Читать книгу Millard on Channel Analysis - Brian Millard - Страница 11

There has always been controversy over the way in which share prices move over the course of time, with chartists maintaining that prices can be predicted to a certain extent because historical patterns in the charts of share prices tend to recur from time to time. These methods of analysis rest heavily on the recognition of the start of a pattern formation so that the subsequent movement can be anticipated. On the other hand, the fundamentalists believe that the key to investment success lies in such factors as the way in which a company is managed, the quality and appeal of its products, and the strength or weakness of its balance sheet.

They believe for the most part that chartist techniques are just mumbo-jumbo and that the past history of share price plays no part in the future movement. If pressed about the nature of share price movement, many fundamentalists would state that they believe that share prices move on a random basis and therefore cannot be predicted. In doing this, they ignore the obvious corollary: if prices move randomly, there is no advantage in studying the fundamentals of any company since the random share price will bear no relationship to these fundamentals.

While fundamentalists are for the most part hostile to chartists, the reverse is not true. Chartists will agree that there should be some relationship between the way in which a company is run and its future share price. Certainly it would be unreasonable to expect that a company that is continually making losses will show a strong share price. Chartists are of the opinion that all the positive aspects of a company’s performance are reflected in the share price, and therefore an analyst can take a shortcut by looking at the share price and not the fundamentals. This author stands with the chartists on this point about the relationship between the share price and the fundamentals, believing that what moves a share price upwards is not the quality of the management or the products or the balance sheet, but investors’ views about the company’s potential. Some investors’ views may indeed be influenced strongly by the fact that they have carried out an analysis of the company’s balance sheet or market strengths. Other investors may simply have read comments in the press. Yet others may have applied some technical analysis of the share price chart and come to a conclusion about the future movement of the share price. It is the sum total of these different views, many of which will be contradictory, that will add up to the pressure in the marketplace that will cause the share price to move. When all views are the same, the price will move rapidly, while if they are nearly in balance, the price will drift more or less sideways. Grafted on to all of this will be the views of the market makers, since they have to balance their books also. There will be some shares which attract no comment and attract no technical analysis because they have generated no excitement in the past. In such cases, therefore, it is unreasonable, however strong the fundamentals are, to expect the share price to move upwards.

This author takes the position that everything an investor needs to know about a company is stated in its share price movement. It will be simpler and quicker for an investor to discover how to analyse share price movement than to study the company itself, and the result of this price analysis will tell the investor the most important fact: how other investors feel about that company.

Where this author does not stand with the chartists is in their simplistic approach to share price analysis. In its most trivial form chartism depends upon sets of rules which have to be followed without any other understanding. Thus the chartists will make statements such as “buy when the share price moves above the x-day moving average,” where x depends upon the chartist you are speaking to, or “sell when the ten-day average falls below the twenty-day average.” Such a set of blind rules should play no part in the thinking man’s investment armamentarium. The human race has always striven to understand the reasons for the behaviour of the physical world, and share price movement should be no exception. A Pavlovian response to a set of circumstances will ultimately lead to disaster, since the stock market is always ready with the unexpected. Experienced chartists can probably correctly predict whether a share price will move up or down about 55% of the time, but this means they are wrong about 45% of the time. The dangers of a set of rules which work only just over half of the time are obvious. Investor psychology is such that the investor is always trying to avoid selling a holding in the belief that an adverse movement is only a minor aberration in the expected upward trend, and will surely correct itself before too long. Nearly all investors have seen a good paper profit from a good buying decision evaporate because of this reluctance to sell. If we are going to work to any set of rules, the reasoning behind them must be perfectly clear, so that those occasions when the share price does not seem to be following the rules can be understood for what they are – times when we have to be more flexible about our interpretation of the rules.

By this more logical approach of trying to understand why share prices move as they do, we should be able to improve our predictive techniques so that we can almost always recognise the start of a new upward or downward trend. We will be able to recognise when we have made a mistake about the start of a new upward trend, and be able to act quickly to close the losing position before the loss is anything other than a trivial one. We will be able to follow the old stock market rule: “let your profits run and cut your losses”. This will be a great advance for most investors, who seem to do exactly the opposite, selling the share when there is still plenty of profit to come, but staying with a share which is falling rapidly, because they are convinced that it will soon change direction.