Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: LLCoolG who wrote (1866)	8/24/1998 12:19:00 PM
From: Chuzzlewit	Respond to of 4509

G, The point I made and continue to make is that there is no basis (either theoretical or empirical) for TA. So the fact that lots of people waste lots of time and money doing it is of little moment. PT Barnum noted that another sucker is born every minute. This population explosion is no reason for me to join the heard. So, when you say: And I agree that TA and chart reading does not have much of a basis, with the exception that a lot of people believe in it, and if causes them to buy or sell, then it has to have some effect. A lot of money is spent every year doing it. I smile to myself and ask, who is making the money? The answer is simple. The market makers and the brokers. And the latter day hucksters who foist their latest incarnations of haruspex on a gullible public. You go on to inform me that: However, there are a hundred other things to look at and consider outside of the elementary pie-in-the-sky theories it looks like you gleamed from Lynch's Beating the Street, most of which is unavailable to everyone except a select few, anyway. And irregardless of anything else, the fundamental postulate of the stock market which is undebatable: You can't fight the tape. And momentum has privileges, whether management and the fundamentals are superior, as you believe PSFT's to be. Sorry to tell you this, but there aren't a hundred other things to consider -- just two. And I have never read Lynch's book (and I don't appreciate the patronizing attitude either). What are those two things? They are long-term interest rates and investor perceptions of the expected value of future earnings. Now here is a little bit of substance that you might want to consider. The S&P500 is selling for roughly 26x next year's earnings. Earnings growth is expected to be around 7%. PSFT is expected conservatively to earn $.93 about .78 over the next four quarters and has a long-term (5-yr) growth rate of 45%. The YPEG for PSFT is therefore .97, and the YPEG for the market is about 3.7 So the CNPEG is calculated at about .26. ... this stock is not going to be doing much in the near future anyway. It has certainly lost its momentum, and the options guys have not hit it up for October--yet. I contend that there is simply no way of predicting stochastic events, which stands in stark relief to the hedged certainty of the TAers. Here is the point that TAers simply don't understand. Random events can and do take on the appearance of deterministic events. Here is a simple example. Suppose the probability of a stock moving in any particular direction (up or down) is 0.5. Assuming that there is no connection with the outcome from the previous days' action (i.e., statistical independence) we could calculate the probability that the stock would continue to move in the same direction over the next 7 days, and then calculate the probability that it will do exactly that in the course of one year. The probability of having eight identical moves is 0.5^7 (remember, it does not matter what the first move was), or 0.007813. So the probability of this event not occurring is 0.992188. Let's say that there are 250 trading days in one year, so that we have 243 runs of 8 days (remember, they overlap). So the probability of not seeing this event is only 14.87%. Put another way, this means that there is more than an 85% chance that you will see runs of at least eight days in any particular direction. Runs analysis is a tool frequently used by statisticians to test the idea statistical independence. Would you care to tell me now about fighting the tape or catching falling knives and other similar bromides? So who is dealing with "pie in the sky theories"? TTFN, CTC