Fundamentals DONT MATTER

[Dan Mezick]

...in deciding to take a position in a security.

That's because the sum-total of all information available in the universe about any security (including the baked-in "fundamental" info) is reflected now, in the price and volume. And in the price and volume of related (correlated and non-correlated) securities, such as options. The price of the base and related securities (and often, the relationships between them) represents everything that can be known, now.

Even "fundamental" analysts MUST resort to the very "technical" study of "trends" in sales, earnings, earnings growth, etc. These "analysts" are actually technical trend followers, in drag.

actually depends on the time frame your looking at.

Awesome post - it takes significant understanding of the markets to realize that fundamentals don't matter. That they are, in fact, not fundamental.

Everyone should read and fully understand your post before investing.

[JTrout]

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Awesome post - it takes significant understanding of the markets to realize that fundamentals don't matter. That they are, in fact, not fundamental.

Everyone should read and fully understand your post before investing.

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Man, that is bad advice, guy!

[DesertCat]

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...in deciding to take a position in a security.

That's because the sum-total of all information available in the universe about any security (including the baked-in "fundamental" info) is reflected now, in the price and volume. And in the price and volume of related (correlated and non-correlated) securities, such as options. The price of the base and related securities (and often, the relationships between them) represents everything that can be known, now.


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Buffett's entire career disproves this. He constantly buys securities in open markets where the market price does not reflect the obvious fundamental value of the security.

As far as fundamental analysis being "trend following in drag", EPS growth is a key component of a securities value, and any fundamental analysis. Whether the "trend" of EPS growth will continue, and for how long, is a big part of the analysis of a securities value.

A trend follower buys because the trend is up and hopes it continues (and that they can sell before it stops). A value investor buys because the current market price doesn't reflect the weighted likelyhood of future earnings discounted for time.

[bobman0330]

If you think about this assertion, it's clearly untrue. Pull up the price history of Yahoo! or some other internet company. Explain for me what caused the value of this business to double between 1999 and 2000, then contract by roughly 90% in the next two years.

[MaxPower]

Wrong. If this were true there would be no correlation between fundamental measures and stock returns.

By the way, I am familiar with the efficient market theory.

[felson]

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The price of the base and related securities (and often, the relationships between them) represents everything that can be known, now.

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If this is true, then technical trading is useless also.

[Soxx Clinton]

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Quote:
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The price of the base and related securities (and often, the relationships between them) represents everything that can be known, now.


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If this is true, then technical trading is useless also.

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This is the way I see it as well. Most of the academic data I've seen shows that technical trading actually ends up contributing to market efficiency and that most technical approaches deliver little excess return after transactions costs. In my opinion, I will echo some of the other posters in saying that I think that markets are very long-term efficient, and that the short-term inefficiencies that exist (and these are pretty common from my vantage point as a portfolio manager) have their explanations in the realm of behavioural finance. ie. for example the notion that the market consistently overprices glamor securities and underprices "grittier" investments etc.

I have had a lot of success with value investing in my career because this strategy positions itself to take advantage of the tendency of the market to be long-term efficient while serving up short-term mispricings due to consistent human behavioural traits that tend to irrationality.

That said, there are a small cohort of purely technical traders that are very profitable though statistics suggest that this group is fairly small, ~10% or so.

[Sniper]

Nice way to rekindle this never ending debate [img]/images/graemlins/wink.gif[/img]

... and helps to prove the importance of Sentiment analysis [img]/images/graemlins/smile.gif[/img]