I got nothing in principle against technical analysis, in a perfect world where I'm the only smart guy trying to take money, the other people's money in the market behaves like some kind of defenseless Vegetation, and I'm also allowed to use the fundamentals.
But. In the real world ...
(a) TA is more (imo much more) subject to spoofing / bluffing and noise than fundamental analysis.
(b) Sociologically, I never see TA exponents talking about (a) as a problem. FA exponents DO talk (a LOT) about how to untangle spoofing and noise within the financials.
(c) If I rolled my own TA, maybe. But if I follow naive TA from a web site, I become predictable. Part of my defense, as a member of the "Plankton Platoon," is to stay away from crowds.
And so that's why I treat IBD as if it were a hunk of yummy cheese sitting inside a brutal, killing trap. But so is most "Business News." However there are semirespectable outfits like the WSJ or Fortune (and, even a bit better, Moody's, S&P's, and Value Line) who at least sprinkle some crumbs outside the trap.
<<Actually, this board's value investors often use TA >>
Some of 'em. Some of us, not that I'm one of the beter investors here, haven't a clue about it, and are a little suspicious of the black art. :)
Here are some gems of wisdom from Johan Keri of IBD ".
To get the most out of the market, sell your losers and laggards, then pile into leading stocks posting strong growth and notching powerful breakouts."
Using this logic, I would have bought BRKb at about 2600 in 1998 and sold it at 1300 later.
Since I'm too lazy to value BRK, I just buy it when it goes down a lot and sell it if I die.
"Don't stop there. Take a close look at your other stocks. One may be up just 3% months or years after its breakout."
Buy his own admission, Keri says stocks may be up little months or years after a breakout. A breakout is indicative of a stock becoming overvalued. That is not the time to buy. The reason it takes months or years to progress is because earnings have to catch up with the price.
WMT is a great example. It broke out from 18 (pre split number) in Jan 96 and went to 70..post split. Warren bought around then and so did I. And we both stupidly sold in 97 at 58. (not split adjusted). (maybe it was 98 I sold.)
If you buy a stock at a great discount to intrinsic value, price movement is of no consequence as long as the intrinsic value is increasing. It's like stretching the string on an arrow. The further it pulls back, the further you will launch the arrow into the sky.
"When looking at your laggards, ask yourself: Why are they treading water if the market's rocking? Those stocks may lack the fundamentals "
If they lacked the fundamentals I wouldn't buy them. Keri apparently buys stocks lacking in fundamentals.
PS: A quiz for the board. In 50 words or less...what is the most important thing you learned from Warren?
Jonah Keri is a writer and editor for Baseball Prospectus
A native of Montreal and graduate of the Concordia University School of Journalism
Jonah's also a long-time Strat-O-Matic player
Sounds qualified to write for IBD to me.
The kind of drivel found in this article would be thrown out of yahoo chat.