And the richest people would be librarians

Hello all,

Today’s post will be slightly different. Without going into details, I was asked a question some time back, and I would like to share my answer with you all. It is related to technical analysis so that is why I am posting it here. All comments are welcomed, and I have a slight feeling I may get some flak!

If past history was all there was to the game, the richest people would be librarians.” – Warren Buffet.

My thoughts (response):

First, I must say that I respect Warren Buffett for the success he has garnered from investing. No one will know exactly what the exact secrets are to the billions of dollars that Buffett has amassed solely from investing. However, I cannot agree with him on his statement, as shown above.

I do understand that many teachers of technical analysis use charts from the past to teach and prove to their students that technical analysis works. People from the fundamental analysis camp would have grounds to criticize people who believe in technical analysis (chartists); after all, hindsight is always beautiful. However, let us not be ignorant to the many traders who have achieved a high level of success by looking at charts. Yes, it is true that there are no notable names of chartists, unlike fundamental analysts such as Warren Buffett and Peter Lynch. There are many people who can make a living out of trading by analysing charts. Thomas Bulkowski was a successful trader who retired at a tender age of 36. Close to home, I have heard of chartists who make more than ten thousand dollars every month by applying technical analysis to the Forex market.

Next, in rebuttal of Buffett’s statement, I would like to suggest this sentence: “If company reports were all there was to the game, the richest people would be accountants.”

Buffett is known to be someone whose hobby is reading financial reports that companies produce. Since accountants make up financial statements, would I not be wrong to suggest that accountants/bookkeepers/auditors should be the highest-earners in the investment world?

Second, when one looks at company reports, one is also looking at history. Financial statements are historical data of a company during a certain time period. With that, can I not say that Warren Buffett does look at history to some extent as well?

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2 Comments

  1. Guest
    Posted October 12, 2010 at 4:00 PM | Permalink | Reply

    I like to clarify that accountants do not “make up” financial statements. There are definite rules and guidelines to be followed in “making up” financial statements. They can’t just come up with their own conclusions based on their own methods.

    Financial statements give a verified state of health of the company (of course if the statements are faked or doctored, then that’s another sotry all together). It is history, but it is history based on verified factors. I think this why fundamental analysts put faith into these.

    • Administrator
      Posted October 12, 2010 at 4:51 PM | Permalink | Reply

      Guest,

      Yes, i understand financial statements cannot be manufactured to the whims and fancies of those dealing with them. I was trying to take a dig at Buffett’s statement. He compared history (TA) to librarians, and i was just tying financial statements with those that prepare them. I understand that in most cases, as you said, the info in financial statements should be correct and accurate based on historic factors. I did not mean that ”fundamentalists” face the risk of reading inaccurate data. And in the second part of my post, i criticized Buffett for saying history does not matter as financial statements, as you said, are based on some form of history too. So isn’t He contradicting himself to some extent? Of course i am not saying i know Buffet believes entirely in history, but as we all know, he respects company data alot, and that is history.

      Thank you for your input

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