The boom in the Saudi Stock market that started at the end of 2003 coincided with the birth of two very important twins in the finance and investment community. Today the twins are toddlers and both are walking but with the younger one having some difficulty.
The main reasons for this walking difficulty is a lack of support and confidence from the older twin, as well as a lack of appreciation from their own community. Whenever the twins are presented with a puzzle to solve, the younger twin happily rushes over and starts helping out.
The older twin, having always doubted his younger brother’s ability, simply watches his efforts.
As the pieces of the puzzle come together, he thinks to himself that it must have been luck, pushing the younger twin aside; the older twin constructs the puzzle all over again by himself.
Yes, as many of you may have guessed, the older twin is “fundamental in analyzing” and the younger twin is “technical analysis”. The puzzles are stock market equities that need evaluation.
Technical analysis faces a lot of criticism from the Saudi finance and investment community; some professional bankers simply do not know what technical analysis truly means.
In a recent conversation with a banker, I presented my self as a student from the technical analysis school, the man said, “Do you mean Japanese candle sticks?” I was appalled that he would define technical analysis by only one of its subject areas, another banker’s response was, “Oh yes, moving averages, that is what you people do.”
The above responses resemble defining transportation by the use of airplanes only. Airplanes cannot use roads, cars do, and cars cannot float on water, ships and boats do, and ships and boats cannot use railroads, trains do. Moreover, none of the above can use pavements, you need to walk and use your legs there. Different kinds of transportation are used through out a person’s life.
Similarly, different kinds of technical tools are employed to evaluate a certain security or market.
The responses of the two bankers also confirm the fact that people who criticize technical analysis do not fully understand it; they understand either one tool or another.
Recently a portfolio manager of a big bank in the Kingdom said that they do not have a person in their portfolio team who specializes in technical analysis.
In the United States and Europe, fund managers have discovered that both disciplines of analysis, fundamental and technical, are the best approaches to the investment analysis frame work.
Technical analysis serves in a manner similar to a radar, extending the view further out on the horizon to spot emerging trends. From there fundamental analysis completes the work required to understand what factors are really behind the movement in the stock.
It is very common to find a person holding both the Certified Financial Analyst (CFA) and the Certified Financial Technician (CFT) designations.
The United Arab Emirates is one of the countries that is quickly following suit in applying both disciplines.
Lately, “Murry Gunn” a board member of the International Federation of Technical Analysts (IFTA) resigned from his post and accepted a job with the Abu Dhabi Investment Authority. Even Egypt has a well-established society of technical analysts. The list of Middle Eastern countries following suit is definitely growing.
I am sure it will not be long before our little toddler will find some understanding and appreciation and be able to walk steadily to help the older twin solve the puzzles together.