Using some TA in value investment

**blast_investor** Thu Jan 27, 2005 3:59 pm

Everything is relative. Buffet or Graham likes to compare value stock investment to Bond investment.

I like to compare TA to value investing as well. TA is essentially short term oriented. The time and effort of TA trading is much more than value investing.

A TA trader certainly can not afford to ignore stock market quote as a value investor can. Not only trading (TA included) can distract regular job, need more time, but the end result is questionable as well.

For example, following my BIRTP model portfolio in 2004 was not big deal. Just check email every day at work and it is perfectly OK to ignore stock price in office. But that relaxed approach is not possible for a TA trader.

Another issue is tax disadvantage on short term gain (for TA trading). That makes value investing and TA methods not at same level of competition. TA fund performance must be much bigger than value investing to make the effort worthwhile. For example, if one can make 20% with value investing, a 30% performance for TA is required to achieve similar result or to compensate the time and effort or tax difference.

TA is essentially risky method as well. This is because cutting loss adds up to total performance as well.

For example, imagine cutting loss continuously for 10 times, each time 10% loss, that is total loss of 75%. Lots of inexperienced traders do not realize this accumulation of loss. To break even after this kind of big loss, one needs to triple after 10 losses. In fact due to tax issue, triple may not be enough. Sometimes, controling loss to 10% is difficult to do as well. A stock can lose 30% in one day due to bad news if the pick is really bad.

Well, one can find other method to improve odds. For example, use momentum method, or use value investing to do TA only on cheap stocks etc or on BIRTP stocks only to improve odds. That is no longer a pure TA, it is new method.

For me or subscribers the answer is simple, if we can make big money safely year in and year out already with value investing, why risk own money to try something else?

In the end, my goal or my subscribers goal is same: to make money in stock market. We are not trying to invent some new method or else or to do some scientific research to publish a paper.

Frankly, many folks in stock market are not experienced enough to know how dangerous place the stock market is. Stock market is especially deceiving place that there are so much speculation and gambling involved with short term excitement. Therefore, not many people can understand or appreciate Value Investing method or even Warren Buffet the great investor himself.

**qfhe** Thu Jan 27, 2005 5:47 pm

It's because some people want to learn how to make money on their own, not just by blindly following someone else. (maybe just for fun) Making money is not the only reason for some members to subscribe the newsletter.

Things change and people change. From my understanding, your long term interest is not in the newsletter. You probably want to have your own hedge fund in the future. Who knows what will happen in a year or two?

I would consider the fee for the newsletter as part of the tuition I have to pay during this learning process. Actually it is a darn good idea, isn't it? I learned a lot while making some money.

blast_investor wrote:
For me or subscribers the answer is simple, if we can make big money safely year in and year out already with value investing, why risk own money to try something else?

**blast_investor** Thu Jan 27, 2005 6:22 pm

Agree. I think newsletter definately is good idea for learning purposes. The cost is relative small for subscribers and the writing work for me is fun too.

It is real-time learning from the stock picks if the author is really good at investing.

However, newsletter authors do not make that much money for themself. That is why good authors in history dissappeared and entered into hedge fund later, and eventially good hedge fund managers such as Warren Buffet quit from hedge fund and only invested for themself. Talented mutual fund managers quit mutual fund and entered hedge fund as well, same thing.

That is probably way of life. Just capitalism.

qfhe wrote: It's because some people want to learn how to make money on their own, not just by blindly following someone else. (maybe just for fun) Making money is not the only reason for some members to subscribe the newsletter.

Things change and people change. From my understanding, your long term interest is not in the newsletter. You probably want to have your own hedge fund in the future. Who knows what will happen in a year or two?

I would consider the fee for the newsletter as part of the tuition I have to pay during this learning process. Actually it is a darn good idea, isn't it? I learned a lot while making some money.

blast_investor wrote:
For me or subscribers the answer is simple, if we can make big money safely year in and year out already with value investing, why risk own money to try something else?

