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Interview With Tom Dorsey: Masters in Business (Audio) · Masters in Business

0:03
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
0:08
Speaker 1: Hey this week on the podcast, I have a special guest,
0:11
Speaker 1: and I should say that less often, but I have
0:14
Speaker 1: a special guest. He's somebody who I have been reading
0:18
Speaker 1: for a very long time. Very early in my career,
0:21
Speaker 1: I started out reading Tom Dorsey. He's the co founder
0:25
Speaker 1: and CEO of Dorsey Wright, which runs a few billions
0:30
Speaker 1: of dollars in ETFs and was recently bought by NASDAC
0:34
Speaker 1: for a couple of hundred million dollars. If you are
0:37
Speaker 1: technically oriented, if you are a technician, chartist, plant anything
0:41
Speaker 1: along those lines, you will find this conversation quite fascinating.
0:45
Speaker 1: Dorsey Wright is not the sort of technical newsletter that's
0:48
Speaker 1: read by the lay person or the investing public. It
0:52
Speaker 1: really has been a how to guide for some of
0:56
Speaker 1: the savvier people in the brokerage world and sells ID.
1:00
Speaker 1: I recall visiting other people's offices and laughing saying, hey,
1:04
Speaker 1: this Dorsey right on the desk. Anyway, we spoke to
1:07
Speaker 1: almost two hours. Uh. It ranged far and wide. If
1:11
Speaker 1: you're at all interested in in relative strength, portfolio management,
1:16
Speaker 1: technical analysis, port and figure charting, you will find this
1:20
Speaker 1: UH conversation to be a tour to force. So, without
1:23
Speaker 1: any further delay, my conversation with Tom Dorsey. This is
1:30
Speaker 1: Masters in Business with Barry Ridholts on Bloomberg Radio this week.
1:35
Speaker 1: My guest is Tom Dorsey. He is the founder and
1:39
Speaker 1: former CEO of Dorsey Wright and Associates, a technical research
1:44
Speaker 1: and advisory daily read that I recall spending lots and
1:48
Speaker 1: lots of time with the early part of my career.
1:51
Speaker 1: It pretty much was a regular on my desk. Last
1:54
Speaker 1: year this was sold to the NASDAC for almost a
1:57
Speaker 1: quarterbillion dollars. Dorsey Wright is based on an idea called
2:01
Speaker 1: point and figure charting, which will get into but the
2:05
Speaker 1: underlying concept is you must have a clear strategy based
2:09
Speaker 1: on objective, unemotional data. Welcome to bloom Bark. It's pleasure
2:15
Speaker 1: to have you, Thanks Barry. So I want to start
2:17
Speaker 1: out with a quote of yours and and have you
2:19
Speaker 1: respond to that. Strict modern portfolio theory has driven a
2:24
Speaker 1: commoditization of financial analysis to the detriment of analysts and investors.
2:30
Speaker 1: What does that mean? Well, when you're thinking about modern
2:32
Speaker 1: portfolio theory, it's something that goes back. UH. Probably thirty
2:36
Speaker 1: forty years ago, and it's it's it's it's fundamental buy
2:44
Speaker 1: and hold. A person comes into an office, takes a test,
2:49
Speaker 1: determines that he's a moderate investor, immediate goes into a
2:53
Speaker 1: into a moderate pie and uh, that's rebalanced twice a
2:56
Speaker 1: year and you stay that way as long as your
2:59
Speaker 1: risk level doesn't change. So you've got to come in
3:01
Speaker 1: and retake a test to make your risk level change
3:03
Speaker 1: before anything will change there. So it can miss a
3:05
Speaker 1: lot of changes in the overall market. But it's something
3:08
Speaker 1: that you'll probably find that nine percent of advisors use.
3:12
Speaker 1: Makes a lot of sense. So we talked earlier. I
3:15
Speaker 1: mentioned objective on emotional data is key to a strategy,
3:19
Speaker 1: but you have noted that a lot of people don't
3:21
Speaker 1: really have much of a strategy. No, that's the thing.
3:24
Speaker 1: People are human, you know. Well, it's like Mike Tyson said,
3:28
Speaker 1: you walk into a ring with it with all all
3:30
Speaker 1: kind of plans and a strategy until you get hit
3:32
Speaker 1: one time. Right, everybody has a plan until the're hit
3:33
Speaker 1: in the face, until they're hit in the phase it
3:35
Speaker 1: And that's exactly what happens here. The strategy is great
3:38
Speaker 1: until all of a sudden you feel sick to your stomach.
