Warren Buffet Not a Fan of the Charts - Agree or Disagree? | Forex Factory

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Warren Buffet Not a Fan of the Charts - Agree or Disagree?

  • #1
  • First Post: Jan 22, 2018 2:57pm Jan 22, 2018 2:57pm
Buffett once remarked, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer."

"But Buffett discovered one small problem. Technical analysis didn't work. He explained, "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer."
After eight years of trying, he concluded that it was the wrong way to invest.
Do you agree or disagree?
Goal of a successful trader is to make the best trades. Money is secondary
  • #2
  • Jan 22, 2018 3:07pm Jan 22, 2018 3:07pm
Quoting Forexpinbar
Buffett once remarked, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer." "But Buffett discovered one small problem. Technical analysis didn't work. He explained, "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer." After eight years of trying, he concluded that it was the wrong way to invest. Do you agree or disagree?
Agree 99% with what he says.
Apart from a few "technical analysis" such as historical high/lows and momentum. I'd agree that technical analysis largely dont work.
I look for value wherever it can be found
  • #3
  • Jan 22, 2018 3:12pm Jan 22, 2018 3:12pm
well.. that does not mean he knows how to use them. can he know if they do not work? i say it's possible and sure probable but it is definitely not certain.
  • #4
  • Edited 5:03pm Jan 22, 2018 3:51pm | Edited 5:03pm
As far as I know, Buffet is a long term trader (actually, investor) that's where the fundamentals are best. According to my understanding the technicals can be used for long term investing but it's not better in predicting the market than the fundamentals.
Technical analysis is better used for short term trading. Fundamentals is better for long term investing (and as it is long term, it's called investing, not trading!)

I could be wrong so take nothing that I have written as 100% true.

Edit: then we also have to define what means long term. is it 1-2 years or several years?
  • #5
  • Jan 22, 2018 4:01pm Jan 22, 2018 4:01pm
Buffet is an investor, not a trader. Makes sense that he would say that. Apples and oranges.
  • #6
  • Jan 22, 2018 4:09pm Jan 22, 2018 4:09pm
The only real difference between TA and FA is that one looks at trends in price and latter observes trends in financial reports and earnings. Any study of trends will be correct sometimes. They both work, just not all the time.
  • #7
  • Jan 22, 2018 4:40pm Jan 22, 2018 4:40pm
Interesting points about the difference between investing, trading, and buffett not knowing how to use TA.

To make a case for Buffett. I have never seen or heard of any hedge funds and/or fund managers using TA to trade.
I have also not seen much fund managers/analysts on Bloomberg basing their trade recommendations and/or analysis on TA.

Wall St, where big money is, almost fully uses FA. With the occasional TA used to support the fundamental ideas.
Anecdotally, we see almost fully TA on retail trading forums.

If TA was really profitable, shouldn't we see lots of exclusive TA hedge funds and fund managers?
I look for value wherever it can be found
  • #8
  • Jan 22, 2018 4:43pm Jan 22, 2018 4:43pm
Quoting waverhythm
As far as I know, Buffet is a long term trader (actually, investor) that's where the fundamentals are best. According to my understanding the technicals can be used for long term investing but it's not better in predicting the market than the fundamentals. Technical analysis is better used for short term trading. Fundamentals is better for long term investing (and as it is long term, it's called investing, not trading!) I could be wrong so take nothing that I have written as 100% true.
Hi, I agree with you. There is a HUGE differences that are over looked between trader and investor. Investors generally would have a 'buy' bias as the instruments they choose, for example the S&P500 Index. If you have invested in the S&P 500 index before 1996 to now or 2009 to now YOU would have made money. Things like equities will tend to gain intrinsic value over time. Now traders maybe cant be bothered waiting 5, 10 or 20 years so they choose instruments that move faster, but as a compromise these instruments do not gain intrinsic value over time. So like the EUR/USD, over that same period it dipped up and down returning to the value YOU would have bought it at if you geld it like an investor. So traders have to get out before it returns to their buy or sell price and technicals can give some warning in my opinion. Furthermore, these instruments chosen would have no increasing intrinsic value as it is fiat related, it just a word that sais that something has value so if the word is not taken seriously anymore, any USD that I held for example would be worth 0. If I had a company or a product, it still would have some value or bartering potential. This is all my opinion and should not be taken as trading advice or taken as 100% correct.
Finally, Ofcourse Warren will see NO difference if he turns a chart for something that has intrinsic value upside down (guessing it is what he is mostly looking at) as it most likely will only go up over the LOOOOOOOoooooooong term. Now if you show him a chart for crypto or some exotic forex pair, I am sure he will see it going 2 ways. Long story short, I disagree and agree with warrens comment as the CONTEXT is very important. He didn't specify what group (or type: Forex, equity, times he ate a McMuffin) of charts he was looking at.
Kind Regards,
Tzamo
"Work hard, put in the effort, and follow your dreams..." -Me
  • #9
  • Jan 22, 2018 8:42pm Jan 22, 2018 8:42pm
Chart is the price's historical data.
  • #10
  • Jan 23, 2018 3:42pm Jan 23, 2018 3:42pm
Quoting synicz
If TA was really profitable, shouldn't we see lots of exclusive TA hedge funds and fund managers?
The reason for this is because TA is generally more effective as a short term strategy. For the long term, fundamentals are superior. Because large fund managers cannot dart in and out of stocks like this, TA is generally less useful to them. They move way too much money and would move the market too far just by entering and exiting their positions. That would cause them a ton of slippage and result in losses. Retail investors are nimble enough to use short term TA techniques to profit in this manner because of their small $$$.
  • #11
  • Jan 23, 2018 4:11pm Jan 23, 2018 4:11pm
Warren Buffet meant to say technical analysis does not work for him. (He is a fundamental analyst) It does not apply to someone who knows how to read charts right. Focus more in price action maybe someday you might see the light.
  • #12
  • Jan 23, 2018 6:02pm Jan 23, 2018 6:02pm
Interesting to note your points and many other comments here backing TA. I will attempt to rebuttal them as I am a huge proponent of FA.

