Originally posted by whodeyNow is a much better time to buy than a year ago and, my guess better time to buy than a year from now. It's not possible to know what day the market will bottom, but missing a huge portion of the bear market is a gift.
So are you about to make the stock market plunge? I have to say that I think it a bit risky to do right now. We have a ways to fall as of yet. 😉
Originally posted by MerkNot so. You could have bought stocks last year and made profits off them by selling them. Your assumption is that I would buy the stocks and blindly hold them. In addition, you assume that we are near the end of a bear market. I make no assumption, rather, I simply will not go near the market until there is a detectable stability therein.
Now is a much better time to buy than a year ago and, my guess better time to buy than a year from now. It's not possible to know what day the market will bottom, but missing a huge portion of the bear market is a gift.
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Originally posted by NemesioWhere it gets tricky is that there are at least two distinct ways in which stocks can be valued and most times some combination of these two are being used by investors to gain an insight or develop a market strategy. Unfortunately they are not all complimentary to each other such that at times the market appears to behave very rationally and investing can become scientific and at other times perceptions and confidences come into play and its all smoke and mirrors and crashes occur because panic will throw all good sense out of the window and everyone sells to not be the last person holding bad paper.
Thanks to both of you for helping to fill this gaping lacuna in my knowledge.
Nemesio
As I understand it the two main ways to pick stocks are fundamental and technical analysis.
With the fundamental approach you try and determine the intrinsic value of a stock the end goal being that of trying to find out what sort of position you should take on a stock.
ie:- underpriced = buy, overpriced = sell or short
With technical analysis you are not trying to find or know the intrinsic value of a company but base your judgement call on the share price's worth based on statistical evaluation of market activity such as past pricing and volume of that stock being traded.
There are nuances of both approaches in any given analysis and the myriad of strategies that can be employed to find the right stock pick can be reduced to some combination of either approach.
There are trends that are well known in markets and when a bunch of investors see them start to appear, then no amount of intrinsic worth can stop the avalanche of trade that will follow market sentiment and you can end up with a stock that is so overvalued it is ready to burst and crash and burn as the market corrects itself or on the other hand after a crash there are dozens of highly undervalued stocks that represent great value for any investor brave enough to determine that the market has finally bottomed. This seems to be one of the biggest preoccupations of the market at present. When will the blood-letting stop and when will we reach a stable floor again. I have as much of a chance of knowing that time frame as I have of picking a winning lottery ticket.
But if you've noticed as the markets turn to jelly precious metals prices soar and there are some who choose only to speculate on the relative difference between the gold and silver price and there are ways to make money using a differential in their pricing in both bear and bull markets.
The problems with bear markets and short selling as a strategy is that they should come with a warning of don't try this at home firmly stamped as a warning label across them. If you think you can short a stock on its way down and it rebounds quicker than expected you will then take a bath of such magnitude it can all but wipe you out. I know short selling has copped a lot of abuse lately(including some of my own along the lines of is it really patriotic to bet on something losing its value and then profiting on its decline?), but the truth is short selling is the one sure fire method of making sure that markets correct themselves and that stocks don't become too overvalued. Unfortunately certain bubbles like the dotcom foshizzle saw so much bullishness from so many green horn investors many took a bath on a short position before the market finally did correct. As I say its a strategy that should come with a warning label.
Originally posted by whodeyNo you couldn't have. The market peaked a year ago last summer above 14,000. It's been downhill from there.
Not so. You could have bought stocks last year and made profits off them by selling them. Your assumption is that I would buy the stocks and blindly hold them. In addition, you assume that we are near the end of a bear market. I make no assumption, rather, I simply will not go near the market until there is a detectable stability therein.
Originally posted by kmax87Stocks cannot be chosen by technical analysis. Remember: Past performance is no guarantee of future performance. For any stock with pattern (Head and shoulders bottom, etc.) that goes up at a certain point, you can find a stock that goes down at that same point.
Where it gets tricky is that there are at least two distinct ways in which stocks can be valued and most times some combination of these two are being used by investors to gain an insight or develop a market strategy. Unfortunately they are not all complimentary to each other such that at times the market appears to behave very rationally and investing can b ...[text shortened]... e market finally did correct. As I say its a strategy that should come with a warning label.
