about the general overall market despite his main focus being bottom up. He basically advised one to be cautious about their level of stock exposure and their margin of safety requirements during a rouring bull market. He wrote a newspaper article in 1974 titled the renaisance of value. Pointing out how the market was cheap and undervalued. Warren buffet wrote a similar type of article at one point claiming the market was cheap. Also Buffett has admitted he uses the market cap to GDP ratio to gauge the overall level of the market. I am not saying one should attempt to time the market (Buffett, Graham, etc would never advocate that) I am just saying even if you do bottom up stock picking like I do and many others do you still need to be broadly aware of the environment you are operating in. Also if you are an international investor these indicators give clues as to which markets to look at e.g. look for Bargains in Greece and Russia.
I read over the links you provided explaining Shiller-CAPE and to be honest, it has become seemingly apparent that rather than a fundamental analyst, you are more likely to be a subscriber of some sort to a sales pitch that says all the right things to those a little less knowledgeable on the subject. No hard feelings, but this "analysis" is so rudimentary and lacking in substance that it is something I'd expect of a year 8 commerce class, and I'd hesitate to call it "analysis" at all. It is quite disappointing, and reinforces my previous inference that those who openly sledge TA are usually those who know little about any analysis at all. It is nothing more than a lucrative way for the author to say "just buy and hold". To take a 7-10 year moving average PE ratio of an index, and extrapolate it forward in the name of accurate prediction (remembering that FA does not claim to have predictive ability ) is actually laughable - especially when said prediction gives a range of more than 100% possible error! Ironically, and no less amusingly, this same MA is one of the "squiggly lines" used in TA that you refer to has "hocus pocus"! To then claim this method is far more predictive than using the same economic data used by yourself to promote the virtues of FA, quite frankly gave me a big chuckle. I'd keep going, but it is obvious we are on different planets with regards to the concept of analysis. And besides, I don't know any traders using TA that are interested in 10, 20 or 30 year forecasts, or for that matter interested in 9-10% returns. Both are an irrelevant time-waster to the competent trader/TA. Next time, if you want to lob in and start huffing and puffing, I'd suggest you live in something sturdier than a straw house. And BTW, the stony-cold silence regarding the fundamental valuation on silver was not lost on me either. Cheers.
So you are saying that the work done by Professor Shiller and Jeremy Grantham and Benjamin Graham (who was possibly the first to publish the idea of comparing current price to an average of last ten years earnings) amongst others has no value and that long-term valuation indicators are useless? This is your claim: "To take a 7-10 year moving average PE ratio of an index, and extrapolate it forward in the name of accurate prediction (remembering that FA does not claim to have predictive ability tongue ) is actually laughable - especially when said prediction gives a range of more than 100% possible error!" My response is: -When did I do this? Please point out specifically what I said. I never made such a claim of using a 7-10 moving average p.e. ratio and extrapolating it forward. Looking at hundreds of years of data based on returns generated by buying the index at different levels of valuation indicators (e.g. CAPE, P/B and Tobins Q) one can make a considered judgement. I advocate using a number of ratios and making a considered judgement rather than extrapolating results from one ratio as a black box system to make an exact prediction. I also specifically mentioned that I have no predictive ability about the market and was merely trying to make an educated guess based on what has worked in the past. I am not an index fund investor. Reading one or two articles then giving a biased and ignorant opinion is laughable. Read a large amount of work published by GMO, by Shiller, by Graham and Dodd and by others and then come back with an informed opinion. -Schiller used the CAPE/Schiller p.e. to warn about the share-market being overvalued in 2006 and 2007 and has been doing so in recent years again. He also famously warned about the U.S. housing market being overvalued in 2005 and 2006 based on a similar style of analysis using metrics like price/rent ratios compared to historical averages. -I am a bottom up investor and buy individual investments based on their individual fundamentals. However it does not mean being ignorant of overall market valuations. Just like Warren Buffett/Berkshire invests when they can find a good deal he has over time made numerous comments about overall market