By John Rekanthler, president of online advice, Morningstar Inc.
Oh, those charts! Many investors hold a supernatural faith in the wisdom imparted by squiggles and jiggles, as if a stock were struggling to tell a story via semaphore. Close your eyes. Forget about 90-day moving averages, breakout moves and the like. They don’t work. Or more accurately, they do work — 50 percent of the time. The other 50 percent, the stock heads in the opposite direction from what the charts predicted, which is just what you would expect from a random event.
Where to start with the Morningstar author’s advice?
- Babe Ruth taught the 50% accuracy fallacy.
- Trend following can’t work? Ed Seykota must not be real.
- Trend following is not prediction or chart gazing.
Feel free to forward us other interesting news bits that show ignorance and assist in teaching trend following. It’s all about education.
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