Fundamentals DONT MATTER

Dan Mezick · #1 09-01-2005, 01:25 PM

...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.

#2 09-01-2005, 01:42 PM

actually depends on the time frame your looking at.

#3 09-01-2005, 02:12 PM

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.

DesertCat · #4 09-01-2005, 02:13 PM

[ QUOTE ]
...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.

[/ QUOTE ]

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 · #5 09-01-2005, 02:15 PM

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 · #6 09-01-2005, 02:21 PM

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 · #7 09-01-2005, 03:59 PM

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

[/ QUOTE ]

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

Sniper · #8 09-01-2005, 05:16 PM

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]

imported_bingobazza · #9 09-01-2005, 05:27 PM

The time frame is the key. Theres no doubt that you can make money by riding trends, but the long term direction of the stock is decided by the fundamentals like how skilled the management is, how easy it is for competitors to invade the companys territory, how good they are at ensuring a good pipeline etc to replace fading cashcows etc.

If you had to put your entire net worth into a company for 20 years before going to the moon, would you rather put it into a company with a long and successful history of increasing earnings at a good clip, or into one on the verge of a large technical breakout?

Its the time frame.

Bingo

r3vbr · #10 09-01-2005, 09:45 PM

[ QUOTE ]
...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.

[/ QUOTE ]

The market is far from "perfectly reflecting fundamentals".