Using Technical Analysis Fundamentally; Mea Culpa


au-stocksUsing Technical Analysis for a Fundamental View:



The Trend is not your friend

There’s an old saying in the financial markets that the trend is your friend, meaning that you will do well as long as you position your trades in line with the current price trend. This sounds good. The only problem is that you can never know what the current trend is; you can only know what the trend was during some prior period. How is it possible for something you can never know to be your friend?

Market ‘technicians’ often make comments such as “the trend for Market X is up” and “Market Y is in a downward trend” as if they were stating facts. They are not stating facts, they are stating assumptions that have as much chance of being wrong as being right.

A statement such as “Market X’s trend is up” would more correctly be worded as “I’m going to assume that Market X’s trend is up unless proven otherwise”. The proving otherwise will generally involve the price moving above or below a certain level, but the selection of this level is yet another assumption and the price moving above/below any particular level will provide no factual information about the current trend.


Mea Culpa: sequoia-may-2016-transcript  Not much to glean.

However, a question for you:  Is it better to buy franchises or net/nets?

If you could choose between a fair coin that was gold or a rusty tin coin that each paid off 4 to 1 on choosing heads or tails, which one would you prefer?

In October those near Philly Microcap Conference



7 responses to “Using Technical Analysis Fundamentally; Mea Culpa

  1. I can’t remember the last time I saw a technical analysyst make public his performance over the course of years, which I find to be revealing.

    “Is it better to buy franchises or net/nets?”

    When asking if something is better than something else, there’s always a context. Better TO WHOM and FOR WHAT?

  2. There has never been a pure technical analyst EVER showing good long-term results from what I can gather. Reward offered.

    A mispriced bet is a mispriced bet whether franchise or net/net. Doesn’t matter. As Buffett says always take the best risk-adjusted return.

    • Let’s say you’ve decided to buy one out of two pieces of real estate, one being a distressed property that would be a turnaround and another that’s an underpriced property in a growing area. You conclude that they are both equally undervalued. That doesn’t mean that you can choose either indiscriminately. Your preferences as an investor should be taken into account. Maybe you don’t want to mess with turning around a property, or perhaps you’d get a kick out of it.

  3. John,

    Druckenmiller relies on TA to time entrance into positions. Do you happen to know what type of TA he’s using? Thanks.

    • I don’t. What matters is finding a technique that helps you. Search for everything you can read about Stan and see what you can glean. If that doesn’t work, call him up and ask.

  4. If both a franchise and a net-net held equal risk-adjusted returns, I would prefer to buy the franchise.

    If the price of both companies moves towards fair value at an equal rate, the investor could then hold the franchise company and watch its intrinsic value grow, whereas they would need to sell the net-net and then find and reinvest in a similar investment. Cue taxes, transaction costs, bid/ask spreads.

    • Well, the best investment you can make is in a company that can grow profitable and reinvests its high profits at the same high rate. Think Wal-mart in the 1970s and 1980s.

      Theoretically, you would be indifferent if the returns were the same.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.