3:40
Speaker 1: The market is going down and it's let's get out,
3:43
Speaker 1: and it's getting out exactly at the wrong time. So
3:45
Speaker 1: that's the hard part. Is what we have done at
3:48
Speaker 1: Dorsey right is we've taken the emotion out of it
3:50
Speaker 1: and made everything rules based. So when it feels the
3:53
Speaker 1: feels the worst, you have to understand that the systematic
3:57
Speaker 1: approach is going to do it job. Sometimes it doesn't
4:01
Speaker 1: feel so good, like right now, but most of the
4:04
Speaker 1: time it works fine. So one of the things you
4:07
Speaker 1: would send along these lines, um studies have shown investors
4:11
Speaker 1: tend to achieve subpart performance when they allow those emotions
4:15
Speaker 1: to take over and when they fail to adhere to
4:18
Speaker 1: a consistent said a rules. So if you have these
4:22
Speaker 1: rules that will prevent you from engaging in emotional behavior,
4:26
Speaker 1: how does an investor find the discipline to stick to
4:30
Speaker 1: those rules. Well, that's a good question, Barry. How do
4:32
Speaker 1: you know, because again, like I said, you're dealing with
4:34
Speaker 1: human emotion. When you embrace. When you sit down with
4:38
Speaker 1: your advisor and he's using a rules based system and
4:40
Speaker 1: explains the rules to you and you embrace those rules,
4:44
Speaker 1: that's where you need to step back and just let
4:46
Speaker 1: it happen. When things feel bad, that's the time typically
4:49
Speaker 1: in that type of a program, to add money to
4:52
Speaker 1: the to the portfolio, not take money out. Take for instance,
4:56
Speaker 1: what we do is probably gonna underperform maybe once every
5:00
Speaker 1: four quarters somewhere in that nature. You'll feel bad. You're
5:04
Speaker 1: gonna a position one way in the market's going the
5:06
Speaker 1: other way, precisely exactly, And typically what happens there Really,
5:10
Speaker 1: when you're looking at a rules based program like ours,
5:12
Speaker 1: which is relative strength, the it's like shifting a car.
5:16
Speaker 1: It's trying to find traction. So you go from first
5:19
Speaker 1: gear to second gear, you let off the gas, you
5:23
Speaker 1: push in the clutch, you change it from first to
5:25
Speaker 1: second gear, you put let the clutch back out, you
5:28
Speaker 1: put the gas back on. You've lost momentum. And then
5:31
Speaker 1: once you catch second gear, that's when you found the direction.
5:34
Speaker 1: But when nothing's when there's no direction whatsoever, like like
5:37
Speaker 1: lately exactly, that's when it underperforms. So how did you
5:41
Speaker 1: become a technician? How did you find your way to
5:44
Speaker 1: looking at price as opposed to looking at the fundamentals? Well, Barry,
5:48
Speaker 1: it was absolutely accidental because I was a stockbroker Maryland's
5:52
Speaker 1: first back in the mid seventies. Um had to be
5:55
Speaker 1: a rough period. Oh it wasn't rough because I started
5:58
Speaker 1: exactly at the boy him of the market when people
6:01
Speaker 1: had been wiped out. Between nineteen seventy four. I got
6:04
Speaker 1: the distinct pleasure of graduating from Maryland Sales School, coming
6:08
Speaker 1: back to to mary Lynch and Richmond, Virginia, picking up
6:11
Speaker 1: the phone and now I'm on the white Horse and
6:13
Speaker 1: I'm gonna help everyone, and they've just been lost. They
6:15
Speaker 1: just lost about six point market was more than sm
6:18
Speaker 1: was more than cut and half over that period exactly,
6:21
Speaker 1: So no one was really interested in the twenty some
6:23
Speaker 1: year old kid coming in to help them. But I
6:26
Speaker 1: realized if I'm going to be successful, I had to
6:28
Speaker 1: become an expert at something. So I chose the option market,
6:31
Speaker 1: which had just debuted the year before in April of
6:35
Speaker 1: nineteen seventy four. So I became an expert in options
6:38
Speaker 1: by studying weekends and whatnot. Ultimately that led to Wheat
6:42
Speaker 1: First Securities, which was a large regional firm, hiring me
6:46
Speaker 1: to come across and develop and manage their first option
6:48
Speaker 1: strategy department. That's funny, I mentioned I read you when
6:52
Speaker 1: I was early in my career. Similarly, from Wheat first,
6:56
Speaker 1: I read Don Hayes. His office was right next to mine.
7:00
Speaker 1: So in the last minute, we have and we're gonna
7:02
Speaker 1: spend a lot more time on point and figure next segment.
