Wednesday, 14 August 2013
Fundamental vs Technical Analysis
Is there a best strategy to invest in the stock market?
In my view, investors can either:
1. buy a good company and just hold until it's time to sell (pure fundamental)
2. buy a good company but buy and sell according to technical indicator (fundamental + technical)
3. buy & sell any company base on technical indicator (pure technical)
4. buy & sell any company base on sixth sense, tips & rumours.
I'm still searching for the ultimate answer.
Without any accounting, finance and economic background, I bought my first shares about 8 years ago, 2 years after I started to work. I didn't have much interest in stock market and my thinking at that time is: parking my money in unit trust or share market is better than fixed deposit. I was too busy with my work and most of the time I just bought, left it aside and sold the shares for minor gain. I chose companies with good fundamentals. There may be a year or two that I didn't read any business news or touch the share market.
In recent years, my investment focus has shifted towards property from unit trusts/share market. Compared to earlier years, I get more serious about investment and took another look at the share market. That was around the time I started this blog. I decided to try technical analysis as well - half of the fund into fundamental & half into technical.
However, my interest in property investment is still more than stock market, until recently the property price skyrocketing beyond my purchasing ability. Thus I'm now back in the stock market, trying to learn new investing knowledge. I'm basically still a noob in accounting and finance.
So throughout the years I have tried no. 1, 2 & 3, which are pure fundamental, fundamental + technical & pure technical. Here is my personal experience and conclusion so far.
Fundamental analysis is still the best way in stock market investment. My biggest gain comes from it. However, my fundamental analysis is not truly fundamental as my understanding in a company's account is still limited.
For technical analysis, you need to have time to monitor the price movement closely. I made some small gain and small loss from it, so I would say it breaks even. I think this is very much depends on experience. The longer you play the chart, the more experience you have on investors/speculators mind & behaviour, then the more chance you can make profit. I wildly guess that more than 75% of the retail investors use the price movement to buy & sell shares for short term gain, that's why technical analysis works, but only the more experienced one will win the most.
When you practice pure fundamental analysis, sometimes you see the share price goes up & down like a roller coaster that makes you think that why not you use various technical analysis indicators to buy and sell? Two-in-one should be better right? For example Mahsing is a decent company which is fundamentally sound, but look at the share price chart (adjusted share price).
If you buy at RM1.06 in end of Sep 2011, you would have gained almost 50% when the price advanced to RM1.56 in Nov 2011. But if you keep the shares, it drops to RM1.20 one month later. You see a 50% gain becomes 13% gain in one month. The similar ups & downs occur throughout the year and this makes you think why not you sell high and buy low (swing trading) while riding on the uptrend of the stock?
Well, this seems like a good idea but it may not be easy to get the timing right. You may just sold the share according to your judgement but the next few days the price shot up until you feel it is too high to buy, and the price keep on moving up and because of your reluctance to buy at higher price and anticipating it to drop, eventually you pay the price for not owning a good share. Swing trading is doable and experience counts. Somehow it makes your day more exciting.
So for me at this point of time (it may change), the best way to invest in share market is to choose some fundamentally good companies with good growth prospect, and hold them until it is time to sell. Selling shares is an art that need to be learned...
I believe that there is no answer for the best way in stock market investing, as it differs between everyone because all of us have different risk appetite, attitude, perception, fondness, way of thinking etc. We just need to find it out ourselves.