In the mid 1990's a massive bull market took place. Everywhere you turned people were talking about EPS, PE's, book value, and even EBITDA(earnings before interest, taxation, depreciation and ammorization) and countless other fundamental factors. Who can understand EBITDA? Fundamentals work great in a bull market. Then again, so does throwing a dart at any stock in the newspaper. Even at this time we constantly hear the talking heads on Wall Street speak about these terms and more everyday. Day in and day out we hear how a stock has cash on hand and we still see it trading lower. What is the difference if a stock has all of these positive fundamental factors at strong levels if the price is still going down? Isn't price really the only thing that matters? Isn't supply and demand the only thing that really counts? We certainly think so. There are many fundamental traders that are very good. Here is a list of a few household names that are down in 2008.
Warren Buffet (Berkshire Hathaway) -43%
Ken Hebner (CMG Focus Fund) -56%
Bill Miller (Legg Mason Value Trust) -50%
Ken Griffin (Citadel) -44%
Carl Ichan (Icahn Enterprises) -81%
T. Boone Pickens: -68%
Kirk Kerkorian: Down $693 million on Ford stock alone.
We know these investors are in it for the long term and probably have the capital to ride it out as their reputations are outstanding. However, the average investor simply cannot afford these types of losses. In a bear market it is imperative to know the technicals. This does not ensure that you will win on every trade. Learning the technical side of trading is not easy. It requires study, patience, and many hours of calculations. It is much easier to look at the EPS(earnings per share), or the PE ratio but does taking the easy road bare profitable results? There is also discipline and many other psychological factors that go into being a successful trader. In 2007, most fundamental economists and investors said there was nothing wrong and never saw this bear market coming. It was the technical trader that identified the market down turn and played both the long and short side of the market when the opportunity arrived. As traders we are neither bull nor bear. We prefer to trade both the long and short sides of the market when the opportunity presents itself.
Source: Nicholas Santiago, InTheMoneyStocks.com