I found Eric Sprott's presentation at Jekyll Island to be quite entertaining and instructive. Someone shared it with me yesterday, adding that "you need to hear what he says about TA...." So I watched the entire thing.
One thing that I have noticed throughout my life, regardless of the field of pursuit, is that experts (masters of their craft) have an uncanny ability to simplify subjects which most everyone else find to be fairly complex. Investing is pretty straightforward for Mr. Sprott, however, his current level of knowledge and expertise has certainly come after a life filled with plenty of mistakes.
Fairly early on in the talk he mentions technical analysis and throws out a one liner "TA is bullshit." I found this to be interesting because in the same hour long presentation he uses TA on a few occasions including stating that a stock was "in a very nice uptrend." So I guess he can't think TA is bullshit all the time.
What is technical analysis? According to Wikipedia it is "an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume."
I would offer a simpler answer than Wikipedia; technical analysis is the study of market price behavior (including volume), usually through charts. This study of price behavior can include many aspects including sentiment, market participant positioning, and even attempts to make forecasts about future price behavior. However, TA is most effectively utilized in managing risk, understanding broader trends, and identifying incongruencies between a "company's story" and market price action.
So why does a highly successful investor like Eric Sprott think that TA is bullshit? My answer would be that he simply doesn't understand it and/or doesn't use it very often in his investing. And that's ok. What he does clearly works for him, and he has access to tools and information that 99.9% of investors do NOT.
I will also add that I'm perfectly happy to hear that other investors think that TA is bullshit because it means that fewer of us are doing similar things, which creates a better opportunity for an edge. If everyone is looking at the exact same information, and the same charts with the same interpretations then you can be sure than none of us are going to make money.
I have said it before and i'll say it again; I use any information that I find to be useful in making investment decisions (both fundamental and technical), however, I am completely comfortable making a decision solely on technical (chart based) factors while I would never make an investment decision solely on fundamental factors (without looking at the chart). That's the best way I can explain how I integrate both fundamental and technical analysis.
So i'm glad that Eric Sprott thinks that TA is bullshit. I respect him greatly as an investor and I appreciated his insights, including his use of TA.
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