Many statistical studies confirm it: most uses of most popular investment
strategies just don't work. So we don't use them. Some comments, and links
to solid studies on these issues.
FUNDAMENTAL ANALYSIS
Between ETFs inflows/outflows, pension rebalancing, random (Trump) political
distruptions, nonsense economics such as EBITDA and non-GAAP, socialist
subsidies, yet-to-be-convicted corporate crimes, meme stock squeezes by
gaming retail tradeers, and the Federal Reserve's 'cocaine' (rate cuts)
or 'cold turkey' (rate hikes), fundamental analysis just is not that
useful anymore, more for providing entertainment on CNBC and Bloomberg.
Read Barron's for inspiration. Some papers:
-
Why your stock and bond index funds outsmart the best and brightest on
Wall Street
- Mark Hulbert, MarketWatch, 18 October 2025.
Colleges and universities in the USA would collectively be $468 billion
richer, if 20 years ago they had fired their 'fundamentals' investment
managers and just bought indexed ETFs.
-
The rise of the Ponzi ETF
- Joachim Klement (substack), 21 November 2024.
Lots of money chasing illiquid stocks in ETFs means their share prices rise,
not because of fundamentals but because of a lack of supply. This in turn
creates stronger performance for thematic ETF. Themes with strong
performance attract media attention and investor attention. If there
are enough investors that find the theme attractive, more money will
flow into the ETF and the underlying stocks, pushing prices even higher.
Thus is created a Ponzi scheme where new investors pay for the gains of
previous investors. When the flows end, the Ponzi scheme collapses.
-
No alpha (i.e., beating a relevant index) left in the public stock markets
- Torsten Slok, Apollo Global Management, 9 September 2025.
"Combined with the domination of passive investing, failure of active
managers to beat indexes, and high correlation in public markets, and
high concentration in a few [bubbled] stocks, the reality is that there
is no alpha left in public markets." So no point in doing fundamental
analysis.
-
How index funds are ruining small-cap investing
- Barron's, 23 July 2025. This cites the following:
-
Why diversification is failing in the age of passive investing
- Lance Roberts, Real Investment Advice, 08 September 2025.
"Monetary and fiscal interventions, global central bank interest rate
policies, the maturity of algorithmic and computerized trading strategies,
and concentration have reduced the value of diversification. As shown,
any portfolio 'diversified' between large, mid, and small-cap stocks,
international and emerging markets, real estate, and gold, has
significantly underperformed being invested solely in the S&P 500 index.
"The assumptions that supported MPT, uncorrelated assets, stable
relationships, and rational price behavior, have eroded. Central
banks have injected liquidity, distorted yields, and suppressed
volatility. Meanwhile, passive investing has reshaped how money
flows into stocks." So why bother with fundamental analysis to figure
out how to diversify?
-
Passive investing and the rise of mega-firms
- Jiang, Vayanos, Zheng, March 2025. "... prices and idiosyncratic
volatilities of the largest SP500 companies rise the most following
flows into that index ...", i.e., fundamentals don't matter.
-
Jim Cramer: from 2001 to 2017 his picks underperformed the SP500
- Murrary Coleman, Index Fund Advisors, 28 November 2021.
Cramer is the king (clown) of fundamental analysis with his CNBC
show "Money Money". Not beating the SP500 for decades is not a testament
to fundamental analysis.
TECHNICAL ANALYSIS
Most technical analysis techniques, especially moving averages, look good
in articles and books on trading systems. But rigorous statistical analysis
reveals most are not that profitable, as compared to just buying the SPY
or GLD. Some articles:
-
Technical analysis and individual investors [or managers] -
by Arvid Hoffman and Hersh Shefrin, J. Economic Behavio & Organization.
"We find that individual investors who use technical analysis and trade
options frequently make poor portfolio devisions, resulting in dramatically
lower returns that other investors."
-
The predictive ability of technical trading rules: an empirical analysis
of developed and emerging equity markets -
by Kevin Rink, Financial Markets and Portfolio Analysis, August 2023
"We investigate the predictability of leading equity indices of 23 developed
and 18 emerging markets with a set of 6406 technical trading rules over up
to 66 years. ... Overall, our results cast serious doubt on whether
investors could have earned any excess profits using the broad range
of considered technical trading rules."
