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Why Fundamentals Don’t Matter

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I don’t think there is another industry that is as opinionated as the industry of investing. Seems that you must have an opinion in order to make sound investment decisions.

Analysts go to extreme lengths to prove to you why the FTSE is going to new highs this year or why you should sell it short.worth buying, or selling short. There is only one problem with this approach:

I can prove to you anything I like.

All it requires is, well an opinion in the first place, and then the ability to apply the tools of the trade to prove to you that I am right with my analysis.

Funny old world….

Whenever I read the comments on the stocks on my stock list I find contradicting opinions on my selected stocks, the author convincing me eloquently why his opinion on the stock is the only one of merit. If for example you had believed that $PBR (Petrobras) a Brazilian oil exploration stock, was going to be a fantastic investment in Brazil you would have been seriously disappointed. Yet, last year there were many analysis lauding the stock until its demise became painfully obvious in late summer.

Hmmm, the real issue, nobody wants to face, is this: There is no such thing as absolute truth.

Why? Because everything you observe in this world has come into physical being by a thought. In other words: An idea, a thought is the origin of everything in existence.

Provided your belief in something is strong enough, sooner or later it will materialize. However, you may not have long enough to wait for this to happen and might go bust in the meanwhile.

When you choose to base your investment decisions on fundamentals you are invariably aligning with someone’s view on how the future for a given underlying is going to pan out.

You have no objective way of knowing that the opinion of your broker is going to pan out. Just as it so happens those who warned that $PBR was a weak stock even when it was going up in early spring last year, were proven to be correct,  you might have missed on some nice profits earlier on if you had taken heed of those warnings to early. From April to the end of August $PBR gave some great shorter term swing trades to the long side.

If you follow forecasts blindly you might as well throw a dice:

The question you want to ask yourself is this: Whose opinion is better the

Analysts’, or yours? Yes, I said “better”.

I know, I know, this doesn’t feel comfortable. You think that you are being sensible,  gathering all this information before you make an investment. It probably has never occurred to you that you are unwittingly squandering your inner resources your own powers of creation…

When you are choosing to follow another person’s, opinion favoring their ideas over yours you are in effect taking on other peoples’ opinions making them your own. What’s more, the behavior is a habit: You are doing this with pretty much every thing in life without noticing that you are doing this.

In other words:You are a pawn of the beliefs that others feed you.

So, I know you don’t like what I just said. It is pretty unpalatable, particularly if you have never been pointed to this issue in your thinking.

Your identification with all those things you are reading about a stock or a commodity is disabling your mental judgement. This is true as long as you are blindly following  analysis without having a system of your own. Whatever that system is, it must have been examined by you for its validity and value to you personally, because:

You alone are the benchmark.

Since the mind has the habit to go back into the past, mistakenly drawing conclusions about the future from the past, you are still engrossed in a belief that investment decisions can be based on the past performance of your fund manager, or a stock, or a share, with no regard for the fact that the past never equals the future. Wherever you are looking in the past for answers to see the future, you will inevitably be looking in the wrong place. There is always a different angle in the way things repeat. It is this difference traders and investors are blind to for the most part.

Human thoughts leave clues on the charts

While fundamentals are meaningless, they are a lagging “indicator” which you are interpreting through the skewed information fed to you by company literature, articles, CEO’s and brokers, etc. The only criterion of value to your investment and trading decisions is the management of risk, based on reading chart patterns and price action and other information.

Making decisions based on the assumption that a company is going to perform in line with your expectations is no different than gambling.

Granted, “investing” sounds more important, has more street cred than “trading”, but unless you understand that your mind is feeding you irrelevant information which has nothing, or at best little to do with the outcome of your investment strategies, you trading and investing is a from of gambling.

It is tough to face this fact:

Your ego is feeding you information which is utterly meaningless, has nothing to do with making good investment decisions, and is at the end of the day leading you seriously astray.

All the stuff you think you need to make good decisions is a giant illusion, our society has created over thousands of years upholding old beliefs of how the world works.

 Investing and trading on margin has history behind it:

The Romans used to invest and trade on margin, using forms of derivatives. They  understood leverage, but they  misunderstood the power of greed, like most people chasing phantoms of power in the erroneous belief that there was something to get in order to prove something to themselves.

The simple truth is that pretty much most of what you are being told is untrue, and based on false assumptions. It feels comfortable, because it has always been there, or so it seems. Yet in essence all you need to understand is charts, cycles and the workings of  human mind.

Free yourself from the shackles of illusion. Take the rose tinted glasses off and dare to make the dive to freedom. Finding your own truth amongst all the hype will work wonders for your investment portfolio. You might have to learn a few new things along the way, but isn’t that worth it to obtain the ultimate freedom, the one that empowers you?

In the next article I will discuss how to use information to make better trading and investment decisions.


Mercedes Oestermann van Essen is a trader, trading psychology coach and author of “The Buddhist Trader” and other books on trading psychology.  Sign up for her free course: 7 Little Known Secrets To Trading Success & Happiness HERE.

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