**ffreedom** Fri Jan 28, 2005 2:02 am

I tried!
Combining TA with FA is easier said than done. I had the same feeling last year and thought I could trade around Blast's picks and boost the performance. I traded NRG and CHK but it turns out to be more time consuming while still not be better than just doing nothing but hold.

For example, after Blast bought CHK, it just flucturates wildly. Any TA-based stop-loss will guaranteed to be triggered. And I end up making nothing on CHK.

But I think it may still worth to have some kind of trailing stop once the pick is making money. Like HRB, after the CC last year, the stock falls into obvious downtrend. I end up stopped out at break-even while at least 20% profit may be still be possible after the CC.

I now divide each pick into two parts: one for core position and one for some trade. The core part follows Blast strictly, while I trade around the other part with some simple TA: When price rise too much away from 50-day MA, I start to raise my trailing stop. I buy back when oversold. But I have to admit that it takes time and energy while may not be better than just sit and wait. But anyway I definitely try to protect gains.

Just my two cents.

qfhe wrote: It's because some people want to learn how to make money on their own, not just by blindly following someone else. (maybe just for fun) Making money is not the only reason for some members to subscribe the newsletter.

Things change and people change. From my understanding, your long term interest is not in the newsletter. You probably want to have your own hedge fund in the future. Who knows what will happen in a year or two?

I would consider the fee for the newsletter as part of the tuition I have to pay during this learning process. Actually it is a darn good idea, isn't it? I learned a lot while making some money.

blast_investor wrote:
For me or subscribers the answer is simple, if we can make big money safely year in and year out already with value investing, why risk own money to try something else?

**philzhang2004** Fri Jan 28, 2005 12:36 pm

IMHO, TA is useful but very time-consuming, it also requires the money management skill.

For example, let's take a look of WLL. For past 3 months, obviously, there is a resistance level around $34.5 - $35, so whenever WLL reaches this area, from TA point of view, we can sell and lock in profit. After it pulls back, we can reload it.

There are 2 problems associating with that, however. The first one is that after sold, at what price are we going to reload it? The second one is that what if this time WLL breaks out this resistance level, then $35 becomes the support level, and we miss the train.

To compensate/overcome those 2 problems, it requires us watching WLL price and stock market constantly, also requires us managing portfolio carefully.

In short, if we have a lot of time and the discipline, TA is useful.

**grus2003** Fri Jan 28, 2005 3:04 pm

TA is not very different from gambling
From my hard experience, I believe TA = gambling = speculation. People speculate, gamble, trade by TA since they provide a chance of being rich over night.

TA, I started to trade in late 1999. Although I hate to admit it, I have to tell you that I lost a lot of money in trading, haven't broken even until today. Sometimes I won, sometimes I lost, the probability of winning is very close to be random. I had experience of make 400% profit overnight, I also had experience of losing 75% from morning to afternoon. I know I am not a TA expert. However, you have to spend plenty of time, mostly full-time, to trade with TA, no matter you are a guru or a new hand.

Gambling, I am a gambler for sure. I like casinos and love to try my luck. From late May of last year, I started to play online Blackjack, & turned $50 into $35000 gradully in 8 months. Then I started to lose. Now I have to stop it since my mind is getting weaker and weaker & I can not control my mood as well as before. I am very good at Blackjack and play better than 99% other players. Why I have to quit? Since my brain have haunted by the dream of being rich over night. I can not help betting $1000 a hand which hurt me very much. If I can follow my rules and rational judgements in playing Blackjack, it's not hard for me to make over 100,000 a year. But fear and greedy are my biggest enemy & I just can not beat them consistently.

Uncertainty nature of those highly speculative games like trading with TA and gambling make them very hard to deal with, even you are very skillful. Another problem is that they are likely to ruin your life since you are destined to lose peace in your mind once you get involved into these time-consuming activities, which are harmful to your career & family.

