Re: Dow 36,000

Max More (
Fri, 22 Oct 1999 01:35:40 -0700

At 01:42 PM 10/21/99 -0400, you wrote:
>I'm not sure what you mean by "technical analysis" here.
>(I presume you don't mean than you dislike analyses
>which contain numbers.)

Hi Robin,

You might want to read a primer on technical analysis if you want to know what people mean when they say they don't trust technical analysis. The term has a specific meaning in the world of stocks -- it most certainly does not mean anything like academic or scientific studies. It involves pouring over charts of moving averages, MACD, Bollinger Bands, Stochastic Occillators, On Balance Volume, and so on.

I see no verified evidence that investors relying on this kind of technical analysis make more money than those who buy and hold based on fundamental analysis (which could just as reasonably lay claim to the term "technical analysis"). I am willing to agree that technical analysis in this form of charting may possibly sometimes be useful in giving the investor a (fallible) guide to *short-term* stock price movements. But over the medium to long term, it is not patterns on a chart that determine stocks prices, it is things like changing profit margins, new product introductions, changes in competition, rising or falling expenses, management changes, and external economic factors such as interest rates and inflation.

So, no, disliking "technical analysis" does *not* mean "disliking analysis that contains numbers". Good fundamental analysis (contrary to technical analysis) *does* involve looking at lots of numbers -- gross and net margins, debt-to-equity ratios, growth rates, return on equity, net cash flow, and price/sales and price/earnings ratios.

The only thing that looks at all like "technical analysis" that I give any credence to are back-tested stock screens (the most well-known being the "Dogs of the Dow". Many of these I would not touch, but those that make sense in terms of underlying fundamentals have value because they give you a mechanical buy and sell strategy, thereby minimizing emotional investing (buying or selling based on greed or fear being a major cause of poor returns).