-
Technical analysis debunked: 5 reasons why we do not believe in charting -
by Business Insider, 03 February 2012.
1) Technical analysis patterns are too subjective.
2) Empirical analysis for technical analysis is negligible.
3) What evidence there is, is probably either overfitted or due to pure luck
4) Using the mathematics of technical analysis are not rigorous mathematics
5) Hedge funds control short-term trading - not to your benefit
-
7 reasons why technical analysis fails -
VRD Nation.
1) Analyzing individual stocks in a big market is not reliable
2) Technical analysis patterns are too subjective.
3) Not really applicable to short-term (intraday) movements
4) Not useful for low liquidity stocks
5) Psychological biases of the trader
6) Big investors manipulate stocks - not to your benefit
7) Random corporate news tends to erase value of current indicator values
CANDLESTICKS
Most candlestick patterns are not statistically profitable over the
long-term. While there are a few patterns that are highly profitable,
they occur do infrequently to be of little use beyond generating some
fun, spending money. Some papers:
-
Candlesticks don't give you much information -
by David Borst, Medium (locked) 11 August 2025.
Candlesticks are mostly not informative, mostly not useful on daily
charts, and those that are profitable are profitable because so is
the stock/markets at the same time. Article has some nice graphics.
-
Few candles work -
by Thomas Bulkowski, Technical Analysis of Stocks and Commodities.
[Note: Bulkowski is the guru of rigorous testing of trading techniques.]
Of 103 candlestick patterns, 31% of them didn't work. For these failed
patterns, and patterns that worked less than 66% of the time (working 50%
of the time is no better than random guessing), only 6% have any profit
potential.
-
Candlestick patterns are not effective for cryptocurrency trading -
IEEE Conference paper, 2021
-
After fees, candlestick patterns are unable to outperform passive benchmarks
on the South Africa stock exchange -
Thesis, Univ. Cape Town, 2021
-
Traditional candlesticks are not effective for trading commodities -
MBA Thesis, Dublin Business School, 2016
-
The predictive power of candlestick patterns -
Max Jonsson, Bachelor Thesis, Lunds Universitet, Spring 2016.
"The predictive power and profitability [of candlesticks] is shown to be
poor for both individual stocks and all stock combined. The study finds
little value in candlestick patterns as buy/short indicators over
short holding periods."
-
Candlestick trading strategies do not have value for Dow Jones Industrial Average stocks -
Ben Marshall et al., J. Banking and Finance, August 2006.
"Candlestick technical analysis is a short-term timing technique that
generates signals based on the relationship between open, high, low,
and close prices. Using an extension of the bootstrap methodology, which
allows for the generation of random open, high, low and close prices,
we find that candlestick trading strategies do not have value for
Dow Jones Industrial Average (DJIA) stocks."
ARTIFICIAL INTELLIGENCE
Despite the buzz of chabot LLM AI models for trading, assuming that such
models provide higher returns, that everyone has easy access to them means
that such returns will quickly evaporate (as have other profitable systems,
once popularized, soon lose all power - especially with the biggies on
Wall Street using their AI to capture most of the profits).
In the past, most funds that have tried to trade stocks and ETFs using
AI-generated signals have been unsuccessful, either losing money or
underperforming the relevant benchmark index. Indeed, if modern AI is
trained on all of the Internet filled with commentary from fund managers
and pundits who can beat the indexes, how useful can they be?
At best, AI is good for increasing a non-AI system by a few points (which
KukaXoco is more than glad to exploit), this benefit can often be obtained
from traditional multivariate statistical techniques such as VARIMA, for
which the fitted parameters are clear and understandable. Or similar
benefits can be obtained from other statistical techniques, such as
k-nearest-neighbors. All of which KukaXoco is more than glad to exploit.
And when the current AI bubble pops, and it will, AI in trading will be
disparaged. And it will pop, given
the extreme weight of AI in the S&P 500: measures of concentration for
market cap, returns, earnings, and capex (Apollo Global, Sept 2025).
