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Wisdom of Investing | Technical Analysis & Fundamental Analysis | Education & Learning About Investing


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Wisdom of Investing - Investing wisely, for the beginner means that certain basic knowledge must be accumulated before making any serious decisions. One must learn and understand certain terms related to investing, for example with the stock market, terms are used such as, capital, capital growth, income stream, price-earnings ratio, dividend yields.

With regard to investing money in a bank account, terms such as, Certificates of Deposit (CDs), compound interest on accounts, fixed or variable yields on interests rates, to mention a few.

For the individual who plans to become a successful businessperson, the facts must be faced, that the Management of Money is just as important as possessing a trade skill, negotiating a good purchase or sale, or perhaps being able to motivate and manage people.

It is recognized by many of our clients that considering taking a degree in economics or statistics is normally out of the question. Most however have been committed to undertake research into the basic pattern observed in the world of business, such as inflation, input costs, return on investments. Fortunately many down-to-earth publications exist and we mention just a few used by our own management.

  • "The Wall Street Journal Guide to Understanding Money and Investing" by Kenneth M Morris
  • "Use The News: Separate the Noise from the Investment Nuggets And Make Money in Any Economy" - by Maria Bartiromo
  • "Winning The Losers Game: Timeless Strategies For Successful Investing" - by Charles D Ellis

These or similar books are available from most major bookstores or online.


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Should one use Technical Analysis (charts) or just use the Fundamentals when buying and selling shares? There is some wisdom and merit by hitting a balance between the two. (The following report was submitted by the financial editor of "Personal Finance" in Cape Town, South Africa.)

Technical analysts are stock market wizards who claim their share price graphs have amazing predictive value. They claim history repeats itself in the stock market and that patterns can be discovered and used to predict a share price's next move.

For example, a 20-year graph that also contains moving averages and volume data is a magnificent summary and representation of thousands of transactions. This is a depiction of the daily supply of and demand for the share and it is completely objective. Many patterns and price consolidations seem to repeat and a careful study can give some idea as to the volatility of the share.

Fundamental analysts pooh-pooh technical analysis as a lot of hocus pocus. They claim that the only theoretically defensible way of valuing stocks is the discounting of forecast cash flows. Technical analysts would counter by arguing that future cash flows cannot be reliably determined in any event, and given the accounting and management corruption in business these days, this is a fair point.

The most devout of technical analysts lock themselves in tiny dusty rooms, board up the windows and carefully study their charts. Speaking to management teams and visiting factory plants, forecasting cash flows and phoning analysts is just a waste of time for them.

A typical technical analyst will emphasise the following:

  • Certain price patterns and shapes that have predictive powers
  • A 120-week moving average to determine the underlying long-term trend of the share price
  • A 52-day moving average to determine the short-term trend. This is used for active trading on a day-to-day basis
  • Volume data as volume precedes or confirms price movement. For example, a significant move in the share price is more noteworthy if it is accompanied by a significant increase in the volume of shares traded. Another valuable volume indicator may be a reduction in trading activity as a share reaches lows. This could indicate that a lot of accumulation has taken place; and
  • Support and resistance levels. When a support or resistance level is punctuated, the next move will be dramatic.

My biggest problem with this is that I don't know of any very rich and famous technical analysts, while it is not difficult to think of many successful fundamental analysts and long-term investors. As in all things, I think it's important to find a balance.

When you study a graph, you are less likely to be distracted by the collapse of the Russian empire, Saddam and Bin Laden, interest rates, American foreign policy, Israel, Enron, or the fact that core earnings on the S&P 500 still reflect a price/earnings ratio of 50 times. It is a great filter mechanism because, let's face it, if you concentrate on all the problems facing the world today, who would want to own shares?

On the other hand, you will never understand the business economics of a company and its strengths and weaknesses by simply studying a graph. This is where technical analyst die-hards miss the point. Investors today need to use every technique and resource available to them, including technical and fundamental analysis.

