Can knowing too much about finance hurt your trading?

A

a529612

You either become too risk averse like those piss poor finance PhD types who believe the market is nothing but efficient or you think you know more than the market and it owes you a living like LTCM and Niederhoffer. Thoughts?
 
Good points, PhD types generally have trouble being practical, and know-it-alls have trouble with cockiness; two traits that the market doesn't reward.
 
After accountant looks at balance sheet,,how can they invest with that..

accountants know more about the business world and no 'cashflow' is what matters in any business and return on investment.

these certified accountants know more about business than most investors do just by reading the balance sheet in a few minutes..they know all the tricks that a company can do to evade taxes or make the income look pretty...


Quote from trader_arb:

Does knowing too much about accounting hurt your trading?

Most accountants I know are well below average investors.
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speculators are mostly dreamers and don't need or want to know about accounting or even finance.

the stock market to them is like the market for cabbage dolls and tickle me elmo...all hype and speculation and hope.



Quote from a529612:

You either become too risk averse like those piss poor finance PhD types who believe the market is nothing but efficient or you think you know more than the market and it owes you a living like LTCM and Niederhoffer. Thoughts?
More...
 
Imo, accounting can give you a fundamental evaluation, end of story.
Where the problem lies is the market process for pps determination.
 
Quote from a529612:

You either become too risk averse like those piss poor finance PhD types who believe the market is nothing but efficient or you think you know more than the market and it owes you a living like LTCM and Niederhoffer. Thoughts?
More...

Good points, I would add a third "evil" to this list - allowing fundamental analysis of a company to interfere with trading rules.

For example, I currently trade with a very small account for the purpose of gaining some "real" trading experience. I have a tendency to screen for stocks, find something with a nice trading set-up, then research the company to understand it better. The problem with researching is that it becomes easy to fall in love with a company (so to speak), and start thinking much longer term, which can in turn conflict with shorter term trading rules.
 
Quote from vansmarket:

After accountant looks at balance sheet,,how can they invest with that..

accountants know more about the business world and no 'cashflow' is what matters in any business and return on investment.

these certified accountants know more about business than most investors do just by reading the balance sheet in a few minutes..they know all the tricks that a company can do to evade taxes or make the income look pretty...
More...

Since the question referenced trading I will say no trader looks at a balance sheet to swing trade or day trade. Now if you refer to long-term buy and hold then knowing how to analyze financial statements can come in handy.
 
Quote from Chagi:

Good points, I would add a third "evil" to this list - allowing fundamental analysis of a company to interfere with trading rules.

For example, I currently trade with a very small account for the purpose of gaining some "real" trading experience. I have a tendency to screen for stocks, find something with a nice trading set-up, then research the company to understand it better. The problem with researching is that it becomes easy to fall in love with a company (so to speak), and start thinking much longer term, which can in turn conflict with shorter term trading rules.
More...


Perception of fundamentals can definitely give you conviction on a trade. that can help or hurt you - for most including myself, it often hurts a trade. I think it has more to do with the psychology that we often don't let our winners run, and hang onto our losers. It also depends how blinded you are by your own case -- sometimes its easy to buy the fundamental story via the balance sheet, and ignore just as worthwhile data (ie competition to a business, overall market trends or sea change away from your position).
 
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