Why technical analysis?

[Stockowner]

Ben Graham never used it and Warren Buffett never uses technical analysis. So why does this forum have a technical analysis category?

Does Phil Town rely on technical analysis?

[tombrown1]

Phil Town's "3 tools" are considered technical analysis.

[npg]

Originally Posted by Stockowner

Ben Graham never used it and Warren Buffett never uses technical analysis. So why does this forum have a technical analysis category?

Does Phil Town rely on technical analysis?

Phil Town definitively explained one method of doing technical analysis. In his teens Warren Buffett did do technical analysis but digressed from it later on.

Some people are more comfortable using technical analysis, others prefer looking at fundamentals only, some prefer to mix it up... It really depends. There is no silver bullet when it comes to predict the future.

It is impossible to say that one is better than the other. What is important however, is to have a framework for one self that one is comfortable with. Furthermore it should be a framework that makes sense to one self.

Therefore a technical analysis section is valid. It is just one other possible approach.

[Stockowner]

Thanks for the info.

In his teens Warren Buffett did do technical analysis but digressed from it later on.

Yeah. According to Wikipedia Buffett has said: "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer."

Would you say relying on technical analysis is speculation, and that the person involved in technical analysis is a speculator, and not an investor?

Oh, by the way, I'm not saying speculation is bad or immoral at all.

[PrivateInvestor]

Originally Posted by Stockowner

Would you say relying on technical analysis is speculation, and that the person involved in technical analysis is a speculator, and not an investor?

Oh, by the way, I'm not saying speculation is bad or immoral at all.

From what I've learned so far, Rule #1 is a fundamental analysis approach for deciding what to buy or sell with a technical analysis assistance for deciding when to buy or sell it.

Fundamentally and strategically, one waits for a "3M" business to become a "4M" business by having Mr. Market make you an offer you can't refuse (i.e., the wonderful business can be bought for half its sticker price).

But a wonderful business selling at half price may still continue to drop in price. If you wait, you might be able to buy it for 40% or 30% of its sticker price. Using the 3 Tools to make your tactical buy and sell decisions gives you an edge in the sense you are getting in when the Big Guys are getting in, so the price of the wonderful business will more likely increase rather than decrease at least in the short term (and so forth).

Although I don't know how Buffett implements his buy and sell decisions, I would think he makes the capital allocation decisions (e.g., buy $100 million worth of XYZ stock and sell it when it reaches intrinsic value). As a Big Guy, it will take Berkshire months to leg into this position. I would think he turns over the implementation of this to his staff, who could very well use technical analysis to "buy on the dips" as the stock price bounces around due to its volatility.

When Buffett was interviewed about his China Petrol purchase and sale, Buffett indicated he sold it because it reached intrinsic value. But he also mentioned in passing that he bought more shares when they made a pullback and sold them as they approached intrinsic value again. That comment (from the Fox Business Network interview, which doesn't seem to be available anymore) tells me his organization uses technical analysis to help implement the fundamentals-based value investment decision.

[Gunnski]

How is Mr. Buffet doing in the current market? Please take a seroius look @ your Mentor!

The water/market is competely different currently. Brick and mortar yourself to death.

How would Secretiat do againt the current 3 yr. olds. ? We will never know. It is all about speculation.

Speculation "bad" or "immoral"?

Speculation = Worldcom, Enron, etc.

[Stockowner]

In many ways speculation is often just like hitting your head against a wall, but if that is your thing and you like the excitement of doing that, no one is stopping you. Point is, if you choose to be a speculator, your financial situation will most likely reflect this in the long run. It is not really fattening to the wallet. I can't see anyone else except the speculators suffering, so if he or she wants to be in that game, why not?

[physics]

Originally Posted by Stockowner

Thanks for the info.

Yeah. According to Wikipedia Buffett has said: "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer."

Would you say relying on technical analysis is speculation, and that the person involved in technical analysis is a speculator, and not an investor?

Oh, by the way, I'm not saying speculation is bad or immoral at all.

Technical analysis is NOT speculation. It is simply another way of looking at the market. Technical analysts may call fundamentalists speculators because they are buying stocks without any knowledge of what is truly important, which is various kinds of trends, resistance levels, etc.

While Warren Buffett wasn't raised on technical analysis, I think it's important to consider that many tools that we can use today weren't available in his time: MACD, EMAs, stochastics, etc. So it's very possible that these are useful tools and Buffett simply wasn't able to use them. The other point I wanted to make was that Buffett cannot use these tools today because he is investing millions of dollars, he is the one who is creating the moves that are picked up by these indicators! So you cannot look at his record and say that he isn't doing well, he is playing a different game than we are, and it could be that these tools are very useful.

[jkruer01]

Originally Posted by physics

The other point I wanted to make was that Buffett cannot use these tools today because he is investing millions of dollars, he is the one who is creating the moves that are picked up by these indicators! So you cannot look at his record and say that he isn't doing well, he is playing a different game than we are, and it could be that these tools are very useful.

Exactly! If you believe in Technical Analysis then you believe it provides buy and sell signals. When a buy signal shows up you buy. When a sell signal shows up you sell.

When you are purchasing $50 Million worth of XYZ and the average daily volume is only 5 Million then you can't just buy or sell it all at once.

Therefore Technical Analysis would be of very limited value to someone who is investing Millions and Millions and Millions of dollars into a single company.

Jeremy