But remember, although these graphs may not look like the Mona Lisa, a picture is still worth a thousand words and once all the fundamental research has been carried out, a share price graph remains a most valuable tool to assist investors in timing their purchases.

Editor's Note:

(1) We asked one of our associates who is a technical analyst, this question. Is this risky? His answer was, "In anything you do there is risk, especially in the markets. However our priority at TradersEdge is to protect you as much as possible from losses by consistently finding stocks with recognizable technical patterns, low-risk entry points and a sell discipline on each and every stock pick we recommend. There will be losses along the way and thinking otherwise would be unrealistic. By employing a highly disciplined and unemotional sell discipline, we are able to limit our losers and let our winners run." If you wish more information on this subject contact us

(2) This quote from the "Big Trends Newsletter" by Price Headley also sheds some light on the difference between Technical Analysis and Fundamentals investing, "A purely technical trader looks for price breakouts, then takes a position in the same direction as the trend. By the very nature of his method, though, the reason for the breakout is not considered. Does that matter? Certainly. Stocks only move higher when the demand for those shares increases."

But if demand for shares can increase without reason, then demand can also drop without reason. That, of course, pulls share price down and the technical trader may end up giving back his or her profits. A technical trader who realized that a price move occurred without any reason may have also foreseen that the price move was not sustainable. On the other hand, strong fundamentals don't guarantee a return of any size to a shareholder. Remember, you only make money on a stock if the per-share price increases, and prices are set by the supply and demand of the market - not the company's performance."

In that case, the technical trader would have an edge by only getting into stocks that were actually headed higher. But what if you applied both techniques? A trader who finally saw share prices break above key resistance after a company posted improved earnings would know two important things. First, share prices are actually moving higher, and second, the improved fundamentals will attract other investors, making that rally sustainable."

(3) While not a method of 'predicting the future,' as often believed, technical analysis measures probabilities, identifies 'buy' and 'sell' signals, and minimizes risk. That is why serious traders and professional investors frequently look toward technical analysis as a valuable trading tool.

 

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Education & Learning About Investing

     

  • Micro & Macro Economics – The CFA Institute has approved this program, offered by Corporate Bridge, for 2 CE credit hours. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE tracking tool. This course deals with the economic variables and their impact on Industry, Financial Market and Overall Economy. Also, it deals with performance, structure, behavior and decision making of the entire economy. Economics Variables are widely used by investors for applying the EIC framework (Economics, Industry and Company). This Program consists of conceptual Videos and PDFs. Recommended 30 hours of Study. This is a step-by-step classroom program designed to suit engineers, commerce graduates, MBAs as well as working professionals. Micro & Macro Economicsc

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  • Master Trading Psychology - Have you ever wondered how ordinary people manage to trade at seemingly extraordinary levels? Why do some traders succeed whereas others fail given the exact same trading strategy? What do the winners KNOW that's different? What do the winners DO that's different? It really boils down to some simple rules, and they will all be revealed to you in this concise and powerful course! If you are looking to improve your trading, if you want to improve your profitability, if you want to take your trading to the next level, this course is absolutely for you. Just listen as you get a map for building a powerful trader mindset which also helps navigate the minefield of common pitfalls. No empty promises, no grandiose overnight rags-to-riches tales, no disappointments, just a simple and easy to understand roadmap of to get your trader psychology on the winning side of a profitable plan. This course is not about strategy creation, developing a plan from scratch or a beginners guide to trading. Students looking for that should not enroll in this particular course. This course is about addressing the psychological considerations in trading which only happen once a trader has started trading. TRADING PSYCHOLOGY: Trading Mindset Mastery

 

 

