Should you be a
Fundamentalist?
Dr. Mohammad Omar Farooq
Associate Professor of Economics and Finance
Upper Iowa University[Originally, this was prepared for an internet discussion forum around 11/11/99. The hyperlinks cited below were up-to-date at the time this essay was originally written. The main purpose of this essay is to expose the problems associated with the indiscriminate use of the term "fundamentalist" in a pejorative sense.]
The question this particular essay poses is an intriguing one. I hope you will bear with me.
I don't think I need to explain what the legendary American Dream is all about. Well, American Dream is not limited to the Americans any more. As the sole surviving superpower in our contemporary time, the ideals, aspirations, agendas and strategies America represents are having overwhelming impact around the world. This is such a "dream" that in recent years people from all over the world, including many developing countries, are trying to flock to this Dreamland.
Of course, we all know that parallel to the happy stories of many in whose case dreams are coming true, many others are finding their dream turn into nightmare. The formerly powerful Russians, who have lost their superpower status, wanted to regain their lost glory by pursuing free-market economy and democratic reforms. Apparently, things have gone badly wrong. One probably can't blame the American Dream for the Russian failures.
Anyway, an integral part of the American dream is to be able to retire as early as possible - hopefully no later than at 65, and then live a life of financial independence. Indeed, for so many Americans that part of the dream has come true. Many of us are working to have our similar personal dreams come true as well. Of course, enjoying retirement based on financial independence requires financial planning, discipline, experience, and some tools too. There are get-rich-quick programs. You may have heard about Day-trading, where lots of money can be made (or lost) rather quickly. One such daytrader (following non-Fundamentalist approach) after losing his life-time savings and several hundred thousand dollars of borrowed money, lost also the nerve and head in Atlanta this year and went on a shooting spree.
Most Americans (and this is probably true for most of the developed countries too) achieved their financial independence to be able to retire by patiently and consistently following time-tested, simple investment approach. It is in this context my question can be posed: to achieve the financial goals as most Americans did and continue to do, Should you be a FUNDAMENTALIST? Well, among many others, the successful records of Dr. Martin Zweig would suggest that you SHOULD.
Martin E. Zweig is not an ordinary figure in the financial world. He is Chairman of two closed-end funds, The Zweig Fund and The Zweig Total Return Fund, and President of The Zweig Series trust group of mutual funds. He is also Managing Director of Zweig/DiMenna Partners, L.P. and its affiliated firms. For 27 years he edited the NUMBER ONE ranked newsletter, The Zweig Forecast.
Dr. Zweig, a graduate of Wharton School, University of Pennsylvania (1964) and Michigan State University (Ph.D. Finance, 1969) has written several books, including the best selling Winning on Wall Street. Dr. Martin Zweig, among the most respected on Wall Street (the MECCA of financial world) follows an approach where the "stock selection based on extensive fundamental analysis". (http://www.magnumfund.com/zweig.html ).There are other Fundamentalists, including Jason Zweig. The two Zweigs are not related, except as brothers-in-faith as far as Fundamentalism is concerned. Jason Zweig's is more on the side of "pure" fundamentalism. This Zweig loves this term so much that many years ago he established his own advisory service called The Fundamentalist. To follow the "path" of "Fundamentalism" as practiced and promoted by him, please visit the website: http://www.pathfinder.com/money/fundamentalist/ .
By "believing" in and utilizing such Fundamentalist approach, including that of Dr. Martin Zweig, many major institutions and individuals have reaped handsome, long-term rewards. Many of these investors now have second homes in "Paradise" Island in the Bahamas and enjoy high-life surrounded by "companions" of their desire.
Also, if you have any question, feel free to contact this diehard Fundamentalist (Jason Zweig) at fundamentalist@moneymail.com . You can see and hear other leading Fundamentalists such as Joseph Battipaglia of Gruntal debating leading advocate of Technical Approach Ralph Acampura of Prudential Securities at Louis Rukeyser's highly-respected weekly show Wall Street Week (on PBS every Friday evening) .
Well, if you are not familiar with the investment professionals, they are either "followers" of Technical approach or they are "Fundamentalists". A Fundamentalist follows, with "consistency" and "dedication", Fundamental analysis: a method of security valuation which involves examining the company's financials and operations, especially sales, earnings growth potential, assets, debt, management, products, and competition.
For the independent individual investors:
Only if you are an independent, individual investor, you probably need to know better about these different approaches. Internet is full of resources to provide you pertinent education. Visit websites of leading U.S. Brokers, such as Donaldson, Lufkins & Jenrette (DLJ), at http://www.dljdirect.com/ilFoFz.htm . For explanation of various pertinent investment terms, you may visit, http://www.investorwords.com/f3.htm .
