It's time for the question of the day: according to you, in a desert, is there a greater risk of dying from dehydration or drowning?
At first glance, the answer seems obvious. It is understandable that one would imagine a greater number of deaths due to dehydration, given the images depicting deserts (large expanses of sand, overwhelming heat, lack of water). Nevertheless, according to the World Atlas, drowning is a more common cause of death, due to the unpredictable and devastating aspect of torrential rains, sand storms and quicksand. For example, in 2006, heavy rainfall killed nearly 130 people in a desert in the Rajasthan region of India. It is therefore essential to question our preconceived ideas, a very useful strategy for the market.
When assessing the potential return of a stock, active traders tend to rely on principles that appear to be obvious, preventing them from taking full advantage of certain investment opportunities. For example, many argue – wrongly – that a good company's stock will automatically perform better than that of a company perceived to be of lower quality. In fact, this is not always the case. For example, it is known that Alimentation Couche-Tard is a better-managed organization than Bombardier. However, over a one-year period, Bombardier's share price generated a return of 65%, while Alimentation Couche-Tard posted a return of just 5%.
This is why an active trader who believes in fundamental analysis could benefit from technical analysis, a complementary and more effective short-term philosophy. On the one hand, it makes it possible to evaluate the relationship of power between buyers and sellers of a security and, by the same token, to target excellent points of entry and exit, most notably by recognizing chart patterns and the use of analytical tools and mathematical indicators. On the other hand, a study of 1,600 trade recommendations from the TV program Talking Numbers reveals that technical analysis produced better results than fundamental analysis for a period of one to 12 months. Fortunately, Desjardins Online Brokerage offers those who are interested a wide range of affordable training programs to demystify this approach. So, the next time you are asked a question for which the answer seems obvious, watch out for preconceived ideas!