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Richard Dennis offered wisdom 20+ years ago:
“…you have to be a pure empiricist and realize that what you see - the price action of the market itself - is all you get. Abstractions like crop size, unemployment and inflation are mere metaphysics to the trader. They don’t help you predict prices, and they may not even explain past market action.”
Many of the trend followers today simply don’t open up to reporters with gems like this.
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November 22nd, 2009 at 10:04 pm
And as I post that great line keep in mind I don’t post stories on unemployment, etc. cause it makes useful insights for trading decisions. Rather I do enjoy posting insightful political/economic articles to debate the “right” way to do things.
November 22nd, 2009 at 10:05 pm
And by “right” I am not being political left or right!
November 23rd, 2009 at 1:58 pm
Thanks for posting this. I never saw the actual “legendary” ad.
December 1st, 2009 at 9:25 am
So true. The only thing in the market that you can know that actually affects the value of your account on a day to day basis the price of a stock/commodity/etc. All else is an economic, after-the-fact monday morning quarterbacking. I majored in economics, and economics is largely a bunch of horse manure.
If fundamental analysts were ‘right’ about how earnings, management, and other fundamental factors lead to changes in stock prices, then they should be able to predict price changes with 100% accuracy. The reason they don’t predict with this level of accuracy is because they do not know what leads to price changes - they just like to think they do. I used to be a broker and I read the letters my firm put out for us and our clients. If they (the fundamentalists) are right about their way of thinking, then why didn’t they advise all of their stock and mutual fund clients to get out of the market in 2008? I mean, if fundamentals are right …. then …. why did everyone I know with money at a large institutional broker lose 30-50% ?
The problem with fundamentals is similar to the problem in physics of trying to create a theorem. In physics, in order for a theorem to be accepted as valid, the outcomes of whatever the physicist is studying have to be replicable by other physicists when those physicists work an experiment under the same conditions with the same inputs/variables/etc. If the other physcists cannot replicate the results, the theorem is not accepted in the scientific community. And even if they CAN replicate the results, the theorem is still labeled a theorem, and not a proof of fact, because their seems to be this unwritten rule of, ‘even though this outcome is replicable by others, there still may be some set of circumstances that will show this theorem to be invalid, we just don’t know what those circumstances may be.’ It is a physicists way of saying, ‘We’re right — until we are wrong.’
Can you imagine applying this standard to fundamental analysis? Fundamental ‘analysis’ would cease to exist. It seems the best strategy for fundamentalists to use to test their ideas would be correlations between fundamental factors and price moves. But even this is crap because no correlation is 100% perfect, and correlations still do not explain cause and effect, they just say ‘these things, we think, kinda go together at times.’ Weak.
What is the only thing that affects the value of your account? Price. Can you predict price? No. Can you observe price, buy or sell, and then react to adverse price moves? Yes. Why would you concern yourself with anything other than what can affect the value of your account?