One of the major promoters of Fundamentalism is the National Association of Investors Corporation (NAIC). It has thousands of members: individuals and, more importantly, investment clubs. Their successful methodology is very disciplined and "conservative". There might be an investment club following the Fundamental approach of NAIC right in your neighborhood. For more information, see http://www.better-investing.org/fom/cache/35.html .Here are some other resources for starters:
1. To learn the basics of the approaches of the Fundamentalists, please see "What Are Fundamentals All About?" http://www.fination.com/showarticle.asp?NID=30&AID=24044&nlid=99040746-14713
2. To learn about how the Fundamentalists take the "mystery" out of investing by using "scientific" approach, see "How We Take the Mystery Out of Investing"
http://www.fination.com/showarticle.asp?NID=30&AID=22128&nlid=99040746-1
3. To get a better understanding of the two competing approaches, read "Technical Analysis & Fundamentalism" http://www.choiceinv.com/steve/june99.htm
4. Whether you are a technician or a Fundamentalist - you can get a "Second Opinion" before you make your next investment decision. Second Opinion gives you unique, actionable Long/Neutral/Avoid opinions in language which is easy to understand. This is available only in Market Edge. http://commonwealth.stkwtch.com/MarketEdge/Info/info.htm
5. Another good article that compares the two competing approach. "Separating Fact From Fiction"
http://soilandhealth.org/03sovereigntylibrary/0301investlibrary/030102drach/030102ch1.html
For passive investors:
As a passive investor, if you did not know anything about Fundamentalism or the Fundamentalists, you don't have to go through any education and "conversion", because probably you are already in the good hands of some leading and experienced Fundamentalists. If you are a mutual fund investors, the vast majority of the mutual funds follow Fundamentalist approach.
For examples, see *Third Avenue Value Fund http://www.mjwhitman.com/4q96.htm . If you visit Magna-Vista Fund's site, you might come across the following statement: "Our approach to stock selection is FUNDAMENTALIST in nature, combining principles of both value and growth analysis. (emphasis is NOT mine) http://www.magnavista.com/investmentphilosophy.htm
If you are in the academia in the U.S., most likely you are already pursuing the American Dream through Fundamentalist approach by participating in TIAA-CREF, the largest retirement fund in the U.S.. Learn more about their stock selection approach at http://www4.tiaa-cref.org/prospectuses/mf-inst.html .
Whether you are in a developed country, such as USA, or in a developing country, such as Bangladesh, it might be worthwhile to know what the Fundamentalists are thinking, particularly at the Wall Street (the MECCA of the financial world).
Many of you might already be familiar with these basics. I hope this message will be of some help to those who are not familiar. I apologize if the readers did not find from this message what they were looking for. By the way, these Fundamentalists are very "scientific" in their approach and its application. Successful fundamentalists identify "rational hypothesis" and meticulously go through process of validation. They don't have any "ethical" bias; they would even teach you how to pick your own pocket. [See "False Profits: You now have all the tools you need to pick your own pocket" at http://www.pathfinder.com/money/depts/investing/fundamentalist/archive/9908.hogwash.html .
Most of them reject theories related to "Dow Dividend strategy" which, in their view, has no "rational" basis. Also, they do not "believe" in any crystal Ball or Divine Book for their Fundamentalism. From time to time they might "pray' that Fed's chairman Alan Greenspan would not "spook" them through unanticipated "revelation" of Fed's future "bias." At other times they "pray" so that Greenspan would bless them by validating their greedy acts of getting ahead in the market in anticipation. [CNNfn: "Stocks jump in early trading as investors PRAY for Fed rate cut Tuesday", http://www.cnnfn.com/markets/9809/28/marketopen ]
It is not uncommon that many Fundamentalists are "scoffed" at their slow and unexciting style by the followers of Technical approach. ["Fundamentals Alone are not Enough" - Ken Galloway, http://commoditytraders.com/issue05.htm ] Apparently, there does not seem to be an environment of mutual respect and harmony. "Fundamentalists will ridicule technicians, contrarians will point the finger at momentum investors, and growth managers will argue with the disciples of value" [Contrarian Investing, http://www.bluechipbooks.com/Contrarian/intro_contr.html ]One such "devoted" Fundamentalist (someone who strictly follows the fundamentals of financial analysis) was asked: "How do you feel comfortable identifying yourself as a Fundamentalist, when many people find it abominable, horrible, dreadful, disgusting as an expression particularly relating to those from religious background?" With a loud laughter, he explained: "Come on, now! Fundamentalism is nothing more than focusing on and following the fundamentals of something. If some people, for their biased and political reasons, twist the meaning of something, does that mean we have to yield a neutral expression to their bias and prejudice? Look! I am an atheist. But I am also a Fundamentalist atheist. I have a scientist friend who would like to do his own trading like a Fundamentalist, but he does not have the time. So I trade for him. Couldn't he be called a Fundamentalist scientist? I have a broker colleague who is also a Fundamentalist in his approach. He also happens to be a Secular Humanist. Isn't it only proper that we should call him Fundamentalist Secular Humanist? ... Wake up my friend. The world has come a long way to fall for that kind of twisted labeling using such a value-neutral term." He then laughed some more.....
Then, he posed the question: "Shouldn't you be a Fundamentalist?" I could only say, that "well, it seems that the answer can vary, for example, as following."
Some might say: "I have been a Fundamentalist all along."
Others might say: "In the long-run, it is the Fundamentalists who have shown consistent performance. Therefore, Fundamentalism is for me."
Still others might say: "Absolutely. I won't go any other way."Of course, there would be others whose answers could be radically different, if we are talking about "fundamentalism" in other contexts! There are many people who use the word "fundamentalism" in a pejorative way and primarily apply to the religious domain. However, fundamentalism is in the sense of "extremism, intolerance and bigotry" is ubiquitous and applies to both the religious AND secular domain. As far as "extremism, intolerance and bigotry", there is religious fundamentalism, secular fundamentalism, even scientific fundamentalism. Fundamentalism in such sense needs to be repudiated and confronted. The main purpose of this article is to underscore the fact that those people who use fundamentalism in only negative and religious sense, they are patently incorrect.
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