Investing with the Trend: A Rules-based Approach to Money Management

Chapter 9Why Technical Analysis?

Technical analysis offers an unbiased truth about the markets.

If one is going to follow and utilize a particular discipline, hopefully they have done a thorough investigation as to the benefits and pitfalls of that discipline. I share a short story from the mid-1970s, a period of my life when I was a Navy fighter pilot, and, of course, knew everything. I had a few thousand dollars that I wanted to invest. I honestly can’t recall my source for research, but I’m almost positive I didn’t pay for any of it; probably a trip to the Public Library and probably the Value Line Investment Survey. This is a giant black ring binder with a single page dedicated to a single stock in the Value Line universe of about 1,700 issues. I know the research was quite thorough and it probably took me a few months to even work up the nerve to actually speculate (I called it invest back then) in the market. I don’t even recall the small brokerage firm I used, but I do remember that discount firms were being talked about but none were in existence then (I think). There was no FNN (Financial News Network), CNBC, Fox Business, or Bloomberg television in those days.

My research efforts involved the typical fundamental review looking for stocks that met a host of different criteria using ratios such as price to earnings, price to dividend, price to book, and so on. I do know that the price to sales ratio had not been created yet. I think it was developed by Ken Fisher in ...