I have traded stocks for 10 years now. I am by no means successful trader or investor but experience has thought me a few very important lessons. Not just about stocks but life in general too. Let me tell you about one of them. Technical analysis beats fundamental analysis. All day every day. Let me throw a few reasons why:

  • Trends are powerful. They can last for years. Pick a good company in an unfavorable sector and it can under perform for years. Gold sector is a good example. There are a lot of quality gold plays that are super depressed for years.

But I am here for the long term.

Year, right. The best excuse of a 🧳 holder. Most people have a 5-10 holding period at most. And trends can last that much. So if you find yourself fighting the trend for too long, guess who wins.

  • Some financial assets are super hard to analyse. Take JP Morgan. There is absolutely no way for a regular Joe to analyse JP Morgan. Their business is so complex and they are involved in stuff that even insiders and regulators have problems to understand. Want to take a shot? I wouldn’t even try.

  • And some financial assets are just impossible to analyse. Like Bitcoin. A totally new asset class, innovative, revolutionary. There is no history and no peers to compare to. You can be a believer but that is not fundamental analysis, that is taking a shot. Trying to fundamentally analyse Bitcoin would leave you out of the life changing gains. However, looking at the price, you would have boarded the train on the numerous breakouts in the past.

  • Price reflects future expectations. Even Bezos said that they are working on quarters that are years ahead. So, to try to analyze Amazon for example, you should be aware about the prospects of the company 5-10 years ahead, not next quarter, not next year. People have issues planning next holiday. How can you envision complex systems 5-10 years ahead? Many try, few succeed.

  • Some stocks are on their own terms. Take Tesla. It boggles the mind of fundamental analysts how this company is still alive. Well, it is and it is rocking. Being more valuable than BMW, Ford or GM makes no fundamental sense. But it is.

  • Financial assets are all about supply and demand. Simple but it all comes to that. If you think company A is great but its price is flat for years (Coca Cola, cough cough), guess who is wrong. Lack/presence of demand is all it matters to drive prices. This is valid for everything. Real estate, art, you name it.

  • Public companies are not exactly public. They comply with regulation and post financial data but there is a lot going on behind curtains. Take Wirecard. Their auditors didn’t see the fraud (or closed an eye). You and me didn’t see the fraud but there are people who saw it. Insiders, friends of insiders, friends of friends of insiders etc. And they most probably traded. That’s why it is very important to look at what insiders do. Wirecard is drastic example but that happens on smaller scale all day long. Insiders know about financial statements, sales, trends way ahead of everybody else and that gets baked in…..right, in the price.

  • Macro economy is not exactly public. Few people understand the dynamics of companies. Fewer understand the dynamics of monetary policies, global trade, politics. People tend to oversimplify super complex financial systems and are very often wrong because of that. Example: “Dollar is going to 0, hyperinflation”. And I guarantee you that there is not a single person/group in the world to know all the intricacies of pricing the dollar in the global environment. Not even the FED, even though they produce the dollars.

And to finish on a positive note I will leave a few takeaways after this rant:

  • Don’t fight the trend. Simple rule is don’t buy stocks below SMA200 and don’t sell such above the SMA200. Very general rule but draws the example simple enough.

  • Look at what you know. To have a slight chance of winning, you have to have the same information as everyone else. The only such information is price and volume. All other narratives are half visible, half hidden and some are entirely hidden (Wirecard, cough cough).

  • Don’t try to understand overly complex systems. You will lose time and success will be dubious. Macro is a good example. Leave the analysis of dollar collapsing and global shadow banking systems to someone else.

  • Admit being wrong and change opinions often. With financial assets, you are ~ 50% of the time right. If you are super smart, have super edge information and technology, maybe that is 52%. Admitting that you are wrong and changing opinions when you have the data, puts the đź’°in your pocket, not being right in the majority of cases. Actually, very valid in real life too.

  • Cut losses. Related to the above. The worst thing is to have a portfolio that is -30% for the past two years and you thinking “But, my analysis is right. This will turn around”. Nothing is for sure, but chances are you will be -50% in a few more years. I am speaking of personal experience. Actually, very valid in real life too.

Thanks for reading! Happy trading/investing!