great site/service if you can trade in your 401k

[PCL_128]

Do u believe that technical analysis works?

Of course not.

I honestly believe the market as we know it will not be much higher on 20 years that it is today.

For a value investor, it doesn't have to be. When you're buying an individual stock at a deep discount to its intrinsic value, even if the overall market continues to stagnate, the individual stock price will improve over time. During any bear market, there are always stocks that buck the trend and rise while everyone else falls or stagnates. Many of these are the value plays that were drastically underpriced, and people eventually wake up and realize that buying a company with $50 in assets per share at a price of $25 is a no-brainer. Yes, even during a bear market.

As far as forecasting markets for the next 20 days, let alone the next 20 years, I defer to Peter Lynch: "If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes."

 

[PCL_128]

You are quoting a book from 1973 and comparing it to today's computer driven Hft markets.

Please tell me u have something better than that.

There are no paradigm shifts in investing. Many have been claimed, but none have turned out to be true. Some things stand the test of time. And when it comes to investing, Malkeil's book stands the test of time for passive investors (even though his theory is off), and Graham's books stand the test of time for active investors who are willing to put the effort in.

Good luck. Can't wait for a re-cap of this thread in 10 years.

Ditto.

 

[ualdriver]

Well, not "infinitely." After all, there is an ultimate time limit: lifespan. Given an infinite amount of time to continue, I have no doubt that his wealth would continue to grow infinitely. The growth rate slows due to the sheer size of the operation, but the growth doesn't go away, or even slow to the point of the average investor.

And Buffett isn't alone. Pretty much everyone who follows the same Graham-Dodd basic framework watches their wealth compound over the long-term at a rate far exceeding that of the overall market. It's just not more well-known because few people decide to follow that model. Buying a stock that has fallen out of favor with the public and holding on to it for years at a time just isn't "sexy" like chasing growth and trying to time markets using silly technical analysis.

PCL-

If one is going to actively trade stock like this RedDog deal espouses, then I don't care what type of analysis one uses- technical, fundamental, fair coin flips, chicken entrails.....it is statistically likely to fail. It is impossible IMO to predict the future price of many things, including stocks. If anyone had the ability to predict the future price of stock, they could trade stock every day until they because the world's first trillionaire. If the "technique" works, it shouldn't take a lifetime to accumulate a trillion dollars- all or mostly all of the trades would be winners and the magic of compounding by investing all the winning proceeds would take care of the balance. He/she could make Warren Buffet his pool boy in short order.

As an aside, Buffet recommends (frequently) that individual investors use index funds. If you're a Buffet fan, I'm sure you know he is winnig a well publicized index fund/hedge fund contest right now.

Benjamin Graham towards the end of his life stated the following:

"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors."

 

[PCL_128]

PCL-

If one is going to actively trade stock like this RedDog deal espouses, then I don't care what type of analysis one uses- technical, fundamental, fair coin flips, chicken entrails.....it is statistically likely to fail.

When it comes to active trading, I would agree.

It is impossible IMO to predict the future price of many things, including stocks.

This is where we disagree. Is it impossible to predict the price of a stock 6 months from now? Yes. Two years from now? Yep. But is it impossible to predict that a stock will eventually reach its intrinsic value over a long period of time? No, not at all. Doing so is what has made numerous value investors billionaires.

As an aside, Buffet recommends (frequently) that individual investors use index funds.

Not entirely true. He recommends just as I've said (and Andy has said) above: that if you can't put in the time to do accurate security analysis (and most people can't), then index funds and ETFs are the way to go for the individual investor. Because of that, probably 95% of people out there would be better dumping their money into a few ETFs with maybe some assistance on portfolio structuring by a money manager, and then leaving it, just adding money to the positions over time and coming back to take a look at the portfolio structure every year or so. But for those 5% (maybe less) who actually enjoy reading through company balance sheets, SEC filings, annual reports, etc., and have the sense to use value investing principals, then Buffett has never urged them to shy away from selecting individual stocks.

If you're a Buffet fan, I'm sure you know he is winnig a well publicized index fund/hedge fund contest right now.

Yep. Proving once again what he's always said: active management where there is pressure on the manager to always be making some trade or another will ultimately result in inferior returns. Success in investing is about making the right picks at the beginning, and then sitting back and letting them appreciate to their intrinsic value before selling them. Making a bunch of trades and seeing portfolio turnover rates in the hundreds of percent is insane.