valuation and is cognizant of it. He specifically mentioned in the U.S. he uses the overall stock market capitalization to GDP of the U.S. to get an idea of how over or undervalued the market is. -There are sound reasons for the use of such ratios to make a judgement call. the CAPE ratio is a good indicator of earnings power over a business cycle (10 years is usually long enough to have ups and downs in earnings) rather than simply looking at one years earnings which may be unusually high or low in any given year. The Tobin's Q ratio gives some level of indication of the replacement value of assets corporations overall. The theory being that over the long-term corporations will go on a takeover/buyback mania and do a large volume of share buybacks rather than investing for growth if assets sell below replacement value. After all why open a new plant or design a new product if it is cheaper to buy a competitor? On the opposite side of the equation if the ratio is very high companies will issue equity to fund expansion which will lower returns and thereby mean revert equity prices. Again another mean reversion concept. The price to book ratio is a similar sort of concept but with different accounting methodology than the Tobin's Q ratio hence good to look at both for cross referencing. Are you claiming that the concept of mean reversion is useless? I am not saying that people should go out and trade the indices based on valuation indicators. Silver unfortunately is not an asset that can be accurately valued due to the fact that it is more industrial in its usage than other uses coupled with the fact that it is majority mined as a byproduct. By product mining is based on the price of other metals such as copper, gold, etc not the price of silver. Therefore the level of mining is more dependent on the level of mining of other metals. For example for oil based on analysis you could claim an equilibrium valuation of $50-$80 a barrel on the basis that too much production will shut down under $50 due to losses causing a price reversal and too much new supply will come on board if the price stays above $80 a barrel for an extended period. With silver you have to use judgement and also buy on the premise of on an inflation hedge and also if you think gold will do well that silver will go along for the ride as it historically has. I concede defeat on silver. I do concede that even though long-term valuation indicators may have provided a crude but somewhat useful guide they may turn out to be wrong in the future do to any number of unforeseen changes in variables. If you think I don't use sound analysis to make informed investment decisions go back and look at the stock thread on Credit Corp Group (CCP) which I own and is a typical example of the kind of investment I make based on sound bottom up analysis. When I bought property (I own one in Brisbane and one in Hobart) in addition to looking at capital required to buy something I also looked at macro and valuation indicators which showed that Sydney and Melbourne housing markets were potentially expensive and thus should be avoided for buying. This coupled with the fact that my bottom up analysis (the most important part) showed I was able to obtain a higher rental yield in Brisbane and Hobart (as well as more attractive suburb based vacancy rates) than Sydney or Melbourne re-affirmed my decision where to invest. I have not been invested too long in property so it is too early to tell. In ten years time we will be able to judge the results.
Yes. Your referenced links to Shiller, Graham and the CAPE method clearly state it. I am surprised (not) that you are not familiar with the methods you spruke: "Already in 1934, Graham & Dodd suspected that cyclical fluctuations in earnings could adversely affect the validity of PE. As a result, they recommended using an average of earnings for the last 7 to 10 years to calculate the PE. Following this advice, Campbell and Shiller [1998] developed a cyclically adjusted price-to-earnings ratio (CAPE), which puts the current market price in relation to the average inflation-adjusted profits of the previous 10 years." I commend your honesty. In light of this, I also recommend you reconsider the usefulness of FA.
I misunderstood the way you phrased 7-10 year moving average. I thought you meant the p.e. ratio was a moving average not the price compared to a moving average of the earnings component . Now that you more clearly explained yourself. Yes I agree with what you are saying. Also I did clearly state Graham and Dodd where the first ones to publicize this approach. Also I have edited my last post to explain the theoretical underpinnings of the valuation models amongst other things. So please re-read it and I look forward to your comments. Ben Graham was an intellectual giant. I am surprised you so readily disparage his work without reading both Security analysis and the intelligent investor. Books which many of today's billionaire investors have read and highly recommend.
