Technical Or Fundamental & Why?

[DionysusToast]

Interesting discussion.

The search for an 'undervalued' company must be done in the belief that a company can trade at a discount to it's value. In other words that Price is disconnected from Value.

All concepts/methods of valuation are subjective. In the methods I have seen used, the risk free rate is used as well as a method of calculating the future value of todays cash. These are used to discount todays profits and tomorrows growth so that the investment can be compared against sticking the money in the bank. Just that alone is a very subjective process and we haven't even looked at the company yet.

Anyway - we must accept that a stock can be below value. We must also accept that two people will come up with different values.

Price needs a catalyst to cause buying to move price up. Earnings, Economic news, Industry/Sector developments etc. etc. etc. This is really what most fundamental trading is about. Recognising the catalyst prior to it becoming public information. Or even reacting to it when it occurs as price often moves for an extended period on a catalyst.

Simply buying something that we mathematically calculate to be below value is asking for trouble. First of all, it could remain below value for years or decades. Secondly, it could be below value because someone knows something you don't.

For your average investor, with a few 100k in the bank, to park a significant portion in stocks you deem to be undervalued would be like leaving it in a current account at the bank, although with a lot more downside risk.

 

[neil]

Warren Buffet style ?

 

[DionysusToast]

Dunno Neil - he buys companies and controls them. I can't do that with my 10 shares.

 

[cr6196]

if by "asking for trouble" you mean "mo'money mo'problems" than yes. basically if you buy a value weighted portfolio even a very crude one based on p/b, you will outperform size weighted portfolios (or what people call the "market") and it outperforms whilst taking less risk (if you think variance equates to risk). to me, that says buying on value works.

http://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedInInvesting.pdf
http://www.amazon.co.uk/Behavioural...ing-Finance/dp/0470516704/ref=ntt_at_ep_dpt_2

i would definitely agree about catalysts as well and the logical conclusion of some approaches to looking at value is that catalysts dont matter, which is wrong especially if you move away from quantitative applications. if you have a value-weighted portfolio the outperformance comes beating expectations (again this has been researched extensively). however, this often isn't a function of the company itself, it is more a function of people looking at the company and either extrapolating its current, bad, performance (which is often mean-reverting) or just being generally repulsed by it. for me, the only time to be careful is accepting more risk than you need to, to achieve relative returns i.e benchmark.

your right in saying that what buffett does, doesn't apply here however, the small investor has so many advantages over the larger one (indeed, buffett has said this himself). the biggest one being that some stocks are underpriced because they are too small, not enough float or some other weird circumstance (one recent one for me was a company that operated only in the US but listed on AIM because a former chairman was involved in fraud in the US). this can be more tricky, as you imply, but its much easier when you small.

 

[SFL Trader]

Completely agree, I haven't pirated it.
The link has been floating around on here for ages now:
http://www.trade2win.com/boards/day-trading-scalping/87478-good-scalping-system.html#post1053024

768 DL's - damage has probably been done already.
T2W are hosting it as well, no complaints, either author no longer cares or is no longer charging for it?

I do still charge for it and I do care and I'm pissed and T2W is about to get some paperwork. Someone who bought the book just told me about this link and you will see that it's been removed but not till way, way after the fact. "damage has probably been done already"...ya think?

This is, obviously, the problem with selling electronic information in today's world but on a site which is "supposed" to be run well like this one, this should have never happened.

That said, I'm glad it's recognized as being valuable and I'm glad people are still suggesting it. If anyone's interested, I'm starting to host webinars where myself and a few other traders are going to give you the real deal on scalping. The first one is for the entire the month of June (2011) and I'll be online every trading day. I will be recording the sessions and offering them afterwards to those who cannot make the live sessions. You can go to my website at nobsdaytrading.com and contact me at that email if you would like more information.

 

[mckite123]

Technical is pure voodoo. Fundamentals just make more sense.