Forum Archive Index - November 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

Hugh: Come in George! 

What have you been up to last night? You do look tired!

 

G: I had a bad dream last night: I found myself in a large cafe with on one side, people with the letter F on their back.

The rest were people with the letters T A  on their shirts.

 

H: Very strange, tell me more!

 

G: It transpired that the "F" team ( Fundamentalists ) had been to a conference where Buffettology was discussed. 

 

Some fundamental investors thought that TA people were TAlibans! They were really fired up and fortified by a few drinks prior to hitting the cafe!

 

The  TA team had also attended a meeting. Some thought that it was stupid to be an " F" person, because this investor incremented his investment over a given period while the TA  could double or even triple that by using TA tools.

 

They too had been drinking and the attendants had a difficult time keeping the groups apart. Suddenly, a leader of one group lunged at another!

 

H: Tell me more, tell me more!

 

G: A fight was about to start and Management drove the lot outside. Here the melee continued, a real free- for- all!

It became serious and I rang for the police.

 

Meanwhile, an "F" type came over and wanted to know if I was one of them. I said that I was neither an "F" - nor a "TA" type. He then jostled me.

 

A "TA" type came to my aid but then shrugged when he found out that I was neutral.

 

He said: " One thing about the "F" types and us " We consider everything to be black or white; on the other hand, you seem to think that the two can be combined. You are proposing that the colour is grey! You are a whimp!"

 

Then everybody roared: "whimp, whimp, wimp, whimp!"; all this, while continuing fighting. By now, a large crowd had joined in and I could hear the police, who had just arrived, calling in reinforcements.

 

I was hemmed in by the crowd and the situation deteriorated quickly. Suddenly a couple of large trucks arrived and their water cannons swept the crowd from the street.

 

It was then, when I woke up. What does this all mean, I wonder? 

 

H  In reality, there is not a bad feeling between Fundamentalists and TAs. Mind you, some can have a temper!

 

G: Who are these people? 

 

H: The Fundamentalists study the fundamentals of a Company, eg : Profit history, balance sheets, competition, management and the real value of the company. That includes the prospects of the company. They tend to be long term investors. Many study Buffettology.

 

TA people are more concerned with obtaining profits by trying to find the optimum price entry- and exit points. They use TA tools to achieve their aims. Using charts, they study trends, set stop losses and use profit protection  techniques. Many are traders, some very short term, others longer term.

 

I believe that people who want to trade on a permanent basis, should ask themself if they have a suitable personality to do so: The burnout rate can be high. Many don't succeed.

 

G: You have talked to succesfull traders, are there common characteristics?

 

H: Some successful bigger traders tend to study the fundamentals of the companies, they invest in. They need to, before selecting suitable companies. They will also study the Charts with past trends. They tend to select a number of companies as they may not be trading in them at the same time.

 

All company announcements will be studied closely. They tend to have a suitable personality and are intelligent people. 

 

G: Are you suggesting that Fundamentalysts can make use of TA?

 

H: Yes: These two are not mutually exclusive: Longer term investors may determine the entry point  and much later, when they  decide to sell, look for a suitable exit point. 

 

G: You, being a Stockpicker, have you used TA much?

 

H: Not yet. Where TA is particularly useful, is, where losses have already been made and a study of trends can confirm the action required. 

 

G: Then, why don't some Fundamentalists like TA people?

 

H: I think that your dream exaggerated  the situation. Sure, at times, shares may fall to - or rise to unjustified levels. Now, more than ever, investments are being turned over at the blink of an eye, making trading more volatile.

 

That is, because the larger institutions demand better returns within the shortest time: They need to stay ahead of the competition.

 

Unlike before, they don't stay with a company for long if the Charts say that it is time to sell. These traits are not admired by some fundamentalists and can upset them at times. 

 

TA need not be an emotive issue. It is up to the investor to adopt the systems - or combination of systems - they are comfortable with.

 

G: Thanks for that, Hugh! At least I can have a restful sleep tonight! 

 

Gerry