I see this debate all of the time….proponents on both sides raging back and forth about how one is better than the other.

Fundamental investors can be quick to say that technical analysis is nothing but squiggly line, voodoo, which has no bearing on whether a stock is going to go up and down in the future.

Technical investors and traders will tell you that you might not want to buy a stock that is a great value, a great business, but is cheap and will continue to get cheaper, because the technicals are telling you that. Many technical analysts don’t even care or want to know what a company does.

What is the answer? Who is right?

Who cares.

That’s my opinion. Both fundamental and technical methods totally, 100%, have merit. I use both to my advantage and could care less about whether one is better than the other.

To say that Fundamental Analysis is garbage and a waste of time…that the price and volume are all that matter is a complete generalization.

To say that Technical Analysis is nothing but a waste of time trying to use price and volume to predict the future and completely worthless is also a generalization.

When someone says something like this, they are closing themselves off to a different viewpoint because they have already made the decision in their own minds.

They are making a generalization, stereotyping, discriminating.

However, if you could prove an exception to each case, or even better…multiple exceptions to each case, that disproves and contradicts those comments..

Before I dive into this debate head-first, let’s quickly define both methods.

Fundamental analysis (FA) is a method of measuring a security’s intrinsic value by examining related economic and financial factors. Fundamental analysts study anything that can affect the security’s value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company’s management.

The end goal is to arrive at a number that an investor can compare with a security’s current price in order to see whether the security is undervalued or overvalued. [1]

From Investopedia

Examples of successful technical analysis traders

Wouldn’t it make sense that if one could point to technical traders who are successful, year after year, decade after decade…that their methods using primarily technical analysis can’t be a fluke?

I would say so.

Take Peter Brandt for example. Here is someone who has been a successful trader for over 4 decades. He’s a classical chart trader who uses stock patterns to rack up gains, year after year.

He will tell you, when he takes a trade, he doesn’t know whether it will work out or not. He can’t predict the future (news flash: nobody can), but he is making an educated guess, a hypothesis about what he thinks has a solid chance of happening. Does he have losses? Yep, all the time. He takes small losses on a regular basis.

One might think that since a technical trader can’t predict the future on each individual trade with their charting analysis (which is completely true) that technical analysis is completely worthless. However, though h a successful trader might not be able to predict the future on an individual trade, when you take into account the fact that he is profitable over time, after many trades, thousands of trades, tens of thousands of trades….then you can see that his methods work.

He might not know where an individual trade might go, but he knows that over time across many trades, he is going to be making money on a consistent basis, year after year.

Peter isn’t alone. There are a ton of other traders just like him, using different methods, but each coming up with their own way to trade the market using technical analysis. A great way to learn more about great traders is through the book, Market Wizards, by Jack Schwager (Peter is one of the highlighted traders).

Examples of successful fundamental investors

The most famous fundamental money-maker of all time is Warren Buffett.

Though he comes across as a folksy, simple and plainspoken man, he is wickedly smart, with the ability to analyze a company’s “intrinsic value” and make a judgement whether the stock is over-priced or under-priced relative to what he believes the business is worth.

If it is significantly under-priced by the stock market, has great management, a great brand name, perhaps in a boring industry that quietly makes money hand-over fist…he would likely be interested in buying.

Some of his long-time holdings include Coca Cola, Geico Insurance, American Express, Wells Fargo. He recently (in 2016) even started buying shares of Apple (better late than never, I guess).

He has a long-term time horizon too. He has held stocks for decades, often buying 100% of the outstanding shares of a company and integrating them into his conglomerate, Berkshire Hathaway.

If a company is doing well and continues to grow, his holding period is “forever”. That’s a mighty long time horizon!

Several other famous fundamental investors are John Templeton, Peter Lynch and Carl Icahn. If you aren’t familiar…google those names. Hard not to be impressed with their track record.

Who is right? Both are!

One key takeaway here is that both sides are successful.

As a matter of fact, both sides share similar characteristics!

One of the main ones is a long-term time horizon.

For example…everyone thinks that a technical analyst is a day-trader. While that can be true, there are a ton of technical investors that trade a chart with the intent for the trade to take place and “work out” over the course of months, or even years!

Even if a trade that Peter takes might be very short term, his outlook is long term. He’s looking past each individual trade, knowing and trusting that when all of the trades are added up over the long term, he is likely to come out ahead…way ahead.

Warren Buffet might hold a trade that is under-water for years. He doesn’t care. He knows that over time, the market will eventually come to recognize the value that he sees and eventually the stock price will be pulled up towards the intrinsic value of the company he invested in.

Peter Brandt and Warren Buffet both have long term time horizons. They both follow a system, a method that they know and trust. They both use risk management. Peter will set tight stop-losses and get out of a trade that doesn’t go his way and Warren has confidence to know that his trade is low risk by purchasing a company WAY below the market price.

I combine both Technical and Fundamental analysis

My method over the past 3 years has been to buy fundamentally sound companies that also have solid technical chart patterns.

In addition, I’ve added a bit of a 3rd area that I focus on, which is to make sure that a company has something else going for it….a new catalyst that has not been reflected much when analyzing the fundamentals or the technical charts.

As a matter of fact, I think this has been one of the keys