Investing in Shares 101: 2 Value Investing

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Security Analysis 1934 Feature

Dr Tony Stewart is a scientist and analyst by training. He has run a strategic market research business and has an extensive background in statistical analysis. At the beginning of his investment career, he read widely and undertook courses on investing run by the Securities Institute of Australia. He has invested in the Australian stock market for thirty years.

ORT_Logo Breadtag Sagas ©: Author Tony,  1 October 2021

Investing in Shares 101: 2 Why Value Investing?

Approaches to Investing in Shares

1 The Bogus Concept of a Free-Market

Unfortunately, there is a lot of ideology involved with stock markets. This is primarily associated with the wealthy trying to assure themselves and others that whatever they do to acquire their wealth is honest and good for us all. Much of this ideology is associated with the concept of the free-market, which has been around for a long time.

Fitzherbert, quoted in article 1 Basics, criticises the academic theories (espoused even by nobel laureates) called efficient-market theories from the 1970s and 1980s (based on free-market ideology). The efficient-market theories were debunked by the early 1990s, but have continued in different guises under the banner of neo-liberalism. They are nonsense!

Now, I’m not suggesting you abandon your political beliefs or change your dinner party conversation, or your detailed knowledge of economic theory. I don’t want to interfere with your outside life.

I mentioned Dr Turf in 1 Basics. Whenever you engage in buying or selling shares, or anything to do with the stock market, just don’t put a pumpkin on your head. It makes it too hard to see!

Leave the free market or efficient-market theory for when you are bullshitting with your mates.

Also continuing with the horse racing analogy, if you want to speculate on daily swings in the market, getting out and going to the racetrack is probably healthier.

2 Charting or Technical Analysis

Charting or technical analysis is still practiced widely and to the uninitiated appears to be a sensible approach to share trading based on mathematics or statistics. It is not!

Charting is nonsense. It is nonsense because of the near randomness of daily transactions on the stock exchange and our inability to predict the movements of individual shares with any confidence. Hopefully, when I talk about Nicholas Taleb and black swans below it will all become obvious.

I think of technical analysis in the same way as I think of homeopathy. Homeopathy is widely practiced in our communities as alternative medicine, but it is incapable of doing good or harm because of Avogadro’s number. The dilutions in homeopathy go beyond the capability of there being any active molecules left in the solution on which the medications are based.

3 The Value-orientated Approach

Graham & Dodd

The value-oriented approach has been around forever, but the most famous exponents in the US are known as the superinvestors, an approach pioneered by Benjamin Graham and his colleague David Dodd in the USA. They wrote a famous book called Security Analysis in 1934. (There are other similar investors elsewhere around the world.)

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Posted In Canberra in Pandemic Lockdown

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