Quoting RondaRousey
{quote} Buffet has also admitted to being wrong. Especially on great stocks like Apple, Microsoft, Google and Amazon. The charts do not lie that they are great stocks. Stocks he regrets not owning. Just to show that you can be wrong and make a mega fortune
Hmm... Im pretty sure that I an almost everybody else will rather be wrong and make a fortune than be right and lose money.

Quoting Madinvestor
{quote} The reason for this is because TA is generally more effective as a short term strategy. For the long term, fundamentals are superior. Because large fund managers cannot dart in and out of stocks like this, TA is generally less useful to them. They move way too much money and would move the market too far just by entering and exiting their positions. That would cause them a ton of slippage and result in losses. Retail investors are nimble enough to use short term TA techniques to profit in this manner because of their small $$$.
Then again, assuming that MOST retail traders rely largely on TA (An inference that I made while lurking about trading forums). And the famous notion that "95% of all retail traders are unprofitable"...

Regarding all the comments stating FA is for long-term investing while TA is for short-term trading.

I don't see proof that FA can't work in the short term. A famous example is Geoge Soros breaking the BoE. He based his trade on FA and reportedly pocketed 1 billion dollars in a single day. If thats not short-term then I dont know what is!
On the flip side, i dont see any full time retail trader who rely on TA...
I look for value wherever it can be found
  • #13
  • Jan 23, 2018 6:58pm Jan 23, 2018 6:58pm
Quoting synicz
I don't see proof that FA can't work in the short term. A famous example is Geoge Soros breaking the BoE. He based his trade on FA and reportedly pocketed 1 billion dollars in a single day. If thats not short-term then I dont know what is! On the flip side, i dont see any full time retail trader who rely on TA...
FA can definitely work in the short term as well, but I just mean it's generally less effective as short term strategy because typically time is a large factor in letting a fundamental prediction unfold. That's why you won't find any day traders that rely solely on on FA. FA generally does not clearly define when to enter and exit a position. Often times, it does not very clearly define risk of a particular position either, and instead relies on managing the risk of the overall portfolio.

Most retail traders are unprofitable regardless of approach. It's just a damn hard way to make money.
  • #14
  • Jan 23, 2018 7:08pm Jan 23, 2018 7:08pm
Quoting synicz
Interesting to note your points and many other comments here backing TA. I will attempt to rebuttal them as I am a huge proponent of FA. {quote} Hmm... Im pretty sure that I an almost everybody else will rather be wrong and make a fortune than be right and lose money. {quote} Then again, assuming that MOST retail traders rely largely on TA (An inference that I made while lurking about trading forums). And the famous notion that "95% of all retail traders are unprofitable"... Regarding all the comments stating FA is for long-term investing while...
That's because full time retail traders are too busy making money from people who incorrectly apply TA and FA to bother teaching them how to do it properly. They need to be in synergy. When trading TA; you already understand what the FA is. When trading FA; you already understand what the TA is. Warren Buffet does use TA. He just doesn't base his decisions on it because he already understands how it works.

I am also pretty sure he never actually made the referenced statement. A more accurate statement from him regarding TA is: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." That is TA. Price.

Another statement he made regarding TA is "The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, 'Swing, you bum!,' ignore them."

