Magazine article Management Today

The Dubious Art of the Chart

Magazine article Management Today

The Dubious Art of the Chart

Article excerpt

On the whole, successful investors have little truck with technical analysis. Alistair Blair casts a sceptical eye over a practice many believe has as much credibility as astrology

Most people chuckle at the suggestion that by looking at a share price chart, you can forecast whether the next move will be up or down. Yet 'technical analysis' has thousands of adherents, one or two of whom are as wealthy as Croesus.

The Society of Technical Analysts counts 600 members. It's a safe bet that only the barest handful would be seen dead across the table from an astrologist. Yet many serious investors consider astrology and technical analysis as being from the same, batty, stable. Here's John Train, renowned investment writer (and no mean investor) on the subject: 'It is not knowable from what a stock did last month or last year how it will do next month or next year... pronouncements on the subject are tea-leaf reading; fakery.'

Alternatively, consider this other view: 'If I were on a desert island and allowed just one investment tool, it would be the chart', the verdict of Anthony Bolton of Fidelity Investments. One of the UK's most successful fund managers, Bolton is a fundamentalist at heart. But he still doesn't make any form of investment unless he reads the chart as pointing upwards.

It's easier to find successful investors who don't subscribe to technical analysis Warren Buffett and George Soros for a start - than ones who do. But look hard and you'll find some impressive accomplishments on the technical side of the fence. According to Managed Accounts Review, a journal which monitors the performance of hundreds of US trading funds over a five-year period up to 1991, Mr Monroe Trout achieved an annual average return of 67%. Subsequently, his performance slipped but it's nothing that you'd sniff at: in the four years to May 1996, he averaged around 16% a year across two funds. And he rarely loses any money: only in about one month in 15.

Vic Sperandeo, another US trader, clock-ed up an average annual gain of 72% over the 18 years to 1989. He had no down years. It would be a hard judge who said his 1990 result - he lost 35% - invalidated what went before. For years, the US investment journal, Barrons, audited the results of Gil Blake, a private money manager who looks after $50 million on behalf of a small number of clients. Since 1980, he has made an average annual return of 42% and has never made less than 15%. …

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