7:06
Speaker 1: What makes point and figure different from traditional charting, Well,
7:10
Speaker 1: because point and figure charts are not updated every day. Uh,
7:13
Speaker 1: there are certain things that have to happen before chart
7:16
Speaker 1: is updated. It's made out of xs and o's and
7:18
Speaker 1: looks kind of funny to people, but there is a
7:21
Speaker 1: learning process that you have to go through when you
7:24
Speaker 1: to understand the buy signals and sell signals in in uh,
7:27
Speaker 1: in point and figure. What has to happen for a
7:29
Speaker 1: point and figure chart to be updated, Well, what has
7:32
Speaker 1: to happen is the stock either has to reverse columns
7:35
Speaker 1: by three boxes or more, meaning the price has to
7:37
Speaker 1: come down to come down by three typically a certain
7:41
Speaker 1: amount exactly. So it's really that doesn't happen, it's not
7:44
Speaker 1: gonna be updated. I'm Barry rid Helts. You're listening to
7:47
Speaker 1: Masters in Business on Bloomberg Radio. My guest this week
7:51
Speaker 1: is Tom Dorsey. He is the founder of Dorsey Wright Associates,
7:55
Speaker 1: which is a research and newsletter firm that was sold
7:59
Speaker 1: to the nast Act for a couple hundred million dollars
8:02
Speaker 1: last year. Before we get into the specific of point
8:06
Speaker 1: and figure charting, you come out of the Mary Merrill
8:09
Speaker 1: Lynch sales program, uh, which I know is a fairly
8:13
Speaker 1: fundamental approach to looking at stocks. How did somebody like
8:17
Speaker 1: you in the early seventies find your way into technical analysts? Well,
8:21
Speaker 1: it was totally by accident, Barry, because when Wheat First
8:23
Speaker 1: Security hired me to to leave Mery Lynch and come
8:26
Speaker 1: across and develop and manage their first option department, I
8:29
Speaker 1: realized I need to hire somebody who really understood the markets.
8:32
Speaker 1: And I hired this guy from Charlotte, North Carolina. Name
8:34
Speaker 1: was Steve Kane, and he brought with him a little
8:37
Speaker 1: book written in nineteen forty seven called the three point
8:41
Speaker 1: Reversal Method of Point and Figure Stock Market Trading by A. W. Cohen.
8:45
Speaker 1: And he said, would you read this so you'll understand
8:47
Speaker 1: the operating system in my mind when I come to
8:49
Speaker 1: you with a stock or the sector, or the market
8:51
Speaker 1: or that type of thing. I said, I do it,
8:52
Speaker 1: and I took it to a Virginia beach that weekend
8:54
Speaker 1: with my wife. Read the first paragraph of the introduction
8:57
Speaker 1: brought me back to my economics education in the university,
9:00
Speaker 1: and I had the epiphany right then that I knew
9:03
Speaker 1: I had to teach this to my brothers and sisters
9:05
Speaker 1: for the rest of my life because it brought me
9:07
Speaker 1: back to econ one on one, which was the most
9:09
Speaker 1: important course I ever had in the university. Supply and demand. Absolutely,
9:13
Speaker 1: that's the key to all of the irrefutable law of
9:15
Speaker 1: supply and demand. And this methodology was created simply as
9:19
Speaker 1: a logical, organized way of recording the imbalance between supply
9:23
Speaker 1: and demand. So we we talked earlier about xs and o's.
