Thursday, 18 November 2010

Occam's Razor in TA and FA?

Occam's Razor: "one should not increase, beyond what is necessary, the number of entities required to explain anything."

The explanation requiring the fewest assumptions is most likely to be correct.” or "Simply put, the simpler one is generally correct."
 
Yeah. To apply Occam's Razor in my stock analysis:

  • By simplifying my TA, I just look at support, resistance, price-volume actions, and trend lines.

  • By simplifying my FA, I just look at consistency in dividends and low dividend payout ratio. Dividends are real money paying out by a company, and can only be sustainable if company continues to have cold hard cash from its business. Probably, this is the only indicator in FA that really matters; anything else are just guess works by retail investors who have limited resources to do anything substantial.
Read? Fundamental or Technical Analysis? - Revisit 3

Read? Pareto Principle

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