I have spent my whole life using charts, but suppose they don’t work. There is no reason why they should. The famous example is tossing a coin. No matter how many times you get heads the odds are always 50:50 the next time you toss the coin.
Not believing in charts is liberating if you are pursuing a strategy of $-cost averaging because you can buy into the most terrifying chart patterns and brutal collapses like that which took place on Friday become buying opportunities. You don’t need to figure out what Jensen Huang’s problem with his relationship with an alleged Chinese spy mean for Nvidia shares. They just present another buying opportunity.
Bad news of any kind, which is not a decisive game changer for the business, always presents another buying opportunity.
Shares, en masse or individually, have sell-offs. When they do the charts look bad but time and again the bear phase is temporary and the shares recover their mojo again. Alphabet/ Google is in the wars presently.
The chart looks terrible, but is Google a busted flush. I don’t think so. Microsoft shares took a hammering recently but have recovered and in general the mega caps seem pretty indestructible. That said there are some ugly looking charts in the AI trade so if you want to wait for buy signals that is an option. The fact is that charts look ugly until they don’t so if you want to pay no attention to the charts that is a perfectly viable strategy.
If you decide not to consider charts or price action in your deliberations it is all about having faith in the fundamentals of the shares you have chosen. As long as you have reasonable grounds for believing that the business has an exciting future that is all you need to know. in those circumstances it might even be best not to look at charts; just believe that strong downward moves are ultimately buying opportunities.
Charlie Munger used to say that long-term holders in almost any share, and he meant seriously long term, decades not years, should anticipate several episodes when their shares fell 50pc or more. This is the case now for many shares but the volatility takes place in more concentrated time periods and fall can be much more severe than 50pc, perhaps understandably so when we look at how dramatically shares can rise in markets, where revenues are growing by 100 per cent plus a year and improving profit margins mean even more dramatic rises in profits and free cash flow..
Strategy – Buy And Pray; Buy More And Pray Harder
$-cost averaging is an incredibly powerful strategy. Do it as though you mean it and final victory should be almost certain.