9:27
Speaker 1: In other words, you know, it's not so much that
9:29
Speaker 1: you're looking at a line chartum on a screen, but
9:32
Speaker 1: you're essentially looking at x's when the stock is rising,
9:35
Speaker 1: oh's when the stock is falling. Um. Why didn't this
9:40
Speaker 1: method ever go mainstream? If it's if it's so successful, well,
9:45
Speaker 1: I'm actually glad it never did go mainstream because it's
9:48
Speaker 1: because for you, it takes it takes uh an education
9:52
Speaker 1: to do this. You've got to want to learn point
9:54
Speaker 1: and figure charge. Anyone could look at a regular charge
9:56
Speaker 1: in Bloomberg or yeah, but this real. You need to
9:58
Speaker 1: have some background. You've got you need to have some background,
10:01
Speaker 1: and not that much background. I mean, I'm not selling
10:03
Speaker 1: a book, but you could read my book in your
10:05
Speaker 1: and you've got enough. So the one of the key
10:08
Speaker 1: questions anytime I mentioned point and figure charting to people,
10:12
Speaker 1: well why should I use that method as opposed to
10:15
Speaker 1: regular technical analysis. Well, one of the things is it's
10:19
Speaker 1: number one easily programmable because the computer already understands ones
10:23
Speaker 1: and zeros, It understands xs and ohs like you can't imagine. Um,
10:29
Speaker 1: there are relative strength things that we can do with
10:31
Speaker 1: the point and figure charting that you really can't do
10:34
Speaker 1: with bar charts. Bar charts are updated every day, no
10:37
Speaker 1: matter how inconsequential, the more minute by minute, as often
10:41
Speaker 1: as you want to be in the thick of it,
10:42
Speaker 1: so they only whisper when a particular signal is given
10:45
Speaker 1: ers or something should be done with a point and
10:47
Speaker 1: figure charts yells at you. You see a stock rise
10:50
Speaker 1: to a particular point four times and it can't get
10:53
Speaker 1: through that level, and the fifth time it finally gets
10:55
Speaker 1: through that level, it's yelling at you and says, you know,
10:58
Speaker 1: that supply that was at that level all this time
11:01
Speaker 1: could be even a few years. In the case of
11:03
Speaker 1: Coca Cola, back could be a few years. And finally
11:06
Speaker 1: it's it's it's sopped up all that selling pressure and
11:10
Speaker 1: this breakout suggests is going much much higher. I like,
11:12
Speaker 1: I like that explanation. Regular charts whisper point and figures. Yeah,
11:18
Speaker 1: they shout that that's that's really quite quite interesting. So
11:21
Speaker 1: one of the things, and again I was a reader
11:23
Speaker 1: of Dorsey Wright for many many people should realize that
11:27
Speaker 1: for those of those folks who might not have been
11:30
Speaker 1: on the cell side, on the brokeren side at any
11:32
Speaker 1: part of their career, this was pretty much a staple
11:36
Speaker 1: across broker's desks and strategist desks all over Wall Street.
11:41
Speaker 1: Lots and lots of people were reading Dorsey Wright. And
11:45
Speaker 1: one of the things that I very vividly remember was
11:48
Speaker 1: your concept of is the offensive team or the decent
11:53
Speaker 1: offensive team on the field, Please explain that for for
11:56
Speaker 1: the average lay person, that's a concept that day's back
12:00
Speaker 1: to nineteen and Earnest Staby began thinking about what we
12:05
Speaker 1: needed in the market, and he's basically said, we need
12:07
Speaker 1: a soulless barometer that will begin becoming negative when the
12:11
Speaker 1: markets at at the top, and positive when the markets
12:14
Speaker 1: at the bottom. Something totally confounding two investors that when
12:18
Speaker 1: things look the best, we need to start getting negative.
12:21
Speaker 1: So in N. W. Cohen created what's called the bullish
12:24
Speaker 1: percent index. Now, the beauty about a point in figure
12:27
Speaker 1: chart is a buy or sells signal by singing will
12:29
Speaker 1: simply a column of excess that exceeds the previous column
12:32
Speaker 1: of excess. That's simple. Just think in your mind, that's
12:34
Speaker 1: all excess that exceed a previous contents. So a a
12:37
Speaker 1: higher price right on a certain range, that's right, and
12:40
Speaker 1: you can see it's it's so visual, it's unbelievable. The
12:43
Speaker 1: computer can see this easily. When you look at the
12:45
Speaker 1: New York Stock Exchange, which has about two thousand stocks
12:48
Speaker 1: on it somewhere in that area, and we calculate the
12:51
Speaker 1: percentage of stocks that are on by signals, that that
12:55
Speaker 1: means if we went through, if I gave a seventh
12:57
Speaker 1: grader every chart on the New York Stock Exchange and
13:00
Speaker 1: said look to the far right hand side, and every
13:03
Speaker 1: stock you see that has a column of excess that
13:05
Speaker 1: exceeded a previous column of excess counted as counted over here.
13:09
Speaker 1: Set it in a pile. Then we'll divide by the
13:11
Speaker 1: total and we get a percentage from zero to a hundred.
13:15
Speaker 1: So there are different risk levels, but in general, when
13:19
Speaker 1: it's in a column of x's and rising, you have
13:21
Speaker 1: the football. So when you have the football, you should
13:24
Speaker 1: be playing offense. Now, field position is a different story.
13:28
Speaker 1: If you're near the seventy level, that would suggest that
13:31
Speaker 1: everyone is in that wants to be in, and you
13:33
Speaker 1: may have the football, but your field position is terrible.