-
AI is probably not any better at picking stocks than humans -
by Allen Harris, The Berkshire Edge, 18 August 2025.
"AI has not yet provided evidence that it can reliably outperform the
wisdom of buying the entire haystack rather than searching for individual
needles. And neither have humans."
-
Are bigger AI models better stock pickers? Maybe, but probably not. -
by Bryce Elder, Financial Times, 02 July 2025.
One AI training strategy is "effectively a weighted average of past
returns, with weights highest on periods whose predictor vectors are
most similar to the current one" ... "In short training windows,
similarity simply means recency, so the forecast reduces to a weighted
average of recent returns - essentially a momentum strategy."
-
For now,
LLM-based financial investing strategies do not outperform the market -
by Weixian Waylon Li et alia, arXiv, 11 May 2025.
"Our market regime analysis further demonstrates that LLM strategies are
overly conservative in bull markets, underperforming passive benchmarks,
and overly aggressive in bear markets, incurring heavy losses. These
findings highlight the need to develop LLM strategies that are able to
prioritise trend detection and regime-aware risk controls over mere
scaling of framework complexity."
-
For now,
AI will help as much (or as little) as calculators, Bloomberg terminals and
high frequency trading - by making markets more efficient and thus more
reasons for investors and fund managers to buy index funds -
by Chris Brycki, Sydney Morning Herald, 16 April 2025.
"Securities markets already reflect all available information almost
instantly and AI will only accelerate this process. Some elite hedge funds
may use AI to extract short-lived trading edges, but these advantages will
not last long." "The costs and complexity of AI-driven strategies mean any
'market-beating' alpha is quickly eroded by trading fees, infrastructure
expenses, and fierce institutional competition."
BUY-AND-HOLD AND COMPOUNDING
The classic strategy for many individuals and funds. Problem? Doesn't
seem to work well in practice.
-
The Illusion of Compound Returns -
Owen Lamont, Acadian-Asset, September 2025.
"Everyone reinvests dividends forever" violates the requirement of market
clearing. You can't reinvest for compounding returns if no one is selling.
From one study: "We estimate that the 'All Shareholder Return' equity
premium is 17 to 73% lower than the 'Total Sharedholder Return'-implied
equity premium." "Although the compound return of 10% per year on USA
stocks sounds great, that is not what shareholders as a whole are receiving."
-
Why Investors Never Seem To Earn the 'Average' Market Return -
John Csiszar, GO Banking Rates, 17 August 2025.
Research from JP Morgan shows that over the 20-year period from 1998 to 2017,
the S&P 500 returned an average of 7.1% annually (gold was 7.8%, while the
average investor only posted gains of 2.6% annually, barely above inflation.
(
JPMorgan graph depicting these results). One academic paper found that
from 1990 through 2018, 56% of U.S. stocks underperformed the essentially
risk-free one-month Treasury bill.
SPACS - SPECIAL ACQUISITION COMPANIES
Basically, these deals are "give us a lot of money, we will find
something profitable to buy." NOT!.
-
Chamath Palihapitiya, the so-called SPAC king, prepare to launch another: (though the last time "wasn't a success by an means") -
Steve Goldstein, MarketWatch, 21 June 2025.
None of Palihapitiya's outperformed the SPY, and most have struggled or
outright failed.
-
The SPAC crash of 2021 and 2022 was predictable -
Michael Klausnerf and Michael Ohlrogge, 14 February 2023.
After accounting for the value that sponsors, bankers, and IPO investors
extracted from SPACs, there was little net cash underlying SPAC shares
as SPACs entered into mergers in this recent period. "We found a strong
correlation between a SPAC's pre-merger net cash per share and its
post-merger market-adjusted returns, which, on average, were roughly
negative 50% as of 18 months following a merger."
NO ZOMBIE COMPANIES FOR LONG-TERM TRADING
There are a large number of companies, that across multi-year,
multi-decade time periods, can't outperform the SPY. So why waste
time in your life analyzing these companies - just buy the SPY. And
many of these companies are so poorly managed that they can't beat
buying-and-holding gold/GLD.