Page 94 - THE MARKET WHISPERER

92 PART 3 - Market Analysis Fundamentals

price trends are random is unthinkable. Random walk theory claims that
it is impossible to overcome market indices and that one would be hard-
pressed to explain the success of famous investors such as Warren Buffet
and Peter Lynch. Their claim, therefore, includes me and my successful
trading colleagues. A well-known standing joke concerning “efficient
market” theories charmingly points to its inherent Achilles’ heel:

Two lecturers on economics see a $100 bill lying on the sidewalk. One
bends down to pick it up, while the other says, “That’s ridiculous. There’s
no way a $100 bill is just lying there. After all, someone else would have
picked it up long ago!”

According to the Efficient Market Hypothesis, someone else certainly
would have picked it up long ago, but there it is! Keep in mind that at the
basis of both theories, random walk and technical analysis, is the premise
that the market manifests all market factors. The difference between these
two approaches is that proponents of the random walk see the market
as embodying all information at high speed, therefore no one has any
advantage in the market, whereas technical analysis claims that important
information manifests in the market far earlier than is known to the
general public.

Gambling, Anyone?

Well, this isn’t actually a method. It is actually the mode of conduct of
the public, which rushes to the stock exchange at its peak and flees at its
slump. It is the behavioral norm of the public that generally loses money
on the stock exchange. It is also sometimes the approach of inexperienced
traders who do not operate according to the most basic trading rules, and
do not believe in the principles they have set for themselves. Watching
such traders from a distance, the observer may think they are real pros,
but the dwindling account of such traders tells the true story. Even as a
novice trader, be a trader, not a gambler. A sheep dressed in wolf’s clothing
is still a sheep inside.

Fundamental Economic Analysis Versus Technical
Analysis

This long-standing dispute began when the first analyst drew a line
between two points representing a stock’s price changes over the axis of
time, thereby creating the very first price graph.

The essence of the dispute is whether to buy a stock based on company
and market performance, such as the company’s balance sheet, or based