Benjamin Graham towards the end of his life stated the following:

"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors."

This is a partial quote from something Graham said in a security analyst journal late in his life. What you leave out is the rest of what he had to say, which was that he had grown to believe that a diversified portfolio of undervalued companies is the way to go, rather than a concentrated portfolio of just a handful of extremely undervalued companies. This is really what just about every value investor has moved towards over the past decades, just like Graham. Buffett and Munger are really the only ones still sticking to the old style of holding onto just a few dozen companies. But they're able to do so because they pretty much always buy companies outright now instead of buying pieces of them (stocks). When you have $200 billion under management, the game's a bit different than it is for the rest of us. But the value investing principals are still there. They're just able to applied in the old way a little more easily.

 

[ualdriver]

This is where we disagree. Is it impossible to predict the price of a stock 6 months from now? Yes. Two years from now? Yep. But is it impossible to predict that a stock will eventually reach its intrinsic value over a long period of time? No, not at all. Doing so is what has made numerous value investors billionaires.

Investing in stocks because of patterns seen on a chart has made people billionaires, too. That's why technical analysis is alive and well today. He11, there are probably lots of people who have read a charlatan like Kiyosaki and have become millionaires buying and selling real estate and shunning the stock market like he espouses. However, just because "numerous" people have made money using any particular method (pick your favorite) doesn't automatically validate a particular method nor does it prove that one is destined to make market beating returns in the future.

Not entirely true. He recommends just as I've said (and Andy has said) above: that if you can't put in the time to do accurate security analysis (and most people can't), then index funds and ETFs are the way to go for the individual investor.

According to Wikipedia (the source of all truth), there are about 14,000 mutual funds in the US today. Out of those 14,000, there are probably 1,000s of mutual funds that undertake a fundamental analysis of the companies they purchase. They DO have the time to make accurate analyses of just about any company they want. These funds hire the best and the brightest the financial services industry have to offer. They have a huge amount of computing power at their fingertips. They hire highly educated guys/gals with lots of initials after their name who work 80+ hour weeks.....yet.......

When you look at the financial performance of mutual funds (for example), especially over long periods of time, they underperform their benchmarks. Depending upon who you're reading, over a 10 year period, 70%-80% of mutual funds underperform their stated benchmarks, not even taking into consideration survivorship bias. Look back 20 years and the record is even worse.

So my question is this....if what you say is true. If all one has to do is undertake a proper fundamental analysis of company stock before making a purchase, why do mutual fund managers continually underperform? Even the ones that use fundamental analysis? Even the ones that make concentrated bets and few trades using fundamental analysis? Even the ones that make lots of bets and make lots of trades using fundamental analysis?

Don't all these guys know that it IS possible to predict the future price of a stock with enough examination? That if they just wait, a stock WILL reach some (guaranteed higher?) intrinsic value sometime in the future?

And that's where I diverge from anyone who thinks they can predict any sort of price of anything using any method, consistently, year after year, decade after decade. I own value. I own growth. I own big. I own small. I haven't a clue which will do better in the future, or if they'll even grow in real terms at all. The best one can do IMO is diversify, keep trading costs down, keep expenses down, and minimize Uncle Sugar's share. To me, everything else is just interesting noise, although admittedly I do spend (waste?) a lot of time reading about it.

 

[PCL_128]

Investing in stocks because of patterns seen on a chart has made people billionaires, too.

Nope, not really. There's a reason that there isn't a famous technical analyst billionaire like there's a famous value investor like Buffett: because technical analyst billionaires don't exist. They get paid low six figure salaries to make fools of themselves on CNBC, or they get paid big bucks if they're good enough salesman to sell picks on a website or convince investors to give them money to invest, for which they charge a huge fee (to deliver sub-par results, of course).

That's why technical analysis is alive and well today. He11, there are probably lots of people who have read a charlatan like Kiyosaki and have become millionaires buying and selling real estate and shunning the stock market like he espouses. However, just because "numerous" people have made money using any particular method (pick your favorite) doesn't automatically validate a particular method nor does it prove that one is destined to make market beating returns in the future.

