“I am a new subscriber. After months of reading the free commentary and wondering what was behind the curtain, I decided to finally pull the trigger and purchase an annual subscription ( I am probably more frugal than Buffett, so it was no easy task to open up the wallet). I am glad I did however, because I see a new world of possibility for my investment process now that I have access to the easy-to-use tools in the Chart Library.

"This is the first time I'm writing, so please indulge me as I have a few questions and comments.

"Firstly, my background is in fundamental and company specific business analysis. That means I emphasize the analysis of a company's earnings power and moat. I want to make a quick comment about Precision Castparts, which was brought up a few days ago. It caught my eye, and I wanted to share my thoughts with the Collective in the spirit of empowerment through knowledge.

"You are correct that we should be wary about any company that might have weak customer bargaining power. I believe Precision might have some competitive advantages that mitigate this concern, namely customer stickiness. It produces high tech metal components used in jet aircraft and power turbines. Its customers require very low tolerance for failure. Precision has been selling to some of its customers for more than 30 years. Its engineers embed themselves with customers like GE to design its products. GE has very little incentive to switch suppliers as long as Precision maintains its quality. The only reason I can think of for switching would be cost savings. Even then, the cost savings would have to surmount a very high bar. Precision achieves customer stickiness because the perceived risk from switching suppliers (i.e. the risk of product failure) is simply too high. Just as a mutual fund manager won't get fired for sticking close to the index, the purchasing manager at GE won't get fired for buying from Precision.

"The result of Precision's competitive advantage is that the company has earned excellent financial returns (some of the best I have seen, which is why Precision caught my eye). Its avg 5 yr GM%s = 30% (growing over time), EBIT margins = 24% (growing over time), and return on tangible invested capital = 40% (remarkable). The company has no debt.

"I don't own any shares of Precision, but I will keep it on my "panic" list of stocks to own when the price action presents the opportunity. From 2004, it was an 8-bagger. From what I learned at the Chart Seminar, it looks like there could be type-2 action (?), which is enough to make me avoid it.

"Speaking of price action, I would like to ask you a related question about how to think about the markets. As a professional investor, I have grown up on a steady diet of Ben Graham and Warren Buffett. I am a novice with behavioural chart analysis. My mind is a bit unsettled because charting seems (perhaps) to directly contradict the wisdom of Graham/Buffett. Below are a few of their quotes:

"In the short run, the market is a voting machine but in the long run it is a weighing machine." -Graham

“The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase.” -Graham

“The one principal that applies to nearly all these so-called “technical approaches” is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success in Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus “following the market.” We do not hesitate to declare that this approach is as fallacious as it is popular.” - Graham

"Mr Market is there to serve you, not to guide you". - Buffett

"The last quote is perhaps the one I have always held most dear. Would you mind please offering your comments on how to make sense of it all? Can one be a Graham/Buffett/Fuller-type investor? If so, what would that look like?"

"This email reveals just how muddle-headed I am! Many thanks in advance for your consideration and reply. I am sure it will undo some of the mental pain caused by holding two seemingly conflicting ideas at once!"

Eoin Treacy's view Welcome to the Service and thank you for your active participation at the San Francisco venue for The Chart Seminar where I'm confident the group appreciated your perspective. Thanks also for this educative email, your informed opinion of Precision Castparts and your erudite exposition of an issue that has been at the centre of the fundamental – technical divide for the better part of a century. Let's take your points in order.

Precision Castparts has shown considerable relative outperformance particularly compared to the industrial sector. Failed upside breaks and a loss of momentum are potentially type-2 top formation characteristics but a massive reaction against the prevailing trend is the catalyst required to shock investors out of their complacency and to confirm topping activity. Precision Castparts has not formed a Type-2 top. . However the share has lost momentum and the pattern is broadening. It posted a downside weekly key reversal from its December peak and a daily downside key reversal from its October peak. Prices are now testing the progression of higher reaction lows and the 200-day MA. If Type-2 top formation completion is to be avoided it will need to demonstrate a return to demand dominance from the current area; preferably with an upward dynamic.

You raise some thought provoking points with regard to the utility of various methods of analysing markets. I believe it is important to recognise that fundamental and technical analysis are not mutually exclusive. They both help us to understand different aspects of the market. In summary fundamental analysis focuses on companies while technical analysis focuses on shares. Regardless of whether one is of a technical or fundamental disposition we are all involved in the markets to make money. Buy low to sell high might sound trite but is an emotionally subtle practice every investor must struggle with.

At Fullermoney we advocate a holistic approach focusing on price action for timing but taking fundamental, monetary, governance and behavioural factors into consideration as part of our top down approach. We do not have your particular skill set in analysing the raw fundamentals of a company but we can of course appreciate when a market looks cheap. Graham's dictum that the market is a weighing machine over the long term is consistent with our long held recommendation to adopt the role of a judge at an international beauty contest when assessing market potential.

When Graham speaks of acting consistently as an investor he complements our desire to adopt a disciplined approach to how we interact with the market. We can only deal with the reality provided by the market and need to tailor our approach accordingly. We seek out consistent trends because they reflect a pattern of investor behaviour that both persists and repeats itself until a catalyst emerges to change it.

When Graham talks about technical analysis as buying when prices rise and selling when they decline he is really discussing momentum trading rather than analysis. Trading, investment and analysis are all separate disciplines. In academic hindsight it is always better to buy before the breakout to new highs from a well-defined trading range. However this is to ignore the frustration involved with holding a position in a ranging environment that is not performing as expected.

Therefore there is always a trade-off. If one buys when prices are depressed. You will obviously be able to get the instrument cheaper but will have to wait until it begins to perform to make money. The risk is that the instrument could get even cheaper. The alternative is to wait for a sign that demand is dominant before initiating a long position. Since this requires at least part of a rally to have already occurred, we must then accept the need to give the position more leeway to allow for a consolidation to potentially occur. As long as one is aware of the ramifications of one's decisions rather than approaching the market from a purely emotional disposition, I don't see a problem with momentum trading.

Let me propose a Fullerism to complement Mr.Buffet. “The markets are manmade resources for us to harvest when the timing is right”. The goal to which we constantly strive is to be the best Graham/Buffett/Fuller-type investors we can.