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Politics : Stop the War! -- Ignore unavailable to you. Want to Upgrade?

To: Doug R who wrote (6146)	4/1/2003 11:37:37 AM
From: zonder	Respond to of 21614

it's not the actual "value" which dictates price activity but the perception of value. Unfortunately, not even that. A lot of players in the market have only the vaguest idea of what the value of a company should be even with back of the envelope calculations (P/E, EV/Sales, EV/EBITDA, etc) and they lean heavily (solely, perhaps) on chart analysis. Technical analysis has nothing to do with value. It does not talk about a company being worth USD XXX bn, but rather about the price level it is expected to hit, and then if that is broken, another level. As you say, technical analysis has to do with the psychology of the market, supply and demand, and wishful thinking that future performance will follow past trends. As such, it is a good indicator of supply/demand and market psychology and I use it for market timing. Due to the wishful thinking part that does not always turn out to be correct, I do not use it for investment decisions. I have a guy completely immersed in technical analysis working with me, who does not even know what companies do, if they sell sandwiches or sequence the human genome. Still, when I decide to buy or sell something, he is very good in timing. US stock markets currently have a preponderant proclivity toward lower valuations. I agree. Actually, I agree so much that I can count the stocks I have been long in over the last two years with the fingers of one hand. Most of what we have done is sell calls (which happens to be why I have such free time :-) If you look back to what I had said before this whole bickering started, I was commenting on this statement: The fact still remains that we are over valued Message 18777608 Do I believe equities are overvalued at this point? No. Do I think they will go further down? Yes. Companies in real businesses, making real money, and growing are down to quite attractive valuations. There is little denying this. However, the market will not rally on these valuations, due to uncertainties related to war ("wars", actually, now that it seems Iran and Syria are next in line) and its repercussions on US market fundamentals. Coming back to "chart analysis" and "valuation" - there are actually attempts at finding a "fair value" with charts, graphing trailing 12m P/Es, taking averages, etc. However, that assumes that nothing changes in the life of a company and it should hence always be awarded the same P/E, which I find incorrect. Anyway, in short, I agree with you re technical analysis of charts being a good indicator of supply/demand and find it useful for timing. However, you cannot value a company by looking at its chart, and I do not base investment decisions on technical analysis, except for timing the entry & exit point.