Tuesday, August 20, 2013
I have studied and used various analytical techniques. In grad school, I studied "financial analysis" (balance sheets, P/E ratios, etc.) and "fundamentals analysis" (news, trends, etc.), and "market analysis". I've since studied technical analysis also. And now, of course, we have the dominant current analysis technique -- FED analysis (what the Fed is doing, saying). :) I've also studied Elliott Wave analysis with one of its most prominent practitioners. I've also studied what are called "fractals" and chaos theory. I've also recently studied bubble analysis with Didier Sornette, who is widely considered to be THE expert on log-periodic exponential asset bubbles. NONE is perfect, and ALL have serious flaws.
Technical analysis is not really a single analytical technique. There are as many variations as there are people who practice it.
But in my readings, I eventually ran across a book by Phillippe Cahen, who used a technique unlike anything I had seen before. He was an upper-level executive for one of Europe's largest investment banks, so he had instant credibility. I then bought others of his books, and the most recent ones were written in French. I spent 8 weeks translating them into English. Cahen had developed and mastered a method which he copyrighted called Dynamic Technical Analysis.
He points out in his book that most other forms of technical analysis are static, but the financial markets are dynamic. I think this is one of that technique's flaws. Thus, in order to correctly reflect the dynamic nature of the financial markets requires a "dynamic" form of analysis.
Over time, I developed my own, which is as dynamic as the markets themselves. I use the market itself to tell me when to get in, when to get out, etc. It takes bits and pieces from various analytical methodologies. I don't dismiss any analytical technique, but I also don't limit myself to any method either.
In my studies, I also made the acquaintance of a man whose name I never learned. But a close friend of his revealed to me that Phantom is a famous investor on Wall St, and a immensely wealthy man. He referred to himself only as Phantom. He offered me a book online FREE called "Phantom's Gift". In it, he doesn't offer a technique, but instead, teaches principles. That struck a chord with me, and I absorbed those principles into my own methods.
As for accuracy, I know of NO ONE, and NO analytical method, that is consistently accurate. Kyle Bass accurately predicted the real estate housing crash, so I follow his writings. He has credibility due to his track record. He made billions for the investors of his hedge fund. But other people who have accurately predicted other market phenoms have subsequently been wrong. This anomaly appears to be the rule rather than the exception. Just because someone hit a home run today doesn't mean the won't strike out tomorrow. This has lead me to devise and state to myself a little aphorism:
"Predicting the future is for prophets, not profits."
I'm no prophet. But I do make profits!
The recent correction in stocks hasn't changed the appearance of the long-term charts very much. Stocks still haven't even dropped to the 20-period moving average, and are closer to the top, than the bottom of the channel. Stocks haven't even come close to the exponential moving average!
We're seeing a short-covering rally today in stocks. Wall St is still asleep!
“...a pack of lemmings looks like a group of individualists compared to Wall Street once it gets a concept in its teeth.” Warren Buffett
“Faith in central banks today is equivalent to faith in the word dot-com in 1999 or faith in the eternal rise of housing prices in 2006.” John Mauldin