Getting Technical

Is your head spinning yet?

There are several reasons why I am not a proponent of fundamental analysis. First of all, it is just too much information to process if investing is not your full-time job. It requires an enormous amount of research, time, effort and energy. And just when you think you know everything there is to know, you find out there is more to learn.

What's more, the data used in fundamental analysis -- such as earnings announcements and economic reports -- are often old news by the time they're made public. In fact, the primary weakness of fundamental analysis is the lack of clear timing indicators.

Secondly, it's well known that about 80% of stocks move with the broad markets -- regardless of whether they are great values or not. So having a strong grasp of a company's fundamentals does not necessarily translate into great investment results.

In the Know

But perhaps the biggest drawback of all with fundamental analysis is that the markets are influenced by many unknown -- and unknowable -- factors, including world news, natural and man-made disasters and investor psychology. As the saying goes, "What you don't know can hurt you."

Technical analysis, on the other hand, involves a completely different paradigm.

Technicians -- also known as technical analysts -- hold that there's safety in numbers. As such, they primarily focus on two questions: What is the current price, and what is the history of the price?