Technical analysis can help when chosing a stock, (support levels, etc.) but technical analysis by itself is a losers bet.
Originally posted by MerkNot true. It depends upon which sector you were focusing on. For example, the commodity sector was booming until of late even after it declined below 14,000.
No you couldn't have. The market peaked a year ago last summer above 14,000. It's been downhill from there.
Originally posted by whodeyWell, if you're not talking about 'the market' in general, then you're right. In fact, you could have bought a month ago and still made money if you had bought the right stocks.
Not true. It depends upon which sector you were focusing on. For example, the commodity sector was booming until of late even after it declined below 14,000.
Or, you could have bought banks this summer and sold two weeks ago and made money. Banking was the best performing sector from July until very recently.
Originally posted by MerkThe point is that regardless of the accuracy of technical analysis, knowing that a lot of players might be seeing a head and shoulders develop and will probably like lemmings follow a well defined course of action is a very handy insight to have.
Stocks cannot be chosen by technical analysis. Remember: Past performance is no guarantee of future performance. For any stock with pattern (Head and shoulders bottom, etc.) that goes up at a certain point, you can find a stock that goes down at that same point.
There is a view that the current share price is all you ever need to know about a given stock in that all of its history is encapsulated in its price.
On the other hand Warren Buffet is known to ignore trends and only look for value and can be considered to be a faithful fundamentalist. Its probably true that if you tried to make money purely by technical analysis you would run out of luck at some point and over time you would hardly be doing any better than just betting on the Dow.
Originally posted by kmax87During a bull market, when 70 percent of stocks are going up, you could invest using only technical analysis and make money. You could also invest by throwing darts at a newspaper and make the same money, which is well below market as a whole. Rare few investors beat the market over the long haul and nobody, I mean absolutely nobody does it using technical analysis.
The point is that regardless of the accuracy of technical analysis, knowing that a lot of players might be seeing a head and shoulders develop and will probably like lemmings follow a well defined course of action is a very handy insight to have.
There is a view that the current share price is all you ever need to know about a given stock in that all of it ...[text shortened]... k at some point and over time you would hardly be doing any better than just betting on the Dow.
Knowing where the lemmings are going does you no good if you're one of the lemmings. You take the stock at 44 because you see a nice double bottom forming, then the price breaks out on the downside, falling below the last 3 support levels when you decide to hit the bid at 32 and tell yourself you should have made money because 'the chart said so'. Meanwhile, while you're looking for that next stock that's going to break out to the upside, the person who took your stock at 32 is watching it make its way back into the 40's.
Originally posted by kmax87There is a view that the current share price is all you ever need to know about a given stock in that all of its history is encapsulated in its price.
The point is that regardless of the accuracy of technical analysis, knowing that a lot of players might be seeing a head and shoulders develop and will probably like lemmings follow a well defined course of action is a very handy insight to have.
There is a view that the current share price is all you ever need to know about a given stock in that all of it ...[text shortened]... k at some point and over time you would hardly be doing any better than just betting on the Dow.
This view is moronic. There's rarely any reason at all to care about a stocks history. A stocks history doesn't matter. The only thing that matters is the stocks future.
Originally posted by MerkThere are many morons out there.
There is a view that the current share price is all you ever need to know about a given stock in that all of its history is encapsulated in its price.
This view is moronic. There's rarely any reason at all to care about a stocks history. A stocks history doesn't matter. The only thing that matters is the stocks future.
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Originally posted by MerkHow can you infer anything about somethings future without knowing about its past. How are you to assess that future. Why would you ignore a stocks historical highs and lows or its historical relative movement against key induces and other benchmark stocks. Surely thats a recipe for disaster?
The only thing that matters is the stocks future.
Originally posted by kmax87I believe technical analysis to be absolutely essential for short term trades.
How can you infer anything about somethings future without knowing about its past. How are you to assess that future. Why would you ignore a stocks historical highs and lows or its historical relative movement against key induces and other benchmark stocks. Surely thats a recipe for disaster?
Fundamentals play very little part in those trades.