Forum Archive Index - June 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus,

>
> Snoopy,
> I must challenge your statement that ".....If however, you were
> simply a trend follower ..... you were always going to lose by
> selling out at $4.20 or so."
> Let me assure you that NO trend follower would have been selling at
> $4.20! Most trend followers would have sold at +/- $7.30 about a year
> ago.
> 

You make the assumption that most trend followers are as meticulous 
and sophisticated as you are.

What would have happened if a person scanning the daily papers saw 
WHS trading in mid April at $5.30 or so and saw the price rising?  They 
saw it had bounced off the support level at $5.30 twice in recent months 
and could see the price rising again so decided it was a good time to 
buy.

Then the day of the second WHS crash came and the price of the WHS 
plunged to just above $4.    I seem to recall a discussion featuring you at 
the time claiming that indeed TA would not have saved you from this 
price plunge, but sophisticated TAers would have been out months 
before anyway and so would not have been hurt.    This is exactly the 
argument you have repeated here.

However, none of this would be any consolation to the *unsophisticated* 
TAer that bought in at $5.30 in mid April.   This person could very well 
have been paniced into selling at $4.10 or so.    Probably about now you 
are thinking that I am picking a fairly obscure time horizon window and 
the real chance of anyone being so foolish in precisely this time window 
is quite low.

Well, I have a little confession to make here.   I was that fool, in that very 
time window!    If you look back at the focus investment board 
discussion on WHS, you will find a post from someone saying that they 
thought WHS was overvalued at today's prices, whereupon I came in 
and said something like:

"You seriously expect WHS to plunge below $5?    You can't see that it 
is actually excellent value at $5.30 or so?"

At that point the conversation ended and for all I know, that person may 
have gone out and bought WHS at $5.30 and was cursing me only 
weeks later.    Indeed if I had had the capital on hand at the time I may 
have even fallen into my own 'trap' myself!     

However, if I had bought in at $5.30 I certainly would not have sold at 
$4.10.    I may be a crude TA operator, but $4.10 represented the 
equivalent of a 15% compounding coupon bond (based on fundamental 
analysis).    I would never sell a 15% compounding bond, no matter what 
the TA indicators said.   The thing that would have saved me from 
selling would have been the FA I had done on the Warehouse.

As I see it, my point that an (unsophisticated)  pure trend follower may 
have indeed lost money by selling out WHS in the low $4 range, still 
stands.    However, rest assured Phaedrus that I never had it in my mind 
that *you* would ever suffer in this way!

SNOOPY



--
Message posted by Harry Tennyson
 using Pegasus Mail 4.02
I have Word 97 to read attachments
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