The Crowd Speaks Technical Analysis

Nice write-up on the benefits of adding some technical analysis to a rational, fundamental worldview by Anthony Bolton, the recently retired manager of the top-performing Fidelity Special Situations fund. A few excerpts (emphasis mine):

My contention is that if you are trying to predict the mass action of thousands of investors, most of whom are investing on a rational or logical basis, you won’t be able to do this by taking the same logical approach as everyone else.

As the stock market can’t be predicted by logic alone, I believe investors have to use two conflicting approaches. First, they need their own views of the correct value to be placed on a company, worked out through fundamental analysis and by making predictions about future prospects etc.

But investors also need to listen to what the market is telling them and see what they can learn from the behaviour of other investors. It is one of the reasons why I use technical analysis to complement my fundamental analysis; technical analysis is good at showing the mass action of investors.