Technical Analysis: Academics vs Practitioners
Over the last couple of years I've been invited to come speak at some of the top Universities in the country. In early 2012, I gave a presentation at Harvard about Technical Analysis where I went over some of the different strategies we incorporate on a daily basis. I also did my best to dismiss some of the ridiculous criticisms we often hear about Technical Analysis like, "You can't use information from the past to make decisions about the future", or "Technical Analysis is a self-fulfilling prophecy". Last year I was invited down to Duke University where I talked about how we use many of the different tools we have as Technicians to manage a diversified portfolio. Over the next several months I will be presenting at two top schools in the Northeast so I'll keep you posted on the details once dates and times are confirmed.
One of the common themes that I've noticed is how excited all of the students are to listen and learn about Technical Analysis. Meanwhile, the academic community wants no part in it. It's almost like they're scared of it. I've never seen such a smart group of individuals so stubborn about the theories they've been taught their entire careers. It was the great philosopher, Mr. Yogi Berra who said,
"In theory there is no difference between theory and practice. In practice there is."
I wanted to share with you guys an excerpt from Kirkpatrick & Dahlquist:
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Although technical analysis is widely used by practitioners, its popularity is not mirrored in the academic community. The divergence in emphasis placed on technical analysis is highlighted by a study conducted by Flanegin and Rudd (2005) in which they surveyed both college professors and practitioners . The college professors were asked how much emphasis they placed on each of the 20 topics in their investment courses. These professors ranked the subject areas on a 1 to 5 scale, with "1" indicating that they spend very little time in class on the material and "5" indicating that they spend considerable time on the topic. Given the same list of 20 topics, practitioners were asked which subject matter they utilized within the realm of their jobs on a fairly consistent basis. These professionals also ranked the topics on a 1 to 5 scale, with "1" signifying the topic was not used and "5" indicating that the subject was used all the time. The table below provides a summary of their results. The practitioners report showed them seldom using many of the topics most thoroughly covered by the professors. Likewise, professors report very little class time is spent teaching the subject material practitioners claim to use most often.
This divergence is not surprising given the fact that the majority of academics opposes the use of technical analysis. In fact, a study by Robert Strong (1988) showed that over 60% of PhDs do not believe that technical analysis can be used as an effective tool to enhance investment performance. Because of the view of these academics, little emphasis has been placed on technical analysis in traditional finance curriculum in recent years, as shown in the Flanegin and Rudd survey results.
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Can't say I'm surprised with the results. I'm not really sure why professors shy away from something that students (who pay them) want to learn so much about. This is the real world. We're not in a class room. Markets are moving, prices are changing, and the only way to profit is to sell it higher than you buy it. Isn't it common sense to perhaps learn to study price action?
What am I missing here?
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