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Far From Random: Using Investor Behavior and Trend Analysis to Forecast Market Movement by Richard Lehman

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Chapter 2. Fundamentally Flawed

I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities.[2]

Benjamin Graham

The central pillar supporting Wall Street's expertise is financial analysis. Corporate financial analysis enables investment bankers to garner exorbitant fees for advising companies on debt or equity issuance, helping them evaluate strategic options like buybacks or going private, and bringing new securities to market. Financial analysis applied to product development powers the manufacturing process for thousands of derivatives, unit trusts, limited partnerships, exchange-traded funds, and other securities products designed to satisfy every conceivable niche in the financial marketplace. And it is a repackaged form of financial analysis that we have come to know as fundamental stock research— analysts' recommendations on individual stocks—that provides so-called full-service firms with a justification for charging substantially more to execute a stock trade than discount brokers.

Few people question Wall Street's financial expertise. The industry buys a fresh crop of new MBAs each year and allies itself with the top business schools in financial research. Its methodologies are built on widely accepted, well-honed principles of finance that have been used for decades and have been sanctioned by all the appropriate regulatory bodies and accounting organizations. It is important to note that their research has also ...

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