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#26 2016-05-28 07:57:04

BuggedOut
Member
From: New South Wales
Registered: 2015-07-21
Posts: 1,776
Trades :   37 

Re: Technical Analysis ...

Technical Analysis, Fundmentals and Contrarian Positioning.  The 3 pillars of market prediction.

I dodged the GFC by getting out of the market and I did it purely from TA at the time as my understanding of fundamentals was poor back then.  I didn't short the market so didn't make much money, but by dodging the drop I saved a bunch.

Discredit TA at your own peril. It's one of things that if enough people follow it and believe in it and ACT on it then it becomes self fulfilling anyway.  Think about it....

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#27 2016-05-28 08:54:37

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Bargain Hunter wrote:

How do you think billionaires like Jim Rogers invest in commodities? By looking at technical charts lol

No. Investors are not traders.
"Investors" rarely look at charts, because they don't understand them... and so choose to call themselves "investors", mistakenly assuming this title gives them a license to sledge T/A and it's methods, even though they understand nothing about it. They especially call themselves investors when a position moves against them and, unwilling to sell for a loss, are stuck in said position for an indefinite amount of time, waiting for the position to recover.
Investors usually have a very different time-frame to T/A traders too. However, like myself, many participate in both longer-term investing and shorter-term trading. smile
The only exception would seem to be Mike Baloney, who somehow manages to f*&k up both fundamental and technical analysis with uncanny regularity.

Bargain Hunter wrote:

The problem with technical analysis is that the majority of market participants can sometimes be wrong about the value of an asset and the price will the swing massively the other way once they realise that.

True. It is these price swings that T/A's try to capitalise on.

Bargain Hunter wrote:

In addition price doesn't even necessarily represent people opinion of value.

Strongly disagree.
Price is determined by all participants and non-participants in the market.
For whatever reason is behind participants decision, the only true indicator of the supply-demand balance/dynamic is agreed price, which defines value.
If you don't believe this, then I am arguing with an irrational person.

Bargain Hunter wrote:

I agree with what Jim Rogers said "I've never met a rich technician".

I can tell by your opinion of T/A.
I have.
20 years ago I sat next to my mentor and watched him bag $300K on one trade. By the end of the day, he had donated it all to charity because it happened yesterday, and last week, and the week before that....


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#28 2016-05-28 09:01:27

trew
Silver Stacker
From: Melbern
Registered: 2011-08-24
Posts: 3,958
Trades :   

Re: Technical Analysis ...

wrcmad wrote:

However, like myself, many participate in both longer-term investing and shorter-term trading. smile

Serious question - not trying to take the piss


Do you make your long term investments based just on TA, or fundamentals, or both ?

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#29 2016-05-28 09:21:38

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

trew wrote:
wrcmad wrote:

However, like myself, many participate in both longer-term investing and shorter-term trading. smile

Serious question - not trying to take the piss


Do you make your long term investments based just on TA, or fundamentals, or both ?

A bit of both.
Usually my longer term holdings are blue-chips, or at least part of the top 200. Occasionally a few penny stocks for shits'n'giggles.
I tend to start looking at the charts of core holdings when news warrants it. For example, I exited BHP at around $40 based on a chart trigger, but only after the fundamentals were pointing to a slump in China's iron ore demand.
When buying, I tend to scan the charts of sectors to see which sectors looks promising, then start looking at both fundamentals and technical of good companies within those sectors.

Fundamentals will tell you what price "should be doing" (assuming the news is accurate or timely).
Technicals tell you what the price "is doing" and what market participants are doing.
It is only what price "is doing" that matters in trading. Opinions of what value "should be" mean nothing to your bank account.


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#30 2016-05-28 09:43:17

southerncross
Silver Stacker
Registered: 2012-07-26
Posts: 3,391

Re: Technical Analysis ...

wrcmad wrote:
southerncross wrote:

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.
Most scoffed that it was not going to happen - over the next 18 months those same people then came and told me they wished they'd heeded the warning.
Some of those were due to retire in the following couple of years, and it cost them a few more years of working to make up the shortfall in their super. sad
As for me, made shyteloads and laughed all the way to the bank shorting. big_smile


You must be a very rare breed then M8 as 99.8% totally missed it. But I note that you were 4 mths early, so were you right or wrong at that point in time ?

4 months is a long time in the trading market so a decision based on your TA at that point in time could of cost or made a large amount of money for people relying upon you for
analysis, rather you then me making that call in all honesty.

