Weaknesses of Fundamental Analysis

Fundamental analysis can be valuable, but it should be approached with caution. If you are reading research written by a sell-side analyst, it is important to be familiar with the analyst behind the report. We all have personal biases, and every analyst has some sort of bias. There is nothing wrong with this, and the research can still be of great value. Learn what the ratings mean and the track record of an analyst before jumping off the deep end. Corporate statements and press releases offer good information, but they should be read with a healthy degree of skepticism to separate the facts from the spin. Press releases don't happen by accident; they are an important PR tool for companies. Investors should become skilled readers to weed out the important information and ignore the hype.

Fundamental Analysis

What is Fundamental Analysis?

Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies.

STOP ACTA !!!!

What is ACTA?

 

Since Spring 2008, the European Union, the United States, Japan, Canada, South Korea, Australia as well as a few other countries have been secretly negotiating a trade agreement aimed at enforcing copyright and tackling counterfeited goods (Anti-Counterfeiting Trade Agreement). Specifically, leaked documents show that one of the major goal of the treaty is to force signatory countries into implementing anti file-sharing policies under the form of three-strikes schemes and net filtering practices.

At a time when important debates are taking place on the need to adapt copyright to the digital age, this treaty would bypass democratic processes in order to enforce a fundamentally irrelevant regulatory regime. It would profoundly alter the very nature of the Internet as we know it by putting an end to Net neutrality.

See the most worrying provisions under discussions and the three core reasons for rejecting ACTA.

Links on ACTA

• Knowledge Ecology International on ACTA
• Michael Geist on ACTA
• ACTA in New Zealand, information, impact, actions
• La Quadrature du Net dossier on ACTA

SOPA and PIPA

SAY NO TO CONGRESS

Members of Congress are trying to do the right thing by going after pirates and counterfeiters but SOPA and PIPA are the wrong way to do it.

Security Analysis

Security Analysis - Does it Matter?

Wall Street has scores of analysts, strategists and portfolio managers hired to do one thing: beat the market. Analysts are hired to find undervalued stocks. Strategists are hired to predict the direction of the market and various sectors. Portfolio managers are hired to put it all together and outperform their benchmark, usually measured as the S&P 500. Granted, there are many studies and disputes raging on the performance of equity mutual funds, but it is safe to assume that about 75% of equity mutual funds underperform the S&P 500. With these kinds of stats, individual investors would surely be better off simply investing in an index fund rather than attempting to beat the market wouldn't they?
The added value of analysis is in the eye of the beholder. A fundamental analyst believes that analyzing strategy, management, product, financial statistics and many other readily and not-so-readily quantifiable numbers will help choose stocks that will outperform the market. They are also likely to believe that there is little or no value in analyzing past prices and that technical analysts would be better off stargazing. (Humph!) The technical analyst believes that the chart, volume, momentum and an array of mathematical indicators hold the keys to superior performance. Technicians are just as likely to believe that fundamental data is hogwash pure and simple. And then there are the Random Walkers who believe that any attempt to try and outwit the market is futile.

Weaknesses of Technical Analysis

Weaknesses of Technical Analysis

Analyst Bias

Just as with fundamental analysis, technical analysis is subjective and our personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt.

General Steps to Technical Evaluation

General Steps to Technical Evaluation

Many technicians employ a top-down approach that begins with broad-based macro analysis. The larger parts are then broken down to base the final step on a more focused/micro perspective. Such an analysis might involve three steps:

1. Broad market analysis through the major indices such as the S&P 500, Dow Industrials, NASDAQ and NYSE Composite.
2. Sector analysis to identify the strongest and weakest groups within the broader market.
3. Individual stock analysis to identify the strongest and weakest stocks within select groups.

The beauty of technical analysis lies in its versatility. Because the principles of technical analysis are universally applicable, each of the analysis steps above can be performed using the same theoretical background. You don't need an economics degree to analyze a market index chart. You don't need to be a CPA to analyze a stock chart. Charts are charts. It does not matter if the time frame is 2 days or 2 years. It does not matter if it is a stock, market index or commodity. The technical principles of support, resistance, trend, trading range and other aspects can be applied to any chart. While this may sound easy, technical analysis is by no means easy. Success requires serious study, dedication and an open mind.

What is Technical Analysis?

Technical Analysis

What is Technical Analysis?

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Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.

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Things not to Do and Use When Daytrading

Daytrading is a very difficult endeavor for anyone who's tried it. Those who go through it day after day will agree that everyday is different and that each day requires maximum attention. The end of each trading day leaves the daytraders exhausted. But not only does it take stamina, endurance, high degree of concentration and focus, there are other factors that make a daytrader a special breed apart from other types of traders. Every tick or second counts. Precision and personal discipline makes the difference between a loss and a profit. Not everyone is cut out to be a successful trader. In fact, 95% of daytraders fail eventually. But here are a summary of what NOT to do that can help further enhance his chances of surviving the daytrading jungle.