When I first got interested in markets I thought technical analysis was a great tool. It was easy to learn, made logical sense and most importantly, appeared to work.

I was fooled by this cunning, seductive mistress. Technical analysis is the fools gold of finance. It is an illusion that is as real as Michael Jackson’s face. But to quote Levar Burton’s Reading Rainbow: “You don’t have to take my word for it”. Read more

Not too many people pay attention to contrarians. They often remind me of the kids in school who ate paste. Sitting in a corner by themselves, ostrasized by their peers. Loners. What you forget is that these kids are often the ones who grow up to do great things. Their minds are complex and cavernous, sparkling with nuggets of information that every investor should pay attention to.

Contrarians are not the ones shouting from atop desks, playing silly sounds and acting like crazed lunatics when discussing the stock of the day. In fact, one could argue that a contrarian is the exact opposite of Jim Cramer. Read more

After reading a heated discussion in a personal finance forum earlier this week, I thought it would be a great idea to write my thoughts on one of the most intensely debated and discussed issues in finance. This is a question that I ask MBA grads during 1st round interviews. You’d be surprised how often very smart people can sound very stupid when asked if markets are efficient, and what to do about it.

There are two basic schools of thought in regards to investing in the stock market. In one corner we have the active investor. She believes that markets are inherently inefficient. An inefficient market is one where prices do not accurately reflect the value of an asset at that point in time. Therefore, some stocks will be “cheap” and others “expensive”. The goal of the active investor is to purchase the “cheap” stocks and then sell when they match/exceed their true value.

On the flip side we have the passive investor. He believes that the market is efficient and all prices accurately portray the true value of an asset. There are no “cheap” stocks. Everything is priced to perfection for that point in time. Depending on how far the investor is on the passive scale, they either base purchases purely on future expectations, or opt for the ultimate in passive investing: indexing.

Which is the better approach? Read more