Value investment is much less stressful although it's not a easy work. My experience with this approach was very good.

I hope I can completely quit gambling and trading. Living a life full of fear and greedy is not so good for me.

**ffreedom** Fri Jan 28, 2005 4:48 pm

Re: TA is not very different from gambling
Hi, Grus,

Well said. I have exactly the same experience and feeling as you just described. I now let Blast to worry about my investment and I just enjoy my life.

grus2003 wrote: From my hard experience, I believe TA = gambling = speculation. People speculate, gamble, trade by TA since they provide a chance of being rich over night.

TA, I started to trade in late 1999. Although I hate to admit it, I have to tell you that I lost a lot of money in trading, haven't broken even until today. Sometimes I won, sometimes I lost, the probability of winning is very close to be random. I had experience of make 400% profit overnight, I also had experience of losing 75% from morning to afternoon. I know I am not a TA expert. However, you have to spend plenty of time, mostly full-time, to trade with TA, no matter you are a guru or a new hand.

Gambling, I am a gambler for sure. I like casinos and love to try my luck. From late May of last year, I started to play online Blackjack, & turned $50 into $35000 gradully in 8 months. Then I started to lose. Now I have to stop it since my mind is getting weaker and weaker & I can not control my mood as well as before. I am very good at Blackjack and play better than 99% other players. Why I have to quit? Since my brain have haunted by the dream of being rich over night. I can not help betting $1000 a hand which hurt me very much. If I can follow my rules and rational judgements in playing Blackjack, it's not hard for me to make over 100,000 a year. But fear and greedy are my biggest enemy & I just can not beat them consistently.

Uncertainty nature of those highly speculative games like trading with TA and gambling make them very hard to deal with, even you are very skillful. Another problem is that they are likely to ruin your life since you are destined to lose peace in your mind once you get involved into these time-consuming activities, which are harmful to your career & family.

Value investment is much less stressful although it's not a easy work. My experience with this approach was very good.

I hope I can completely quit gambling and trading. Living a life full of fear and greedy is not so good for me.

**qfhe** Fri Jan 28, 2005 4:53 pm

You guys wrote a great testmony for blast. :-)

Anyway, thanks for sharing.

**blast_investor** Mon Jan 31, 2005 3:24 pm

:D It is pitty that only paid members can read wonderful articles in this thread.

It would be REAL testimony if any of you write similar articles in the public "testimony" board.

qfhe wrote: You guys wrote a great testmony for blast. :-)

Anyway, thanks for sharing.

**frankiec25** Mon Jan 31, 2005 9:49 pm

Re: TA is not very different from gambling
well, it depends. TA guru's tradings cannot be viewed as gamble.
But TA requires too much time and I donot think everyone could watch the chart signal all the time.
Even for the swing trading it is very hard.

For value investing, for example, EXXA and LIBHA, any TA behind them? I think TA makes no sense here.

The best TA based trading stocks are those high voility stocks, but high risk. Most value stocks seems not much fun for TA guys.

Also, about WLL, the first attemp at 34 is for sure a resistence, and it will not break the first time in general, I even predict it will pullback to 27/28.
I consider doing some actions at that time, but too busy at work and didnot do anything. I did not mean I am a TA guru here, a lot of time, my TA views make no sense at all.

Fear and greedy controls emotions most of time. :oops:

grus2003 wrote: From my hard experience, I believe TA = gambling = speculation. People speculate, gamble, trade by TA since they provide a chance of being rich over night.

TA, I started to trade in late 1999. Although I hate to admit it, I have to tell you that I lost a lot of money in trading, haven't broken even until today. Sometimes I won, sometimes I lost, the probability of winning is very close to be random. I had experience of make 400% profit overnight, I also had experience of losing 75% from morning to afternoon. I know I am not a TA expert. However, you have to spend plenty of time, mostly full-time, to trade with TA, no matter you are a guru or a new hand.