I must admit I don't get all the hoodoo voodoo charting wormy candle crossing linesy thingy stuff, but there must be something to it.
A question though, if it is so good, why are people not posting their observations from private Islands or space outpost's ? 

And if you made shytloads during the GFC with TA, why are you still here posting on SS and not off on your own Island?

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#31 2016-05-28 10:08:39

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

southerncross wrote:
wrcmad wrote:
southerncross wrote:

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.
Most scoffed that it was not going to happen - over the next 18 months those same people then came and told me they wished they'd heeded the warning.
Some of those were due to retire in the following couple of years, and it cost them a few more years of working to make up the shortfall in their super. sad
As for me, made shyteloads and laughed all the way to the bank shorting. big_smile


You must be a very rare breed then M8 as 99.8% totally missed it. But I note that you were 4 mths early, so were you right or wrong at that point in time ?

4 months is a long time in the trading market so a decision based on your TA at that point in time could of cost or made a large amount of money for people relying upon you for
analysis, rather you then me making that call in all honesty.

Not rare. A lot of traders saw it coming.
I sold and moved to cash just above 6000. The market topped out about another 500 points higher before shtf.
It's funny How many love to point the finger and say "see.... you were wrong... you missed the top! That must be proof that T/A doesn't work!"
Ridiculous given what happened to the blind majority. If selling 4 months early was a mistake, then most here have had a lifetime of FUBAR investment decisions.
Besides, as I have said numerous times before, T/A isn't a predicting tool, and doesn't assume to be one.
No one ever picks the absolute top or bottom with certainty or regularity.

southerncross wrote:

A question though, if it is so good, why are people not posting their observations from private Islands or space outpost's ? 

And if you made shytloads during the GFC with TA, why are you still here posting on SS and not off on your own Island?

Ahh, the old fallback line of "if it were that good, you'd be a gazillionaire!". C'mon. Seriously? Even Packer didn't post from his private island.
If that argument was valid, then all stackers currently look like right turtle-wits given the performance of their strategy for the last few years.
I live in the best part of Oz... not far from Byron Bay, by conscious, affordable choice. Life is good. And I quit a six-figure salary, moved here in 2008, and have never received a cent of govt hand outs. That was no accident. smile

Last edited by wrcmad (2016-05-28 10:14:11)


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#32 2016-05-28 10:51:36

aleks
Silver Stacker
From: Karl-Marx-Allee
Registered: 2010-10-14
Posts: 2,392
Trades :   27 

Re: Technical Analysis ...

Why is it billionaire status is the sole measuring stick of success?

The people on said list, half of which I have never heard of have probably made alot of their money from compound compound interest from managing other peoples money. You don't need to be making 100%+ returns year after year to become a billionaire. If you can beat a market index by a small margin you will attract investor capital and can charge management fees and take a cut from profits and reinvest it. This is huge leverage with no downside, what matters is if your investment strategy or trading style can scale.

A technical day trader exploiting a market inenficiency/pattern/squiglylinevoodoo or trading price in gold or the oil futures market that is profitable year after year can't scale to managing 100s of millions of dollars because they only take a few ticks out of market. Yet there are people that do this, if you didn't know this is what alot of PROPRIETARY TRADING FIRMS do and make a lot of money although not billions but still a shit load of money.

But as Bargain Hunter sounds like he is butt hurt and is posting purely for the sake of argument not because he is open to changing his position he will probably fail to acknowledge such firms exist tongue

Last edited by aleks (2016-05-28 19:28:43)


Only you have your best financial interest at heart, be your own guru

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#33 2016-05-28 21:04:50

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

I am far from but-hurt. I just find technicians to be an amusing breed. I will stick to my fundamentals and you guys stick to your squiggly line hocus pocus. No hard feelings.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#34 2016-05-28 22:58:37

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Bargain Hunter wrote:

I am far from but-hurt. I just find technicians to be an amusing breed. I will stick to my fundamentals and you guys stick to your squiggly line hocus pocus. No hard feelings.

No hard feelings here.... I've heard it all before. smile
Cheers.

13232998_1005716812799652_6165708117498344710_n.jpg?oh=89ac3319c93af97dd6d3807e04e0827f&oe=57CEB134&__gda__=1473094424_3f026e54605d9515a22bda828c659bb0

Last edited by wrcmad (2016-05-28 23:04:51)


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#35 2016-05-29 13:20:15

Topherclaus
Member
From: Central Coast, NSW
Registered: 2015-11-15
Posts: 485
Trades :   15 

Re: Technical Analysis ...

wrcmad wrote:
southerncross wrote:

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.

