Trading is a perfectly legitimate way to make money. It just requires a different skill set. I personally think it is harder to do right, but that’s probably because of my emotional makeup and educational background that prioritizes more fundamental (typically macro) types of thinking. I’ve been thinking about doing the CMT, not for the letters, but just to have a better structured understanding of how technical analysis works. I think there are plenty of asset classes - currencies, commodities, and broad equity indices for which TA is a highly plausible system.
How many of you have ever purchased a stock without looking at a chart first? Very few.
CFA and CMT charterholder here. I can’t believe there’s anyone that believes fully in rational markets after the real estate bubble and the dot com bubble. Unless, of course, you never actually watched the markets on a full-time basis. At a minimum, TA gives fundamentally-biased investors some checkpoints on their analyses…if a stock is such a good investment, why is it going down, huh? hmm? well?
Cmt or MBA?
#1 Gunner Wrote: ------------------------------------------------------- > How many of you have ever purchased a stock > without looking at a chart first? Very few. You’re my #1 Gunner because I agree.
Both aren’t mutually exclusive. You should be able to do both. Right now I’d say the CMT requires half the study time of the CFA, but I expect in a couple of years that’s going to change dramatically. There is a trend towards statistical evaluation of trading systems and rules.
#1 Gunner Wrote: ------------------------------------------------------- > How many of you have ever purchased a stock > without looking at a chart first? Very few. I’m guilty of looking at charts before I buy. But its always over a long period. how the stock trades within the year or 3 years i can ignore and I do. However, i look at the chart to see guage the market value changes of the firm and how well the fundamentals have tracked the stock. i can basically do without this piece of information. However, i do look at how how the P/E multiple has changed and guage sentiment over the years. TA from my understanding, uses the chart as the main source of information in buying a stock. Their definition of "expensive’ or “cheap” is based purely on the trading pattern. I’m not guilty of this whatsoever.
just in the same way you can’t assume that a CFA charterholder is a value investor, you cannot assume a CFA charterholder believes in EMH, whether it be weak, semi or strong form. technical analysis is taught in the CFA cirriculum and my year’s books (2007-2009) included maybe 100 pgs of TA material. compared to my boss’s books (1991-1993), which had none allocated to TA, its a big step up. i agree with CFAI’s stance to keep TA as a small portion as in the greater scale of investing, it should be a minor part of the decision making process. sure, momentum might tell you to sell a stock, but if its trading at 20% of fair value, it’d be stupid to sell if there is a good probability of it returning to fair value within a reasonable time frame. the bottom line is that the big money needs to focus on the fundamentals b/c they’re moving millions and billions, not thousands like us normal folks in our trading accounts, or for us more talented traders, a few million in our prop trading accounts, and their market impact can often change momentum. fundamentals will almost always fail in bubble and depressionary periods (times of investor panic and euphoria), but will almost always prevail in normal periods. if you’re trading bubbles and panics, technical is best. if you’re trading a normal market, fundamental is best.
This past decade…how many periods of “normal” did we have? Correlations changed, and almost went to 1 last year. Accounting practices have been under scrutiny. Firms that had a positive fair value went out of business. MPT & EMH have been criticized, asset allocation called into question. I don’t think we need to throw all these things out, but perhaps we need to rethink how we manage our investors’ risk especially during periods of market volatility. For example…in a conservative portfolio there are now wealth advisors who add small VIX components…taking a small bet on volatility could help to create alpha in a low rate environment. I’d be curious to know what components of fundamental analysis have changed or are being changed given the past decade? Or do we assume that the past decade can be eliminated from required or expected return calculations as it was simply an outlier? Thanks in advance for your thoughts…
In general, i don’t think anything has really changed except for the time the market took to recover. Warren Buffet is still right and the value approach still works. there were basement bargain prices for stocks in march, too bad the markets didn’t stay at those valuations forever.
“The value approach still works” It does, well, until it doesn’t. Wait’ll you try selling a value methodology to someone when the market is in go-go mode (1993-2000). You will starve, just like your clients, if they don’t leave you. They are probably hedging their bets by investing with a growth manager, though, while still listening to you spout happy cr@p about your philosophy.
^ Not to mention in times like 3Q 2008 when value managers were averaging down all the way to 0 on stocks like Bear Sterns and Lehman.
