Any experienced trader will tell you there's no holy grail to success. Photo: Reuters
IT HAS always amazed me how sharemarket ''experts'' always seem to nail themselves to just one mast, the most obvious being technical or fundamental analysis, two disciplines that have been in conflict ever since Benjamin Graham wrote The Intelligent Investor in 1949.
In that bible he wrote, ''We do not hesitate to declare that this approach [technical analysis] is as fallacious as it is popular'' and in that one sentence he tactlessly erected a wall between the two disciplines that has stood for 62 years and the proponents of both seem hell-bent on putting down the other. But both are flawed.
Fundamental analysis is a mishmash of techniques that purport to identify when a share price is cheap. Its beauty is that it presents as very cerebral (Warren Buffett) and that reflects well on the integrity of the people that nail themselves to it.
But the fact is that most fundamental analysis, despite the integrity of the mechanism, is rubbish in and rubbish out and a lot of rubbish goes in.
Buffett himself could not make money in shares if he had his currency, commodity, economic and earnings forecasts fed to him by a monkey.
And there's the rub. Forecasts are guesswork and, because of that, fundamental analysis has limits on its value.
Technical analysis on the other hand is the study of the share price rather than the company - the use of historic price and volume data to determine trends, entries and exits, predicting the future from the past. Laughable to some, but the beauty of it is that unlike the hard to emulate mysteries of fundamental analysis, technical analysis is a commodity accessible to all. No highbrow elitism, no mysteries, just an easy to access education perfect for the new majority who want to trade online. Even if it didn't make money, it would still sell.
So on one side of the wall is the long-term investor ploughing money into the market on fundamental judgments that some of them arrogantly declare will persist for eternity while on the other side stands the hardcore trader who wouldn't know cabbages from BHP Billiton and doesn't have to as long as there is a volume number, an open, close, high and low price to plug in to his technical-based trading system.
But they are both, along with Benjamin Graham, missing the point. As any experienced trader will tell you there is no Holy Grail for success, no one approach that works. Amid so much grey and so little black-and-white, the game is not about perfection, it is about trying to get an edge on random outcomes and to do that you would be a fool not to use every tool in the book, and that's the point, every tool.
Not one or the other, but every. You dismiss nothing and learn everything and this is where so many people go wrong. They choose one side or the other when there are fantastic elements of both.
Even then, even if you embrace both approaches, even if you become an expert at deciding what to buy and when to buy it, there is another indispensable body of education that would be useful to both fundamental and technical disciples and to both long and short-term investors and traders and it is called ''trading skills''.
Trading skills include universally useful subjects such as money management, position sizing, stop losses and introduces the discipline of a trading plan that predetermines what you are going to do before you have to do it - skills that can be tailored to any style of investor, short or long-term, skills that make the difference between controlling the outcome or being controlled by the outcome.
If technical and fundamental analysis finds the right boat, trading skills tell you how to sail, how much to put in it, where you expect to go and when to jump out.
Fundamental analysis, technical analysis and trading skills - united they perform, divided they don't.
Marcus Padley is a stockbroker with Patersons Securities and the author of sharemarket newsletter Marcus Today. For a free trial go to marcustoday.com.au. His views do not necessarily reflect the views of Patersons.