How do you see us sitting now then; stable, rocky, or imminent collapse? I wouldn't mind a hearty chuckle to the bank to pick up some fresh moolah. big_smile


An addiction to drugs would be cheaper.
- silver and gold anon. member -

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#36 2016-05-30 08:33:29

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Topherclaus wrote:
wrcmad wrote:
southerncross wrote:

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.

How do you see us sitting now then; stable, rocky, or imminent collapse? I wouldn't mind a hearty chuckle to the bank to pick up some fresh moolah. big_smile

I'll go with the non-committal rocky for now. wink
For a more definitive answer, apparently better to ask the fundamentalists. tongue
Bargain Hunter?

Last edited by wrcmad (2016-05-30 08:37:44)


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#37 2016-05-30 09:27:47

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

As a fundamentalist I do not claim to have any predictive ability about what the market will do in the future. That being said however I feel the All Ordinaries as a whole is somewhere between fair value and modest (no more than 10% over) overvaluation. If you look at the graph and chart in the following link it allows you to compare many of the worlds major stock markets based on valuation indicators: http://www.starcapital.de/research/stockmarketvaluation

Australia's currently CAPE (cyclically adjusted p.e. ratio) of 14.8 is somewhere around the longer term average (of course depends on your start and finish dates) http://www.macrobusiness.com.au/2011/07 … or-not-pe/
Meanwhile the price to book ratio of around 1.8 is a little bit expensive based on historical averages.

Note these are long-term valuation indicators which are good at broadly predicting market returns i.e. low, somewhere around average or high over the next twenty years. Based on the long term indicators I would say that in Australia equity returns over the next twenty years are likely to be around average to mildly below average over the next twenty years. Therefore if I had to predict what the All Ordinaries accumulation index will return over the next twenty years I would say 8-10% per annum pre-tax (i.e. including franking credits) would be an educated guess. However if we have a hyper-inflationary scenario in the next twenty years then the nominal return would be higher and the real return would be substantially lower as high inflation is bad for business overall. I would say if hyperinflation unfolded in real terms your after tax return would likely be somewhat negative (not a total wipe-out like cash but a moderate loss overall).

There is actually some interesting info in here about long-term returns and valuation provided by the technical analysis association of all places!
http://www.ataa.com.au/file/PR_Vagg_A_L … _Dec10.pdf


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#38 2016-05-31 05:42:12

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Bargain Hunter wrote:

As a fundamentalist I do not claim to have any predictive ability about what the market will do in the future.

As a technical analyst, neither do I. smile

Bargain Hunter wrote:

Based on the long term indicators I would say that in Australia equity returns over the next twenty years are likely to be around average to mildly below average over the next twenty years.

Well, that was utterly illuminating. I am stupefied by the wisdom of that analysis.
After reopening a 3-year old thread to come at T/A's like a bull at a gate, calling T/A laughable, likening it to voodoo, tea leaves and astrology, then promoting the virtues of FA by ingeniously listing well publicised economic data that may be cleverly used in a more realistic fundamental analysis, the best you can offer is someone else's vague analysis that:

".... the average of the next 20 years should be about the same as the average of the last 20 years..."

Seriously!!!????  FMD! lol lol

I can't wait to hear how you formulate a fundamental value of silver - that would be truly ingenious, because after posing the question plenty of times here, to this day still no-one has been able to provide me with one. big_smile


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#39 2016-05-31 08:21:01

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

Wrcmad numberous academic studies show that over 10-20 year periods (i.e. the long term) that starting valuation is the best predictor of what the return will be over that period. Looking at long term metrics like the CAPE, Tobins Q and the price book ratio, etc have far more predictive ability than  factors like interest rates or GDP growth. When the market has long term valuation metrics that are well above long term averages the returns going forward will be poor, when valuations are well below average prospective twenty year returns will be above average.

If you look at work done by Robert Schiller the economist and author, and also the fund manager/asset consultant GMO which is run by Jeremy Grantham amongst many others you will see the evidence and logic of what I am talking about.

While my prediction appears to lack insight and boldness the fact is that the ASX is not undervalued nor is it parricularly overvalued (maybe slightly so). Therefore one would expect future long term returns to be somewhere around the historical average (as a best guess).