You should read the same article I mentioned to RedDog earlier: "The Superinvestors of Graham-and-Doddsville." Buffett specifically addresses your argument here. The short version of the article is that if you had 200k investors all studied, and 250 of them beat the market over 30 years, then that wouldn't be statistically significant. It could easily be an aberration with those kinds of numbers. But if you found that all 250 (or even just a third of them) all went to the exactly same school and invested using the exact same methods, then suddenly it becomes very statistically significant. To the point that it's no longer possible that it's just chance. And that's exactly the case with true value investing. Buffett goes through a big list of them in the aforementioned article and shows their results. Give it a read.

According to Wikipedia (the source of all truth), there are about 14,000 mutual funds in the US today. Out of those 14,000, there are probably 1,000s of mutual funds that undertake a fundamental analysis of the companies they purchase. They DO have the time to make accurate analyses of just about any company they want. These funds hire the best and the brightest the financial services industry have to offer. They have a huge amount of computing power at their fingertips. They hire highly educated guys/gals with lots of initials after their name who work 80+ hour weeks.....yet.......

When you look at the financial performance of mutual funds (for example), especially over long periods of time, they underperform their benchmarks. Depending upon who you're reading, over a 10 year period, 70%-80% of mutual funds underperform their stated benchmarks, not even taking into consideration survivorship bias. Look back 20 years and the record is even worse.

So my question is this....if what you say is true. If all one has to do is undertake a proper fundamental analysis of company stock before making a purchase, why do mutual fund managers continually underperform? Even the ones that use fundamental analysis? Even the ones that make concentrated bets and few trades using fundamental analysis? Even the ones that make lots of bets and make lots of trades using fundamental analysis?

We're not just talking fundamental analysis here. We're talking a very specific subset of fundamental analysis: deep value investing in the vein of Graham, Dodd, Buffett, Munger, Fisher, etc. The kind of investors who don't pull the trigger on a purchase unless they see a discount to intrinsic value of 30+%.

But there's also another reason that you don't see great performance from mutual funds, even with the best and brightest: because nobody is willing to pay a management fee to a money manager who goes months between making trades. Managers feel the need to constantly be showing work. They need to be buying and selling something, otherwise they worry that investors will feel they aren't doing their job and take their money elsewhere. That's why you see even funds that Morningstar would classify as "value" funds with turnover rates over 50%. Are these really value funds? Absolutely not. They're only value funds by comparison to the growth funds, which sometimes have turnover rates of over 100%. Turnover kills profits, and no true value stock matures to its intrinsic value in less than a year.

 

[redflyer65]

Nope, not really. There's a reason that there isn't a famous technical analyst billionaire like there's a famous value investor like Buffett: because technical analyst billionaires don't exist. They get paid low six figure salaries to make fools of themselves on CNBC, or they get paid big bucks if they're good enough salesman to sell picks on a website or convince investors to give them money to invest, for which they charge a huge fee (to deliver sub-par results, of course).

That's like sticking your neck out 10 feet and saying your right about everything.

I agree that value investing is ONE way of investing, and it's worked for some. (and I agree with almost everything you've said about it), but as good as it is, it's still not the be all, end all of investing. If it works for you, then that's great. But it's just one way of doing things.

There are plenty of people that have made millions off....

Value investing.
Growth investing.
Fundamental investing.
Technical analysis.
Foreign investing.
Commodity investing.
Options trading.
Mutual fund investing.
Leverage trading.
Bond trading/investing.
Derivative trading.
Futures trading.
Currency trading.
Providing venture capital.

Some are trading.....some are investing. Big difference.

I could go on and on. You get the idea. If value investing is your deal, that's great. But don't tell others that HAVE made money in the market without it they don't know what they are doing, or that it's bunk. That's pretty naive in the investing world.

What about using Fundamentals with technical analysis?

What about fundamental/technical investing in micro cap stocks? I've made thousands of dollars there. It may not be for everyone but it's just a different way of doing things.

I say..Whatever works for you.

Don't like a newsletter or website, then leave. There's no right or wrong answer and to each their own. And I say that knowing that value investing is a valid approach, but it's one of many.

 

[vixin]

Who wants to take bets PCL128 is on the SWA senority list Jan 1st, 2015?

Or full time union stooge at ALPO?

 

[PCL_128]

There are plenty of people that have made millions off....

