An interesting article:
For more than a year now, fundamental analysis of companies has been a waste of time. Stocks have traded as a block, first plummeting in tandem a year ago to March as banks froze up the financial system, then soaring in tandem as the Federal Reserve expanded the monetary supply and made cash worthless as an asset with near zero interest. The latter sent liquidity flooding into stocks, lifting all of them together.
Continuing:
Individuals used to take solace in looking at fundamental factors, thinking they could find an edge with personal shopping experience as Peter Lynch taught, inside their own circle of competence as Philip Fisher taught, or culling the attributes of quality companies as Warren Buffett demonstrated. Now that even that impression has been rendered cock and bull, what’s left?
Trend following!
November 8th, 2009 at 9:51 pm
A nice line caught tonight:
There’s a time to sell.
There’s a time to buy.
There’s a time to stand aside.
Trade the price now, not what you think it might be.
November 9th, 2009 at 10:39 am
No- trade the price when your signal tells you to do so!
November 9th, 2009 at 11:26 am
For most, the fundamentalist mind set may have given them a false sense of confidence for years so they don’t get shaken out by the fluctuations. It’s human nature for people to act based on expectations rather than facts. I doubt if that is going to change anytime soon.
November 9th, 2009 at 3:44 pm
In S.Africa one of the analysts’ favourite companies (AFDAWN) has gone deep into the mire after having to restate huge accounting losses as opposed to profits.
The share has gone from a peak of ove 540 cents per share to 45 cents in under a year.
“Invetors” were relying on the financial statements and are still holding their shares albeit somewhat miserably and blaming everything possible except themselves…..
I got out of this share at 485 cents per share on my simple trend following system.
November 10th, 2009 at 5:04 pm
First of all, I’m primarily a trend trader because I don’t have time to analyse companies in depth, but I have also done very well using fundamentals. We should be careful that we don’t commit logical fallacies in our arguments by using Ed Seykota and John Henry as successful examples of trend following and the general investing public as bad examples of fundamental analysis. First of all, you are comparing the New York Yankees to the little leagues, and, secondly, there’s no guarantee the general public and all the little old ladies who’ve lost their life savings used fundamental analysis. And of course, if you want to compare successes, Buffet and his fundamentalist classmates from the Graham days blow everyone else off the map…and I suspect over the next ten years will continue to do so.
November 10th, 2009 at 8:51 pm
DG you have your head in the sand if you think Buffet made his money solely from fundamentals. And if you measure investing success simply by the amount of money one has accumulated without regard to how many years they have been investing, average annual returns, drawdowns, risk/reward ratios, etc. then that is just amateurish.
November 10th, 2009 at 9:14 pm
Buffett = dead unless he gets government bailout. That is not a strategy us mere mortals can execute.
November 11th, 2009 at 5:35 pm
Buffet net worth: $50 billion plus
Proportion of bailout money paid to Buffet (based on his proportional ownership of companies receiving funds): $7.008 Billion
Throw in his $5 billion preferred share investment into Goldman (i.e. he put his money where his mouth is, saying, “The American taxpayer will benefit from their investments in these companies.”) and it’s clear that with or without government bailouts, Buffet is far from dead.
November 11th, 2009 at 5:40 pm
DG, he is a bailout baby on more fronts than that. What about his massive put positions being saved? I don’t sit around and whine or really care, but don’t prop this guy up as an investing legend after last fall. That whole episode reeks of inside baseball and sweetheart deals.
November 11th, 2009 at 9:48 pm
DG, Buffett said if it weren’t for the bailout we would face certain economic collapse. If the economy collapsed then his equity stakes in everything collapse too, close to zero. And yeah, I had forgotten about those put positions. That’s even more disasterous, those would have wiped out his net worth even faster than his equity positions.