It's also why everyone who is trading technicals profitably will laugh at you for attempting to pick bottoms and tops. TA is about finding the sweet spot.
"The fun is in the hunt. Not the kill."
  • #15
  • Jan 23, 2018 7:28pm Jan 23, 2018 7:28pm
Quoting synicz
Interesting points about the difference between investing, trading, and buffett not knowing how to use TA. To make a case for Buffett. I have never seen or heard of any hedge funds and/or fund managers using TA to trade. I have also not seen much fund managers/analysts on Bloomberg basing their trade recommendations and/or analysis on TA. Wall St, where big money is, almost fully uses FA. With the occasional TA used to support the fundamental ideas. Anecdotally, we see almost fully TA on retail trading forums. If TA was really profitable, shouldn't...
From what I've read and heard everything you've said here is basically 100% correct.

Having said that, I know one FX trader who uses TA, and runs a private fund that is very consistently profitable (more here).
Tom Dante is a well known ex-prop trader who uses TA and trades for a living.

I also know a couple of other FX traders who use predominantly FA and have been profitable for several years.

Of course WB invests in equities, not FX. He buys when he believes that value > price, as indicated by his famous quote. However, he is not infallible.
  • #16
  • Jan 23, 2018 8:33pm Jan 23, 2018 8:33pm
Quoting dkrock
In my opinion, FA is investing. It has no entry nor exit point, unless your initial entry is on a news release. Then you sit and watch the paint dry. It is like investing in real estate or land. It takes a long time. It is retirement income, not daily income. It is about "guessing" on a long term move without any prior knowledge of the data behind the move. In the case of "investors" like Buffet, they buy commodities and sit on them for 50 years. While he might not pay attention to TA, you can believe his partner is doing that work for him. While...
I consider FA in currencies to include changes in short-term sentiment and identifying when people are over-reacting emotionally or failing to react because of their emotiona. Money is directly tied into survival for most people and invokes such primal responses. People are fundamentally irrational and tend to have abhorrent control over their amygdala. It's such a stupidly simple concept that never fails to provide a reliable edge. Scared money never wins.
"The fun is in the hunt. Not the kill."
  • #17
  • Jan 23, 2018 9:00pm Jan 23, 2018 9:00pm
Quoting dkrock
{quote} I don't need FA to see that. I should state that I am an intraday trader. FA is useless to me. A time frame is just a time frame, so I can trade the small ones over and over and over and over and over. When FA is released, I am sitting out of the market until the stop hunts finish and my tools reset their measurements. Then I go back to chasing buyers and sellers. My only interest in FA is tracking what time it is released so I am not in the spikes. Sentiment changes 2-3 times a day on average, with 4-8 profitable direction changes, so why...
I trade intraday as well. I just find it makes reliably juicy swing trades at times when the news isn't expected. Trump is my hero(though, by now, people really should expect anything from him).
"The fun is in the hunt. Not the kill."
  • #18
  • Jan 23, 2018 9:16pm Jan 23, 2018 9:16pm
@hanover
Thanks for showing me profitable TA traders. However I have my reservations on their legitamacy...
Nothing wrong with your suggestions but it is just the nature of this industry which makes me very skeptical and critical.

I would reject the notion that FA cant be used on currencies. It certainly can. But IMO the kind of FA being taught on the sites such as babypips are too diluted and simplified.

@dkrock
I see your view regarding TA & FA. However, I digress with your understanding of FA.
As I stated before, FA can be used to identify short-term trades. FA is NOT just for 500 year long investing.
Based on your description of FA, it is akin to me stating that TA is simply Fib numbers, RSIs, MAs, and doubletops formations, and 5m chart trading on FX.
However, we shant get into a debate on what constitutes TA & FA.

i understand and respect your ability to profit off TA easily. However, you have yet to provide or cite any form of justification regarding the "uselessness" of FA.

Maybe we should replicate the Buffett-Hedge Fund bet?
10 years, TA retail traders versus currency funds. Probably not 1 million. Lol
I look for value wherever it can be found
  • #19
  • Edited 9:50pm Jan 23, 2018 9:20pm | Edited 9:50pm
Quoting synicz
@hanover Thanks for showing me profitable TA traders. However I have my reservations on their legitamacy... Nothing wrong with your suggestions but it is just the nature of this industry which makes me very skeptical and critical. I would reject the notion that FA cant be used on currencies. It certainly can. But IMO the kind of FA being taught on the sites such as babypips are too diluted and simplified. @dkrock I see your view regarding TA & FA. However, I digress with your understanding of FA. As I stated before, FA can be used to identify short-term...
Shit... Give the right setup and leverage and you can outdo a 10-year currency fund in less than a month with TA.
"The fun is in the hunt. Not the kill."
  • #20
  • Jan 23, 2018 9:30pm Jan 23, 2018 9:30pm
Quoting Redeflect
{quote} Shit... Give the right setup and leverage and you cannot outdo a 10-year currency fund in less than a month with TA.
You meant can*?

Well, many people can beat a currency fund in the short-run. Just look at those FX competitions! Ridiculous gains!
BUT are they able to do it over a 10 year period?
I look for value wherever it can be found
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