Value investing.
Growth investing.
Fundamental investing.
Technical analysis.
Foreign investing.
Commodity investing.
Options trading.
Mutual fund investing.
Leverage trading.
Bond trading/investing.
Derivative trading.
Futures trading.
Currency trading.
Providing venture capital.

Some are trading.....some are investing. Big difference.

I could go on and on. You get the idea. If value investing is your deal, that's great. But don't tell others that HAVE made money in the market without it they don't know what they are doing, or that it's bunk. That's pretty naive in the investing world.

The difference is statistical significance. While you can find some people who have made money with a wide variety of investing techniques, they aren't in a statistically significant group. In other words, when you find someone who has made money day trading currencies, he's just been lucky. As Buffett explained, the same is not true of the form of investing that he (and Graham's other adherents) practice.

What about using Fundamentals with technical analysis?

A waste of time. Technical analysis is akin to astrology.

 

[PCL_128]

Who wants to take bets PCL128 is on the SWA senority list Jan 1st, 2015?

Or full time union stooge at ALPO?

Nope, I'll be neither. I'm somewhat doubtful that I'll still be on the seniority list on Jan 1st, 2014.

 

[ualdriver]

Nope, not really. There's a reason that there isn't a famous technical analyst billionaire like there's a famous value investor like Buffett: because technical analyst billionaires don't exist. They get paid low six figure salaries to make fools of themselves on CNBC, or they get paid big bucks if they're good enough salesman to sell picks on a website or convince investors to give them money to invest, for which they charge a huge fee (to deliver sub-par results, of course).

James Simons
Ray Dalio
Steven Cohen
Paul Jones

There's 4 for you. I'll read your article.

 

[redflyer65]

A waste of time. Technical analysis is akin to astrology.

That's your opinion. People have made billions selecting growth companies at the correct buy point. Mostly associated with basing patterns and high volume breakouts.

Main point being....it begins with great fundamentals and then adds technical analysis after finding the right companies.

You want to call it a waste of time, you'd be wrong. Just a different style of investing. Maybe not for you, but it works more times than not.

If the companies fundamentals aren't good, then you look elsewhere.

 

[PCL_128]

James Simons

Simons falls into the second category I mentioned: getting rich off of incredibly high fees. He charges a 5% of gross assets under management fee just for the privilege of allowing him to manage your money, and then he takes 44% of profits, one of the highest rates ever recorded. In other words, he makes over a billion dollars a year just for holding the money, and he takes almost half of the profits in addition to that. It's pretty easy to rack up a $10 billion fortune when you're taking $1.4 billion annually in the equivalent of salary. By contrast, when Buffett was managing an investment partnership, he charged zero management fee and only took 25% of the profits that exceeded an 8% return.

But, it is impressive the kind of returns that Simons managed to get for the fund itself. Of course, this is one of those statistical anomalies that are bound to happen. As Buffett said in his article, if everyone in America flipped a coin repeatedly and was paid a geometrically increasing amount of money every time the coin flip turned up heads, then there would be a small handful of people who would end up making ungodly amounts of money just because mathematically, when that many people are engaging in a 50/50 probability activity, a certain tiny percentage will get incredibly lucky and hit heads over and over again. It's just the math of binomial distribution. The only time it's statistically significant is if you can come up with a decent number of people engaging in the same activity using the same investment strategy and creating the same results. With Simons, no one even knows exactly what his strategy is.

Ray Dalio

Same thing. Getting rich off of fees. He charges a 2% management fee and takes 20% of profits. Just in management fees, his firm collects $2.4 billion per year.

Steven Cohen

About to be charged with insider trading. Need I say more?

Paul Jones

Another guy getting rich off of fees. He charges a 4% management fee and takes 23% of profits. That's a half billion per year just in fees before you even start to look at profits. With those numbers, it's amazing he only has a personal fortune of $3 billion.

Buffett would have a trillion dollars in personal fortune today if he had been charging these sorts of outrageous management fees to his investors.

 

[PCL_128]

That's your opinion.

Actually, no, it's what countless peer-reviewed studies have proven.

 

[Diesel-9]

There is something for everyone but I'll stick with conservative methods. Averaged 18.3% return a year the last decade the old fashion way. Be careful out there. Best advice I got when hired? Keep your first (current) wife, and don't ever listen to airline pilots for investment advice. You know how to make a pilot a millionaire? " Give him $3 million! "