Analysis

There is an old adage that reads “Markets can remain irrational a lot longer than you can remain solvent”. Knowing when to buy or sell an investment is an issue that has discussed, debated and argued about for centuries. We are not so arrogant as to suggest that we have all the answers but, thanks to the wealth of experience at our disposal, what we do know for certain is that the human condition plays more of a part in the way that markets work than anything else.

There are but a handful of places in which the human condition is more vividly represented than in the financial markets in general and the price action of securities in particular. The study of these movements in prices is called technical analysis.

It refers to a chart-based form of analyzing price action on an underlying security, commodity, asset class or even an entire index. The main thrust of technical analysis (TA) is that everything that can affect the price of a security is already present in the price.

Fundamental analysis requires a far more detached view paying more attention to the “nuts and bolts” of a particular security than the price action. Identification of the facts rather than the emotion behind a security’s price is its aim. A company with minimal debt, robust earnings and adept management is considered a strong candidate for investment.

Nevertheless, proponents of TA tend to ignore fundamentals which also include issues such as adverse news, economic conditions, geo-politics, even scandal reasoning that it is the market’s reaction to the news rather than the news itself that bears most impact upon its price.

Undoubtedly, the argument between the two schools of thought will rage on long after we’ve gone but, in the interim, Ba-Ltd prefers to use both methods to identify the securities we consider for inclusion in our clients’ portfolios.