Okay, maybe I overstated things a bit 
FRANKARABIA…I’m glad things didn’t stay at those low valuations “forever”…GE below $6 a share. F below a $1. PAL at $1. That was quite a run we had last year. If things were still at those valuations, a lot of us would be pumping gas, putting the pink return stickies on goods at Walmart, or supersizing peoples fries for a living. Now that the easy money has been made on the big bounce off those March lows, the hard work is ahead.
samnyc Wrote: ------------------------------------------------------- > “The value approach still works” > > It does, well, until it doesn’t. Wait’ll you try > selling a value methodology to someone when the > market is in go-go mode (1993-2000). You will > starve, just like your clients, if they don’t > leave you. They are probably hedging their bets by > investing with a growth manager, though, while > still listening to you spout happy cr@p about your > philosophy. well, i don’t know how to look at stocks/bonds any other way. i’m ready to starve i guess. but i have looked into a bit of history on the performance of value and the rest. bottom line is, i’m not comfortable investing in any other way. especially when it is almost completely based on anything but business values and fundamentals. who said value didn’t work in 93-00? it just lagged the market, which is fine. one thing about value is that you’re not chasing relative returns, but absolute. i’m happy if i can make 15% annually irrespective of what anybody gets. makes no difference to me.
I don’t see why people are so dogmatic about this. I think it’s fine if FrankArabia says that he feels that the logic in Value Investing makes sense to him and this is where he would rather put his investment analysis energy. At the end of the day, most of these techniques are simply methods to identify value. A lot of TA looks at how crowd emotions vary over time and can be reflected in price patterns. Value Investing is mostly about identifying when companies that are otherwise sound are trading at low multiples to book value and likely to move back to more historically representative multiples. Growth Investing is about seeing whether current prices underestimate the short-medium term growth potential. Quantitative investing is mostly about the stability of statistical parameters and/or distributions of asset price movements. Each one of these is a legitimate way to make money (and there are presumably others I left out), but we are not all equally good at applying ourselves at each of these. Nonetheless I think that there is no reason that these shouldn’t all be parts of different risk buckets in a portfolio. I particularly think that growth investing is something that is very hard to do based on quantitative rules, although that doesn’t mean that quantitative analysis doesn’t figure into valuation of growth opportunities.
Usually the people who are most dogmatic either: a) are solely marketing themselves as following a particular bias (which is fine, because smart investors will diversify away from it), or b) have just enough book learning to be dangerous. Frankie, if you think you’ll keep a job if your absolute performance is half that of the benchmark, then you must be working for your dad. When I look for a portfolio manager, I am looking for risk-adjusted outperformance, not excuses.
samnyc Wrote: ------------------------------------------------------- > Usually the people who are most dogmatic either: > a) are solely marketing themselves as following a > particular bias (which is fine, because smart > investors will diversify away from it), or b) have > just enough book learning to be dangerous. > > Frankie, if you think you’ll keep a job if your > absolute performance is half that of the > benchmark, then you must be working for your dad. > When I look for a portfolio manager, I am looking > for risk-adjusted outperformance, not excuses. basically you would have fired the value managers during the tech boom. i know the basics of the industry and its behaviour like that which encourages people to do silly things. risk adjusted outperformance is another silly concept you learned in the CFA. How do you define risk? volatility? madoff had some pretty good risk adjusted returns too. but yes, i would get fired nonetheless.
Basically, Frank, I hedge my bets. Madoff had great returns, but they were fictional, and thus irrelevant to our conversation. I’m discussing the value investor who fiddles while Rome burns, because he’s too busy fighting what is so blatantly obvious to the most basic technical analysis (the stock has been going down and there ain’t anyone willing to buy it yet, for example). I am equally averse to growth investors who proclaim the importance of earnings/revenue growth when the market isn’t favoring that discipline as well.
samnyc Wrote: ------------------------------------------------------- > Usually the people who are most dogmatic either: > a) are solely marketing themselves as following a > particular bias (which is fine, because smart > investors will diversify away from it), or b) have > just enough book learning to be dangerous. > > Frankie, if you think you’ll keep a job if your > absolute performance is half that of the > benchmark, then you must be working for your dad. > When I look for a portfolio manager, I am looking > for risk-adjusted outperformance, not excuses. samnyc, I am considering my CFA, but not so sure if going thru all the pain is going to help get my foot in the door somewhere. I have been trading on my own for a few years and I’m very knowledgeable in TA, so I have been thinking about doing the CMT. For one I know it would be much more interesting for me as I have read tons of books on TA. Since you have both, do you think I would be better off going for the CMT since I have an interest in it and could apply what I learn to my trading, or should I just go for the CFA since it’s more respected, will give me fundamental knowledge that I do not have, and may help me get into a finance career if I join NYSSA and network my but off. (I live in NYC area) What’s your thoughts? I know the CMT material would be 1000 time’s more interesting to me, but I feel the CFA would better help my chances of getting a position in finance. Thanks! dukedog