Ice, not quite ... That T/A is useless is not controverted by any statistical study, and the fact that FA is not predictive of the market is a red herring. It frequently occurs that news does not move through the financial markets as quickly as some MPT theorists would expect. The oil drillers and oil field service sector is a good case in point. About two years ago Value Line was predicting above average earnings for the group based on rig supply and demand estimates and oil consumption estimates. These are issues of fundamental analysis. The amount of time it took for that perception to permeate the market is instructive, because it is clear that these stocks appreciated at a much more rapid rate than their growth rates would suggest.
So, fundamental analysis is quite useful in pinpointing potential growth areas, but it is not predictive of future price movements. There are basically two drivers for stock prices: the expected long-term earnings stream, and risk-adjusted market rates of return(discount rates). Fundamental analysis is incapable of predicting either of these parameters, although on an aggregate level, the former is more amenable to forecasting. But the results of predictions for individual companies is abysmal! If you need proof of this statement, look at the number of "analysts' estimates" that were off of their estimates by 5% or more. I don't recall the number exactly, but it is rather large (well over 50%).
The other point, of course, is that financial analysis of a company is quite useful in eliminating weak sisters from the panoply of potential investments.
So it all comes down to how you use financial analysis. TA, on the other hand, is useless.
Regards,
Paul |
