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Are You a Speculator?

Consider this excerpt from Mark Croskery, a wealth manager at NCB Capital Markets Limited.:

Benjamin Graham, who believed in buying wonderful companies at a fair price rather than a fair company at a wonderful price, defines an investor as “an individual whose investment provides two quantitative qualities – safety of principal and an adequate rate of return.” There are many intricacies within business ownership investments, but does everyone in the stock market consider these particulars when investing in business ownership? Of course not, because not everybody in the stock market is an investor. Individuals who desire to become investors must enter the arena with goals that have a long-term investment horizon. Warren Buffett, a global financial market guru and head of Berkshire-Hathaway, puts it best when he says: “It’s bad to go to bed at night thinking about the price of a stock. We think about the value of a company and the company results; the stock market is there to serve you, not instruct you.” Hence, an investor does not buy a price and will not be affected by the ups and downs of the market. A sound investor buys well-managed businesses, with strong earnings growth and significant barriers to entry that will provide long-term security. A ‘purchaser of price’ is a speculator; a ‘purchaser of solid businesses’ with sound fundamentals is an investor.

First, how can anyone say the statement in bold above? Isn’t this more of a pipe dream than reality? How many companies in the last 6 years have these traits, but still have the share price not go up?

Second, how does Buffett value currencies? If you are going to use fundamental analysis in your trading decisions (and Buffett does) it seems that stocks and currencies would require a much different analysis. There is no business to analyze when trading currencies. Trend followers of course ignore the fundamentals and trade the price action instead.

Gary Anderson of Equity PM goes after the skeptics of price-based trend following:

Skeptics hold that operations based only on observed price changes cannot succeed. Markets are moved by news, they argue, and since, by definition, news cannot be predicted (or it would not be news), price movement cannot be anticipated. It is a short step to conclude that price data are not linked and that price series follow a random walk. Skeptics fail to take into account that price activity is also news. As we have noted, traders respond to news of price change, just as they respond to other sorts of news. By their collective response traders forge causal links between past price data and current price movement. Price data are linked because traders link them.

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