Fundamental analysis.... while necessary and important, is
perhaps the most subjective tool one can utilize...
You are so right! But do keep the "perhaps" in there.
The problem with FA is not just that reasonable people can disagree about the definitions of certain criteria (thus introducing the element of subjectivity). They can also disagree about the relative weighting that should be assigned to even those criteria, the definitions of which are not in dispute -- let's call them "objective" criteria.
I've played around with a lot of scans/searches using different FA criteria, and they tend to turn up totally different companies. For example, run a search for companies with high ROE, high ROA, high EPS consistency, and low debt. You'll get one list of companies. Then run another search, this time for companies with high EPS growth, low peg ratio, and low valuation ratios. You will get a completely different list. And so on and so forth. (I personally tend to buy the companies that show up on the most lists.)
So, the question remains: which FA criteria are the most important in assessing any given company, or industry? And a second question: how can you be sure that The Market (whatever that is) will value what you think it should value?
On the other hand, doesn't a similar situation obtain with TA? I'm no expert on this subject, but don't different indicators often give different signals (some saying "buy," some saying "sell")?
I read somewhere that there is a third approach -- PA (Psychological Analysis). Anyone familiar with it?
And who was it that promised to get back to me on Chaos Theory, as applied to the market?
jbe |
