Book Review: The Heretics of Finance – Conversations with Leading Practitioners of Technical Analysis
Apr 5th, 2009 | Filed under: Guest Posts, Today's Post
Special to AllAboutAlpha.com by: James Burron, CAIA, ICICI Wealth Management Inc.
Ever heard of Peter Lynch, Warren Buffett or Benjamin Graham? Sure. But how about Robert Farrell, Alan Shaw or Stan Weinstein? Chances are many investors have heard of most or all of members of the first group and none of the second. What’s the difference? Lynch, Buffett and Graham are fundamental (research) investors; Farrell, Shaw and Weinstein are technical adherents.
The striking part of reading The Heretics of Finance (Andrew Lo & Jasmina Hasanhodzic, Bloomberg Press, 2009) was that upon opening it up to the table of contents, I could only find one interviewee I recognized (Laszlo Birinyi Jr., if you were wondering – and only because he was often on Wall Street Week). This made me think: was I missing out on something, or was technical analysis really just a rather obscure investment style more akin to astrology?
I tried to keep an open mind as I readied myself for talk of head & shoulders (not the shampoo), double and triple tops, pennants (whatever those are) and breakouts. I’ll admit to being a somewhat of a skeptic of technical analysis. But as I read Heretics, I gained an appreciation for what drives these highly intelligent – if not quirky – individuals. More…
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Doesn’t it strike you that financial analysts are always wrong? That all of them (OK, 99%) forecasted nothing about the current crisis? Nothing about the 2000 dot com bubble, then collapse?
Why do you doubt about technical analysis, and do not even have doubts about the proven failures of fundamental analysis when it comes to forecasting prices?
Valerie
Doesn’t it strike you that financial analysts are always wrong? That all of them (OK, 99%) forecasted nothing about the current crisis? Nothing about the 2000 dot com bubble, then collapse?
Why do you doubt about technical analysis, and do not even have doubts about the proven failures of fundamental analysis when it comes to forecasting prices?
Valerie
Part of the problem here is that there is an infinite number of technical analysis variables and the quality among them varies by great degrees.
On the other hand, if you look at the ones that most purely represent what other investors/traders have done and the ones that most of the people can see (moving averages for example), you will find that indeed they tell you something about what many other investors/traders are very likely to do in the future.
The saying “the market has a memory” is very clearly seen on a chart.