When Charts Collide With Common Sense!!
Let’s start with a little wisdom:
"Investing in shares is an art, not a science."
In the vibrant world of stock market analysis, the debate between fundamentalists and technicians has been ongoing for ages. It’s like an old comedy act— remember Laurel and Hardy — but with a lot more financial jargon firmly planted on the space.
The fundamental analyst is akin to a seasoned sage, armed with balance sheets and income statements, whispering tales of profit margins and debt ratios. These are the experts who can discern whether a company is a goose ready to lay golden eggs or just another lame duck.
Fundamental analysts are like doctors, constantly monitoring a company's health. They delve into financial reports, gauge earnings, and even probe management’s mindset, all in an effort to foresee whether the company has a prosperous future ahead.
And technical analysts? I feel they are the share market’s version of Sherlock Holmes. These sleuths who examine charts with the intensity of a detective -- analyzing every candlestick pattern. They’ll spot a head and shoulders pattern and proclaim, "The stock is about to soar—or maybe crash—depending on how they look at it!" They proudly flaunt themselves as the master of understanding the rhythm of the market
In this context let me share a little story about two stocks: Sakuma Exports Ltd (Rs.8.39) and Sarthak Industries Ltd (Rs.24.63).
When Sakuma was around Rs.10, a technical analyst confidently pointed to the chart, interrupted me in between and said: "This stock could soar to Rs.12, since I glided through candlestick patterns and moving averages".
"See that trendline?"
"It’s pointing to a perfect pirouette to Rs.12!", he quipped staring at my face.
Meanwhile, I’m standing in the wings, holding the voice of caution, advising against it.
"Don’t put your money on Sakuma it looks highly overvalued at the CMP," I warned, time and again, "this rally might just be a mirage."
And then what happened?
The stock never took the leap to conquer Rs.10 on the upside, leaving our chart-loving friend staring at his screen, possibly questioning his career choices.
On the flip side, while the former looked to be costly, the case of Sarthak Industries Ltd (Rs.24.63), is just its mirror image; after it recently reported strong results for the June 2024 quarter. But did anyone notice? Not really!!
This happened, even though I gave a brief review of the company on this blog -- ironically, traders and investor, chose to ignore my words. Probably they will buy when stock will hit Rs.40. It’s like the Suzlon Energy saga all over again. I recommended Suzlon at Rs.6.10, but my advice fell on deaf ears of the investors, some even questioning me about the debt of the company. The stock has already soared to Rs.81+. Suddenly, everyone’s on board! The irony is thick enough to slice with a knife.
Conclusion: In the grand arena of stock investing, fundamental analysis is like a skilled trapeze artist, calculating every move with precision and foresight. Technical analysis, on the other hand, often resembles the clown car—entertaining, unpredictable, and sometimes downright perplexing.
Sure, technical analysis might give you a quick thrill (or a moment of despair), but true investing requires you to be both an artist and a visionary, with enough common sense to sidestep the pitfalls on the trading floor.
So, before you put your trust in the next chart that promises the moon, remember: stocks are more than just lines on a graph—they’re the unfolding stories of businesses.
Finally, I reiterate when you’re deciding where to invest your hard-earned money, keep in mind: it’s not just about what the charts are saying; it’s about the future narrative a company is crafting, and whether or not you believe in that story.
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