Gambling, I am a gambler for sure. I like casinos and love to try my luck. From late May of last year, I started to play online Blackjack, & turned $50 into $35000 gradully in 8 months. Then I started to lose. Now I have to stop it since my mind is getting weaker and weaker & I can not control my mood as well as before. I am very good at Blackjack and play better than 99% other players. Why I have to quit? Since my brain have haunted by the dream of being rich over night. I can not help betting $1000 a hand which hurt me very much. If I can follow my rules and rational judgements in playing Blackjack, it's not hard for me to make over 100,000 a year. But fear and greedy are my biggest enemy & I just can not beat them consistently.

Uncertainty nature of those highly speculative games like trading with TA and gambling make them very hard to deal with, even you are very skillful. Another problem is that they are likely to ruin your life since you are destined to lose peace in your mind once you get involved into these time-consuming activities, which are harmful to your career & family.

Value investment is much less stressful although it's not a easy work. My experience with this approach was very good.

I hope I can completely quit gambling and trading. Living a life full of fear and greedy is not so good for me.

**blast_investor** Tue Feb 01, 2005 5:27 pm

One interesting note. Warren Buffet did lots of TA charting before he became student of Ben Graham.

Also, Ben Graham critisized TA harshly in his book.

**qfhe** Wed Feb 02, 2005 11:46 am

This discussion is very interesting. At least I understood one point now: there is no need to argue TA or FA. FA criticizes TA, "You are gambling! bla, bla, bla." and TA criticize FA, "Your analysis is unreliable! bla, bla, bla." This debate will continue forever and neither party is going to convince the other one.

As grus2003 said, you can make money with either one. (His original text is you can be either a value investor or a skillful trader.) Just find the strategy that is suitable for you and stick to it. Don't force yourself to mix things if it does not work. That's the point I would like to accept. Blast is very successful because he found the strategy that is right for him. But I also believe there are other people that are making consistent money using other methods. Which one is better? It's hard to say. As an individual, you may have your personal preferences. There is nothing wrong about it. Frankly I prefer value investment because of its low risks, less time-consuming, less emotion-driven, and potential consistent decent gains.

BTW, blast has said that nobody can compete with WB in investment. I have a different opinion on this argument. I think WB's success is mainly because he can turn investment into business. Basically, he use other people's money to make money for him. Thus, ultimately his success comes from business, not from pure investment. That's probably why blast wants to be a hedge fund manager.

We can do a simple calculation. Consider a person who invests 100K each year for 30 years and his annual return is 30%. (This is a super example. 99% of the population cannot invest 100K every year for 30 years. Not to mention the 30% annual return. Using this impossible scenario would make my point more convincing.) In 30 years, he will have

100K*(1.3+1.3^2+...+1.3^30)=1.1349B

(Please correct me if the above calculation is wrong.)

The above number should be cut a lot if excluding taxes. Of course, that is still a huge huge number for average people.

However, according to Forbes, WB's current net worth is 42.9B.
see http://www.forbes.com/finance/lists/10/2004/LIR.jhtml?passListId=10&passYear=2004&passListType=Person&uniqueId=C0R3&datatype=Person

My point is, if WB did not use other people's money to make money for him, he would not have reached the fortune today. Thus, WB is rich not simply because he is using value investment strategy, even though I admit this stategy plays an important role in it. So, it is unfair to say nobody can beat WB in investment simply because he is the world's second richest people.

**blast_investor** Wed Feb 02, 2005 12:18 pm

The bug is fixed. You should be able to edit or delete your own post.

qfhe wrote: Sorry, this is wrong. The calculation is right.

Blast, I really appreciate it if you can change the settings to allow members to edit their own articles.

**qfhe** Wed Feb 02, 2005 12:45 pm

Thanks a lot, blast. You always respond very quickly. I really appreciate that.

blast_investor wrote: The bug is fixed. You should be able to edit or delete your own post.