Market Knows Best

Following my earlier discussion of INTC, I am reminded of my previous folly of thinking that I can outwit the market. I would see a stock with great fundamentals, that is going down, and would attempt to go against the market. I would win some time but would lose more often.

I finally hit rock bottom while trying to catch a falling knife with amazing fundamentals (low PE, good dividends, great growth prospects). I was so sure in my evaluation of the company that I continued to buy as the stock kept going down. By the time I reached my risk tolerance and got out, I had lost big - BIG. That was the end of my investing based on fundamentals. Since then I got into either do a buy-and-forget or when you trade, trade based solely on price and price history - no other factor - otherwise known as Trend Trading.

Using only price to make trading decisions is not as arbitrary as it sounds. The Efficient Market Hypothesis does state that all the information available to the market is already baked into the price - so there is no sustained advantage to be gained from looking at any other factor. Plus, in today's hyper-information age, the Market as a whole surely has much more information than a single investor, however gifted.

So, buy-and-forget for long term investing; only price based trend trading for short and medium term trading. This seems to be working for now.

Picasso, Guernica