    • Understanding the Capital Markets - This course will give you a brief, but broad introduction of the capital markets, for example who are the primary participants, issuers, investors, intermediaries, what they trade in the capital markets, and both the applications to which market participants make use of the instruments, as well as give you a sense of the role that capital markets play in the operation of the economic system as well as the financial system. This course contains 21 lectures within 4 sections, including: Capital Markets Overview. Fixed Income Markets. Equity Markets. Currency and Derivatives Markets. Capital Market Road Map

     


    • Knowledge is Power in the Field of Global Investing & Finance - Visit our online bookstore, Delamere International Bookshop, UK's leading specialist financial bookseller, which has over 3000 financial titles covering all areas of finance and investing, from pensions to day trading. Check out the catalogue listing which provides a full description of each book and publication, including investment book reviews, and most are offered with at least 15% off the list price. If you are aware of the need to expand your knowledge, especially in the area of investing, you will probably find a book/books on investment, which will assist you to make even more money. Visit our online bookstore

       

    • Delamere Financial Education Center - Our financial training programs, sponsored by the Online Trading Academy, are geared toward individual investors, novice or experienced, who want to learn how to use the same tools and professional trading techniques as the professional traders on Wall Street. The courses and modules offered by our Online Trading Academy, cover both online and distance learning or at one of our training centers, (Los Angeles, New York, Dallas,TX, London, Dubai, UAE. (plus other centers to be opened during the next few months contact us for opening dates for Johannesburg, Paris, Munich, Tokyo, Beijing, Sydney and Hong Kong) and are designed to introduce you to the basic terminology and concepts you will need to become more successful as an investor or trader in stock, forex or commodities. To excel in this fascinating world of money, you need to continue to study and learn. For more details visit the Delamere Financial Education Center


      • Take the Delamere Financial Education Center FREE course on stock market or forex trading - The course is a Macromedia Flash presentation complete with audio track. If you want to become a Successful, Professional Trader, then you must view this Free Web Class. There are seven specific and proven trading areas that need to be mastered to insure a trader's success. For more details click here.

     

    • How to become Debt Free & Build Personal Wealth - As one of the leading experts on debt elimination, John Cummuta explains how to eliminate debt within 5-7 years, using your current income. This system consists of a Downloadable E-Course that contains the following 4 volumes. VOLUME 1: Where Does Your Money Go? VOLUME 2: Credit - Your Financial Enemy, VOLUME 3: The Cascading Debt Elimination System, VOLUME 4: Wealth Building (Now that you're debt free) Contact our partner John Cummuta

     

    • We are currently offering, free of charge, a downloadable copy of the e-book "Technical Market Indicators," which has been prepared by one of our associates on Wall Street. This book contains a wealth of information on how to use charts for trading and investors interested in technical analysis. The size of the e-book in PDF is 1050KB. Please contact us for a link to the secure source to download this e-book.



     

    • Using Technical Analysis for Your Investment Decisions - A new book "Point & Figure Charting" is the classic source for the technical analysis discipline now brings readers up to date in techniques and technology. Now, in this second edition of the classic text, expert Thomas Dorsey shows, step-by-step, how to create, maintain, and interpret your own point and figure charts. He explains how you can use your findings to track and forecast market prices and develop an overall investment strategy. Perhaps most importantly, he helps you develop confidence in the market and take decisive action at the appropriate time, rather than reacting after the fact. Dorsey also highlights new developments in the field and incorporates the use of recently developed software to track any market using point and figure methods. Written for both new and experienced P & F chartists, this updated edition of a technical analysis classic brings point and figure charting into the Internet age. The Definitive Guide to Point and Figure: A Comprehensive Guide to the Theory and Practical Use of the Point and Figure Charting Method


    • One very important lesson that is of primary importance is adopting the Right Attitude Toward Investing, especially when related to the stock market. For a synopsis of what this means to the average investor. Read more

     

    • This section of our website is primarily targeted toward investing in stocks and shares, although we currently research other sound investments such as property, art, stamps, antiques, and we shall occasionally highlight new and reliable information which comes to our attention. Visit our web page on Investments

     

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