One of my favorite investment related book is “A random walk down wall street”. In the first few chapters of that book, it presents two ways in valuating a stock.
The firm-foundation theory assumes that each stock has a true value which is equal to the present value of all its future dividends.
The castle-in-the-air theory is also known as the “greater fool” theory. It does not matter how much you pay for any stock as long as you are able to find a “greater fool” who is willing to pay more for it. It is basically saying that the true value of a stock does not matter as much as its perceived value by investors.
In my opinion, it loosely corresponds to fundamental analysis (i.e. true value) and technical analysis (i.e. perceived value). I am under the impression that many investors/traders will do both. That is, first select companies with good fundamentals. Then use technical indicators to decide when to enter/exit. Am I right? Or are you focusing purely on one thinking that the other is not important?
I am personally guilty of not putting much focus on technicals but only on fundamentals and modern portfolio theory.