I've learned to value individual companies and indices, form portfolios to try to beat benchmarks, etc... based on fundamental analysis (DCF, comparable company/transactions, ratio analysis, visits to a business to see operations and meet management, etc). And of course this all takes place while I am continuing to analyze general economic changes and determine which geographies and industries will do best with these changes. I believe that mispricings will, in the medium term, move towards the intrinsic value. I've been told by professors, CFA material, and professional mentors that technical analysis has no merit, studies don't support technical analysis for valuation and can't accurately predict price movements. As I've come to believe, I think there is merit in combining both technical and fundamental analysis, but that is more a random idea I have, as I don't even know enough to be dangerous on the subject.
Ahh, got it. Well put and I fully support your approach (and use it myself).
Saying techincal analysis has no merit, though is a big stretch in my opinion but there are camps for everything and the CFA material (are you a CFA or any Level in the CFA curriculum by the way) touches on both.
The CFA gives you everything you need to go down one path or the other, and the Institute itself is more academically minded than practically. You have CFA's that only employ active management, and you have CFA's that swear by Vanguarding and think Boyle is a God. As such, you're going to have credibility lent to both sides of the equation. I'm with you, though in thinking that they can be mixed in proportion to one another, and that's where I think Technical Analysis is a wonderful approach. For example, are options a form of technical or fundamental analysis? I'll argue to the death of me that they are by design, purely technical as they are an 'option' on an underlying security. They derive their value from something else, so they can't by themselves have any fundamentals, right? Options don't have earnings reports or hire people like traditional companies do, but many of the same people that are index-only, passive investment style managers tend to follow what options do and think that they're part of the process in evaluating the fundamentals of a company and its stock. I think that's inherently wrong.
To that end, you can analyze everything you want to about an index, a company, an economic trend, etc... and still pick a stinker of an ETF, Stock, Bond, etc...My question is, why is that? If you know everything about a company, and can see that it has great prospects and excellent fundamentals and favorable economic conditions for its particular sector, why do so many of them do so poorly?
If you spend a little bit of time understanding variance swaps and other things like MACD, RSI and some other basics and then spend a hell of a lot of time understanding options, I think you (not you personally, just the universal 'you') will have a competitive edge when you go about constructing a portfolio and monitoring it over time. As I've said before, I don't follow one side or the other. I've had QQQ in client portfolios for the last 4 years or so and haven't touched it (and probably won't) but I've also implemented individual equities like Bank of America last November, or something like VIXY a couple of weeks ago. I just think there's a better way to do it if you take the time to take nuggets away from both sides and combine them into something you enjoy and stay committed to.
And the other thing that bothers the hell out of me is that a lot of these indexers and academics point to the 30 years leading up to the second Millenia. Well hell, if you put 10,000 companies on a dart board and threw 100 darts at them, 99 out of your 100 darts would have landed on a company that did exceedingly well during that time. Thus was born, over a number of decades, this idea that an index is impossible to beat. I too think that is inherently wrong if you're willing to do a little research and not subscribe fully to one side or the other. Stay contrarian...