Assuming there is some merit and "soundness" to your methods, it matters little anyway. There have only been two 10-year losing streaks on the S&P500 - that ending in 1938 (around -1.3%), and that ending in 2010 (around -0.5%). There has never been a 20-year losing streak in the history of the market. So why bother analysing it? It is a total waste of precious time for little gain. That is why buy-and-hold is the favoured investment strategy of the unsophisticated. To pretend FA is some sort of sophisticated, novel, and groundbreaking strategy is to kid yourself, especially with a forecast error of over 100%? On top of that, you conceded yourself that FA is useless in valuation of other markets - such as silver and other commodities. I know it is the same for other markets such as currencies..... and thus I consider FA useless and a waste of time. Most TA's trade on a much shorter time frame, for much better returns. A novice trader should be benchmarking 20% pa. A good trader should be reaching better than 50% pa. Like I said, we are on different planets when it comes to "analysing". That is my opinion... nothing more.
Yes but there have also been ten and twenty year periods with negative "real returns" (i.e. inflation adjusted) where nominal returns where very low. In my opinion if you add those to your calculations then the number of poorly performing market periods is greater. I never said fundamental analysis is ground-breaking or novel. Indeed its been documented well before even the great Benjamin Graham by people like John Burr Williams (who authored the book the theory of investment value) which wrote about the dividend discount model and even to some extent in less detail by Adam Smith. I never said that fundamental analysis is useless for commodties. I said its less useful for some commodities like Silver and then gave a clear example like oil (there were many commentators at the time when oil was thirty or even forty U.S. dollars a barrel including T. Boone Pickens and Jim Rickards saying it was undervalued based on the cost of production analysis I previously spoke about) where it is very useful. For many commodities including whjeat, sugar, oil, beef, etc this kind of analysis is useful. How do you think Jim Rogers made money from commodities? Even for gold for example when it was around $1400 AUD per ounce not long ago I bought heavily based on the fact that many gold miners globally were hemorrhaging money and supply was therefore likely to shrink if the price persisted coupled with the belief that due to the monetary system demand for gold would rise over the very long-term even though demand was volatile. Therefore falling supply from mine closures (yes its only around 2% of total gold supply in any given year but it matters over the long-term) plus rising long-term demand was bullish. How many traders do you know that can compound at 50% p.a.? Within a less than 20 years they would be on the BRW 200 Rich list. Yet there largely continued and conspicuous absence shows that it rarely happens or is not scale-able or some combination of the two.
Ben Graham has specifically stated that investors should "have an adequate idea of stock market history, in terms, particularly, of the major fluctuations. With this background he may be in a position to form some worthwhile judgment of the attractiveness or dangers....of the market." That is for you Trew. Please go back and re-read the intelligent investor and security analysis. http://www.rbcpa.com/UPDATED_Feb201...ory_through_Graham_and_Buffett_and_Others.pdf Wrcmad if you read this article in the link there is a table on page two which specifically references thoughts by leading investors on the markets valuation at the time. Lo and behold when Buffett or Graham, etc came out a wrote an article explaining that the market was very undervalued, any investor that paid attention and bought stocks in a big way would have made a massively high return over the ensuing five years, or that the market was overvalued, etc The usefulness even for bottom up investors is that when the market is screamingly cheap e.g. 1932, 1974, 2008 then an investor should be fully invested in bargain stocks. Whereas when the market was dangerously expensive e.g. 1959 or 1999 then even a bottom up investor should keep some dry powder (i.e. cash) in anticipation of more plentiful bargains due (due to a market correction) which would allow you to buy stocks that are more of a bargain. If you actually look at when Buffett wound up the Buffett partnership at the time he said it was because of a lack of investment opportunities. The market was so overvalued he could not find enough bargains and thus wound up the partnership at the time.
