I have undeniably been always skeptical about how Warren Buffett's investing philosophy could endure our current investing climate. A technician at heart yet a person who are very discriminating with corporate and economic fundamentals, I do agree with Bloomberg's article entitled "Buying Like Buffett Beats Investing With Him Amid Stock Rebound ".
As investors, we always encounter the same conflict of discipline in investing the markets. We have the so-called "quants", the technicians, and the fundamentalists. With unlimited resources in the internet, investors could have the tendency to get confused on which investing discipline to follow. Having said that, I would just like to share my personal criteria for choosing an investing discipline in a specific asset class and purpose.
1. Volatility of the Asset Class
Not all asset classes are the same. Trading in equities entail different stop loss orders compared to trading the USD/GBP currency pair. Usually it is a matter or my personal preference to put tighter stops in trading more volatile asset classes. With the enormous liquidity in some of the most volatile asset classes, like commodities and currencies, the tolerance of a paper loss should be more discriminating as sudden loss in capital is quite a big normal for positions that are opened in these certain instruments.
2. Duration of Your Position in that Specific Asset Class
If your investment objectives include holding a particular position for a maximum of 3 months, it is definitely very remote to succeed using fundamental analysis in this time frame. A lot of you guys might object with my position on this but do we consider investing in a market hype on that company that had a new acquisition an investment based on market fundamentals or market sentiment? I would assume 3-month positions also include market timing and because of this, technical analysis is what I believe what suits this situation as technical analysis study the result(price) of the interaction between supply(sellers) and demand(buyers).
3. Capital Requirements
Your capital dictates how well-diversificated or dedicated your portfolio should be. My personal believe is that diversificating and dedicating capital to various asset-classes should be mainly dictated by how extensive one’s investing knowledge and objectives is. If one prioritizes capital appreciation more than capital stability, currencies and emerging market equity market ETFs work best with each other. On the other hand, if one seeks capital stability more than capital appreciation, inflation-protected treasuries combined with blue-chip low-beta equities work better than investing in commodities and currencies alone.
Link:
http://www.bloomberg.com/apps/news?pid=20601213&sid=aQ0n7_eiINkQ
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