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I generally agree with Richard Estes regarding the value of fundementals,
however, there is a perspective where I believe fundementals add value. That
perspective is an actuarial view.
Just as insurance companies segment a market to exclude high risk clients, a
speculator or investor can segment a market to exclude (or include) high risk
(or high return) trades. In James O'Shaughnesey's study of "What Works on
Wall Street", the author evaluated various fundemental parameters against
historical returns. My reading of this study indicated that stocks with a low
price to sales ratio and a high relative strength represented a segment that
generally outperformed the market.
I use price to sales and relative strength to identify a market segment and
then use technical analysis to select prospects from this segment.
Unfortunately, I lose money more often than I would like using this approach.
FWIW
Dan Harelson
Pocatello, ID USA
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