As for short-term trading every academic study shows that there is a high correlation between frequent trading and poor returns on average. There have been numerous academic studies done on day traders and other short term traders showing that the majority of them produced below average net returns, and produced worse returns than the average long-term investor. Now I agree that some traders can get a high return (therefore it is possible that you get a higher return than most), however the failure rate is higher than for long-term investors due to the fact that: -Trading costs are higher due to more paid in brokerage fees -Potentially more paid in accounting fees depending on how you lodge your tax returns whether you use an accountant or expensive software and the fact that some acountants charge more for a high number of transactions. -Potentially higher taxes because you pay tax when you sell (or even in some cases on unrealized gains if you register with the ATO as a trader for tax purposes) which you tend to sell more often and also you are less likely to get the capital gains tax discount that applies when you hold an asset for more than 12 months -You are less advantaged/exposed to the long-term upward bias of the stock market. Studies have shown the longer the time period for measuring market returns the higher the likelihood of a positive return. The reason for this is simple. Over long periods of time corporate earnings are a major influence on stock prices. Corporations over the long-term reinvest a proportion of their earnings. These retained earnings generate a return over the long-term thus leading to higher earnings which in turn leads to higher stock prices. Now they may be some exceptions but on average: -Investors outperform traders -People that have hundreds of millions or billions of dollars on average are more likely to have a long holding period than to quickly trade in and out of things in a short period of time. There are far more people like Warren Buffet, Carl Icahn, Alex Waslitz, etc then there are people who trade shorter term like James Simon or Steve Cohen (note his firm got a multi-billion dollar insider trading fine from the SEC) -There are far more people getting rich from long-term investing than trading -More people make money from fundamental analysis than from technical analysis. Now I am not saying you are a day trader but here is an example of a study showing the poor returns the majority of day traders get by analyzing trading activity on the Taiwan securities exchange over a number of years. http://faculty.haas.berkeley.edu/od...ons/individual_investor_performance_final.pdf Page three of the above study has a graph showing that even though traders earned a similar gross return to those with a lower portfolio turnover the higher costs caused them to have a lower net return. http://www.econ.yale.edu/~shiller/behfin/2004-04-10/barber-lee-liu-odean.pdf The study does point to some other studies that showed better results but pointed out that all of the studies had a sample size that was too small to be reliable. Here is another link discussing poor trader performance: https://faculty.haas.berkeley.edu/odean/papers/Day Traders/Day Trading and Learning 110217.pdf Another link: http://www.tradeciety.com/24-statistics-why-most-traders-lose-money/ http://faculty.haas.berkeley.edu/od...ons/individual_investor_performance_final.pdf The study above has a graph on page three showing that those with higher portfolio return earned a similar gross return but a lower net return to those with lower portfolio turnover (i.e. less trading) due to higher costs eating into their profits.
Ahh, the "benchmarking to billionaires" as a measure of success argument again. Although it has been addressed already in this thread, I'll give you my take on that: Of the 50-odd billionaires in Australia, maybe 1 or 2 have got there through investing like you or me. And of those, they are now at the thin end of their life anyway. So that benchmark is irrelevant. Now, let's address the mentality of measured success, which incidentally, in my view, is a total misconception to most, especially in recent years. To most - especially (in my experience) property investors, the measure of success is net worth. They (in my experience) will measure their own self-worth by comparing it to their own vs others book value, or accumulation of assets. I know some who fall into this category who live very frugally, by default forcing their families to live by the same frugal means, to grow that book value, and compound it, and scrimp, and save, and grow it more, year after year after year. It is a life driven by net-worth, at all costs, and in many cases a life wasted that could otherwise have enjoyed the fruits of their success. It is a mentality of "the one who dies with the highest score wins". There are, of course, exceptions to this rule. However, in my experience, they are much less common. Then there are those who can yield >50% of their investment..... year after year after year. These people do not need to compound, and to do so would soon become unmanageable anyway. They can live it up, live a good and fulfilling life, live where they want to, how they want to, and enjoy life, and have their family do the same, year after year, knowing they can do it again next year, and not need to make a spectacle of themselves whilst doing so. They do not need to hit the once-in-a-lifetime to da' moon jackpot, or worry about what the market is doing next year, or where next-year's yields are coming from. They enjoy their life - to the maximum extent that their returns sensibly allow them to, and know that a life lived is worth shyteloads more than a life scrimped and dedicated to book value. Guess which one is the successful trader?
Wrcmad my argument to you is this: -On average more people make money from fundamental analysis than technical analysis or other types of short-term trading. -A higher percentage of long-term fundamental investors are profitable than short-term traders. -A far higher proportion of people with net worths in the hundreds of millions or billions are fundamental based investors rather than traders and have a longer holding period on average than a trader -Its generally easier to make money as a long-term fundamental investor because lower transaction costs, lower taxes and rising earnings are tailwinds on your side. -Most people would do better as a long-term investor than a trader -Most traders earn poor returns and only a very small percentage are actually good at it. -Trading is usually not as easily scale-able due to liquidity restraints (hence why there are not many billionaire traders). Hence you may see many traders with a few million getting a 30-50% return who can't do the same thing if you gave them $100 million dollars hence why they never get that rich.