In Australia in 2005, 2006 and 2007 these long term indicators would have told you stocks were overvalued and future long term returns would be poor and in 2009 they would have told you stocks were undervalued. At the moment they give a relatively neutral outlook. None of these fundamentak indicators are a short-term timing device. In the U.S. market the whole 1998 - 2007 period the indicators wouod have told you stay away from U.S. stocks. Meanwhile they were neutral in 2008, bullish in 2009 and neautral in 2010 and 2011.

Last edited by Bargain Hunter (2016-05-31 08:25:31)


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#40 2016-05-31 09:13:51

trew
Silver Stacker
From: Melbern
Registered: 2011-08-24
Posts: 3,958
Trades :   

Re: Technical Analysis ...

You're starting to sound like an advertisement for the Efficient Market Hypothesis and Modern Portfolio Theory.

Bargain Hunter wrote:

If fundamental analysis is voodoo how come practitioners like Warren Buffett, Benjamin Graham, Peter Lynch....

They were all stock pickers.  Bottom up fundamentalists.

The Intelligent Investor doesn't talk about the market being fair valued or over/under valued.
It talks about 'Mr Market', a manic depressive who should be ignored or taken advantage of, as appropriate.

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#41 2016-05-31 09:45:05

Davros10
Silver Stacker
From: Canberra
Registered: 2015-02-22
Posts: 161
Trades :   17 

Re: Technical Analysis ...

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.

Last edited by Davros10 (2016-05-31 10:25:45)


"Last night as I was sleeping, I dreamt-marvelous error!-
that I had a beehive here inside my heart.
And the golden bees were making white combs
and sweet honey from my old failures"         Antonio Machado

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#42 2016-05-31 10:34:38

Topherclaus
Member
From: Central Coast, NSW
Registered: 2015-11-15
Posts: 485
Trades :   15 

Re: Technical Analysis ...

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.


An addiction to drugs would be cheaper.
- silver and gold anon. member -

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#43 2016-05-31 20:02:35

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

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.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#44 2016-05-31 20:23:16

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

trew wrote:

You're starting to sound like an advertisement for the Efficient Market Hypothesis and Modern Portfolio Theory.

Bargain Hunter wrote:

If fundamental analysis is voodoo how come practitioners like Warren Buffett, Benjamin Graham, Peter Lynch....

They were all stock pickers.  Bottom up fundamentalists.

The Intelligent Investor doesn't talk about the market being fair valued or over/under valued.
It talks about 'Mr Market', a manic depressive who should be ignored or taken advantage of, as appropriate.

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.

Last edited by Bargain Hunter (2016-05-31 20:26:38)


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#45 2016-06-01 06:11:54

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Bargain Hunter wrote:

Wrcmad numberous academic studies show that over 10-20 year periods (i.e. the long term) that starting valuation is the best predictor of what the return will be over that period. Looking at long term metrics like the CAPE, Tobins Q and the price book ratio, etc have far more predictive ability than  factors like interest rates or GDP growth. When the market has long term valuation metrics that are well above long term averages the returns going forward will be poor, when valuations are well below average prospective twenty year returns will be above average.

If you look at work done by Robert Schiller the economist and author, and also the fund manager/asset consultant GMO which is run by Jeremy Grantham amongst many others you will see the evidence and logic of what I am talking about.

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 tongue ) 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. smile

Last edited by wrcmad (2016-06-01 06:13:40)


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#46 2016-06-01 06:56:13

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

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.

Last edited by Bargain Hunter (2016-06-01 07:15:43)


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#47 2016-06-01 07:14:29

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Bargain Hunter wrote:

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?

Yes.

Bargain Hunter wrote:

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. 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.

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."

Bargain Hunter wrote:

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.

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 commend your honesty. smile
In light of this, I also recommend you reconsider the usefulness of FA.


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#48 2016-06-01 07:17:58

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

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.

Last edited by Bargain Hunter (2016-06-01 07:22:24)


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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The following user says thank you for this post: wrcmad

#49 2016-06-01 07:50:52

wrcmad
Silver Stacker
From: Northern NSW
Registered: 2012-01-02
Posts: 6,102
Trades :   118 

Re: Technical Analysis ...

Bargain Hunter wrote:

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.

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. smile


Anything is possible, but not everything is probable.  wink

Manipulation..... If you want to continually subscribe to this idea then get out of precious metals. Only a fool would play a game that is completely rigged. As you still are in the game, I would say that you are not completely convinced of the manipulation ...

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#50 2016-06-01 08:14:26

Bargain Hunter
Member
From: Sydney, Australia
Registered: 2010-07-11
Posts: 730
Trades :   18 

Re: Technical Analysis ...

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.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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