Forum Archive Index - February 2002

[Phaedrus <Phaedrus@techemail.com>]

My responses to Ichi's post, marked by # :-

> (1) Buying and holding stocks that are in longterm uptrends is a successful 
>investment strategy.

Sure.  You tell me which stocks will maintain a longterm uptrend
for the next five years and I will be happy to buy them.

# I can't. But I can tell you which ones are currently in longterm uptrends.

> (2) Longterm uptrends can last for many years.

Sure.  And longterm uptrends can terminate abruptly.
 
# At which point you sell. The strategy is to only hold stocks that are in 
longterm uptrends - not to buy and hold regardless. All trends end sooner or 
later.

> Would you not do better patiently holding stocks that are 
> steadily rising, rather than those that are going nowhere? 

Sure.  You tell me which stocks will steadily rise for the next
five years, and I will be happy to buy them.

# I can't. But I can tell you which stocks are rising steadily at the moment. I 
can also tell you which stocks are currently going nowhere. And which stocks 
are falling. Your choice.

> Buying static or falling stocks in the hope that something 
> good might happen further down the track sounds to me like 
> ..... speculation!

Sure.  And buying rising stocks in the hope that they will 
keep rising is also... speculation! 

# At the very least, one course of action is much more speculative than the 
other. One is buying in the expectation that what has been happening for some 
time will continue to happen. The other is hoping for something that has never 
happened before in the history of the stock. One is hoping that nothing unusual 
will happen, the other is hoping for exactly that. Very different cases.
   
IMHO it is unwise for an investor to base his expectations
of a stock's future performance on its past performance.

# Ichi, every known method of forecasting, from weather prediction to 
fundamental analysis, is based completely on past data. What other sort is 
there? As one statistical text puts it "The first step in forecasting the 
business or economic future consists of gathering observations from the past" 
(Freund and Williams)
 The field of statistics makes a distinction between Descriptive Statistics and 
Inductive Statistics. Descriptive Statistics refers to the graphical 
presentation of data such as a price chart. Inductive Statistics refers to 
generalizations, predictions or extrapolations that are inferred from that 
data. Chart analysis is just another form of Time Series Analysis, based on the 
study of the past. The use of past data in an attempt to predict the future is 
grounded in sound statistical concepts. Anyone questioning this would also have 
to question the validity of every other form of forecasting based on historical 
data, which includes all economic and fundamental analysis. 

                 Phaedrus.

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