You are right. Heaps of wannabe traders blow themselves up, and fail. Because they don't approach it correctly. They don't understand the underlying principles of trading successfully. They then resort to the simpleton approach of buy-and-hold (or fundamental analysis). To resort to fundamental analysis as an easier way out just confirms it is the unsophisticated way IMO, which also confirms it as a waste of time studying. However, higher trading costs, higher accounting fees, higher taxes, and long-term longs are a fallacy of the uneducated. I have outlined my approach here on the forum.
By the way here is an article which quotes Shiller written in late 2005. It quotes him warning about the U.S. housing market being a bubble. http://www.nytimes.com/2005/08/21/business/yourmoney/be-warned-mr-bubbles-worried-again.html Also as I pointed out before in one of my previous posts here is an article http://www.rbcpa.com/UPDATED_Feb2010_A_ Others.pdf which has a table on the second page showing when Buffett, Graham and others presciently pointed out buying or selling opportunities with articles stating the market was overvalued or undervalued. On a 5 year time horizon they were always shown to be very timely and wise analyses. So much for fundamental analysis being useless in predicting future returns. Like I said before fundamental analysis is useful and I will make the following predictions: -Over the next 10 years U.S. stocks are likely to post a very very low CPI adjusted return (probably less than 3%) -Over the next 10 years the Russian stock market is likely to above average real rate of return (even measured in CPI adjusted U.S. dollars) and is likely to outperform (again in CPI adjusted U.S. dollars) the U.S. stock-market -Over the next ten years the Australian stock market is likely to outperform the U.S. stock-market Those above predictions are based on long-term valuation indicators. I re-iterate that I have no predictive ability about overall markets, the future could be vastly different than the past. Its just a probability based observation and hence the use of the phrase is likely to denote outcomes that are most likely but far from certain to occur.
Not all trading has difficulty scaling I was using an extreme example of day traders in a prop firm in the futures market. Its abit silly comparison to be making, the whole financial system is tilted to buy and hold investing and you miss the whole point... The single thing that matters is this: Do what works for you. Personality type and psychological make up matter, and this needs to be aligned with the person pulling the trigger and the type of trading or investing they are doing.
Fundamental analysis is not a waste of time studying. There are heaps of outperforming fundamental/value based stock pickers/inveestors. Ben Graham, John Maynard Keynes in his later years (after he failed at momentum/trading strategies), Charles Munger before Berkshire when he had the investment partnership, Tweedy Browne, Walter Schloss, Waren Buffett, John Templeton, Phillip Fisher, T. Rowe price, Joel Greenblatt, Peter Lynch, etc On a more personal level, I manage money for myself and my parents. Three portfolios in total. My own personal portfolio, my parents self managed super fund and my mum's personal share portfolio. All three portfolio have significantly outperformed their respective benchmarks (average super fund, All Ords Accumulation index and All ords accumulation index) respectively. Just go to Aussiestockforums and look at posters like ROE, Craft, Ves, Value Snatcher, Mclovin who are all smashing the market using value investing. Especially Craft who buys has a concentrated portfolio of quality companies with a typically long holding period. He has gotten compounded net returns well north of 30% p.a. for a period of more than 13 years.
This link http://forums.silverstackers.com/topic-48055-credit-corp-ccp.html is an example of me successfully performing bottom up fundamental/value analysis on a stock which clearly shows my reasoning and at what prices I added to my position. You will see since then I have collected good dividends and the share price has strongly outperformed the market. Note that my contributions on that thread just showed a glimpse/sample of the much more comprehensive research I did on the company. I did not want to bog down the thread with pages upon pages of detailed information/notes I kept about a company so I kept to the main points. I am surprised more value investors/fundamental guys aren't on this thread defending our methodology and how it is superior to technical analysis. Come on Big A.D., Bullion Baron, etc get on here and defend us against the technical guys
