Fundamental versus Technical analysis – Final part 3 of 3

The Moon

Let me us a Buddhist analogy to illustrate why some people are better at using Fundamental analysis to make profitable investments.

Published accounting statements, brokerage reports, company’s spin (opps, I meant presentations), media commentaries, and so on are akin to the finger pointing to the Moon.

The finger is not the Moon. It merely helps the viewer to locate the Moon.

If we want to study the Moon, we need to observe at the Moon directly. But some students of Fundamental analysis never looked beyond the finger of the person to whom they have asked, “Where is the Moon tonight?”

And we wonder why we fall into value and high dividend yield traps… Cheap and junk are not the same thing! 

The Reflection of the Moon on the water

Using another Buddhist analogy, Technical analysis is like looking at the reflection of the Moon on the water.

Many rabid Moon-chasers have dived and drowned in their attempt to “fish” the Moon out of the water; mistaking the reflection for the real thing...

Fishermen who lived by the water calmly dry their net during the day and patiently wait for the right weather conditions before going out to sea.

Using wisdom handed-down through the generations, they look at the cloud patterns; feel the wind’s strength and direction; observe the rising ebbs and flows of the tides; and recollect the previous night’s night sky before boldly venturing out to sea.

There is bounty in the sea; but you want to make it back alive too!

  

That’s where Moon-chasers and fishermen differ.

Moon-chasers can’t let go of their obsession of the Moon – their “why” questions betray their Fundamental roots…

Fishermen don’t know or care for the “whys”. They just “know”. When the right weather conditions appear, they go fishing!

Those fishermen who are interested in the “whys” would have gone for their Phd in Meteorology – and they are called weather forecasters.

Weather forecasters don’t fish; they make a living selling their predictions. 

Everyone loves a winner!

It’s not important how we make our buy/sell decisions. What’s important is that we make MONEY!

If we don’t make money, both the Fundamental and Technical schools will probably distance themselves from us. What an embarrassment we are to them!

If we make money, even if we never studied at their schools, they will probably trip over themselves to offer us their “honourary Phds”!

Well, once upon a time, people believed there’s such a thing as Phd in Options Trading. Finger watchers…

Nothing is free. We probably have to agree to have our photos taken and used in their next promotional materials. Spin!