"I got this quote from our mutual friend, Bernard Tan. Wonder what you think?"

"There are two types of participants in the market. One watches prices all the time and imagine that they can discern real world dynamics from these price movements. The other thinks about real world dynamics all the time and imagine that they can discern price directions from these dynamics. Both are delusional."
Bernard Tan

David Fuller's view Thanks for sharing this quote which is certain to be of interest to other subscribers. Bernard Tan is an original thinker and I am in general agreement, although some important exceptions are inevitable.

Regarding market action, it is often correct that one cannot discern real world dynamics from market prices but one can recognise fashion trends or other changes in perceptions which influence money flows. Some of these trends will endure well beyond the short term because they reflect a fundamental change, although one will not know that from prices alone in the early stages of the move.

Regarding "real world dynamics" (I assume he means macro fundamentals) there will occasionally be genuine insider information, such as bankers being the first to know in 2007 and early 2008 that their CDO schemes had been corrupted and were about to blow up. However, few investors have access to genuine insider information, other than the actual insiders, for whom it may be illegal to trade on that information.

Macro economic studies will inevitably involve conjecture and even if correct, they cannot accurately predict either the timing or extent to which the market crowd will validate the premise. Therefore economists or fundamental-only analysts will often be in the dubious position of telling the market what to do. A simple trend-following approach will generally produce better results.

Fullermoney favours both price-based analysis and macro fundamentals with the emphasis on monetary policy. Where possible, we would also include a valuation analysis, although this is much more difficult and therefore time-consuming process than the factual analysis of prices in terms of relative strength and trend consistency.