13:36
Speaker 1: That tells you what plays you probably should run. If
13:38
Speaker 1: you're down at the line level and you have the football,
13:42
Speaker 1: then you can be gonna run much more aggressive plays. Conversely,
13:46
Speaker 1: when it's in a column of OS and declining, in
13:48
Speaker 1: other words, more stocks going on cell signals, which is
13:52
Speaker 1: a column of OS exceeding a previous column of OS,
13:54
Speaker 1: it suggests to you that the defensive team is on
13:57
Speaker 1: the field. Play it that way, play defense. And that's
14:00
Speaker 1: probably the most important market indicator that we have ever
14:04
Speaker 1: had created back in and I could effectively manage the
14:09
Speaker 1: market just with that. So you mentioned that's your favorite indicator.
14:13
Speaker 1: What other indicators do you pay attention to, and perhaps
14:17
Speaker 1: more importantly, what other indicators do you completely ignore? Well,
14:22
Speaker 1: the other ones that we pay attention to, our bullish
14:24
Speaker 1: percents on other types of indexes, like the NASTAC. We
14:28
Speaker 1: do bullish percents on all the sectors. We look at
14:31
Speaker 1: the percentage of stocks that have positive relative strength in
14:34
Speaker 1: a particular industry, sector or the market, and it's the
14:37
Speaker 1: same zero to a hundred grid. You look at that
14:39
Speaker 1: like a football field zero to a hundred uh hundred
14:43
Speaker 1: yards exactly, and when you're above seventy you have bad
14:46
Speaker 1: field position. Below you have good field position column of X,
14:50
Speaker 1: as you have the ball column of o's you don't
14:52
Speaker 1: have the ball. And then we look at all kinds
14:55
Speaker 1: of things like that relative percent of stocks. So in
14:58
Speaker 1: in the last minute we have define what relative strength is.
15:03
Speaker 1: And again for the lay person who may not be
15:05
Speaker 1: familiar with this, relative strength is like an arm wrestling contest.
15:09
Speaker 1: You might have two people and everyone's see an arm
15:11
Speaker 1: wrestling contest, and you see two people on television arm wrestling,
15:14
Speaker 1: and one guy summarily beats the other guy. He has
15:17
Speaker 1: better relative strength than the person. He just two strong guys,
15:20
Speaker 1: one of them is just a little stronger than the
15:22
Speaker 1: precisely and you can do that for different stocks in
15:24
Speaker 1: different sectors. Yeah. Absolutely, I mean it's something that we did,
15:27
Speaker 1: we did nine years ago. We should do that by
15:30
Speaker 1: hand because we didn't have computer systems to do it.
15:33
Speaker 1: I'm Barry Ridholtz. You're listening to Masters in Business on
15:36
Speaker 1: Bloomberg Radio. My guest this week is Tom Dorsey. He
15:41
Speaker 1: is the founder and FORMACYEO of a technical research firm.
15:46
Speaker 1: Dorsey Wright sold last year to the NASDAC for two
15:49
Speaker 1: hundred and something million dollars uh and now Tom is
15:54
Speaker 1: the CEO and c i O of his own family office,
15:58
Speaker 1: running money for his own account and and the family's account.
16:04
Speaker 1: I want to talk a little bit about power shares,
16:07
Speaker 1: e t F and some of the strategies you developed.
16:09
Speaker 1: But before we get into that, not technicals, but let's
16:14
Speaker 1: talk about technology. How has technology changed what you do
16:19
Speaker 1: every day? Barry. That's a great question because you know,
16:22
Speaker 1: technology has had such a major effect on our whole industry.
16:27
Speaker 1: Anything that can be automated will be automated. And you've
16:31
Speaker 1: got to understand that with technology, our relative strength work
16:36
Speaker 1: that we do for our E t F and and
16:37
Speaker 1: the comparisons and contrast we do. We used to do
16:40
Speaker 1: by hand. Back twenty eight years ago, I started charting.
16:43
Speaker 1: I'm early in my career. I worked with a gentleman
16:47
Speaker 1: named Guy Ortmann, who introduced me to both Don Hayes
16:49
Speaker 1: and you. He's now I believe that um Scarsdale Equities,
16:53
Speaker 1: but at the time it was Prime Charter, which was
16:56
Speaker 1: ultimately sold to Oppenheimer. Hard to keep track of, remember
16:59
Speaker 1: account and easy. He used to do charting by hand.
17:04
Speaker 1: He would show me here's where this was, and you
17:06
Speaker 1: could look at the screen, and you can look at
17:07
Speaker 1: a computer, but it's not the same thing as actually
17:11
Speaker 1: writing it down by hands. That's exactly right. We used
17:14
Speaker 1: to day before we had the computer capacity to do it.
17:18
Speaker 1: So many people And do you do five hundred stocks
17:22
Speaker 1: a day past the book to the next person? They
17:24
Speaker 1: did that by the by the end of the week,
17:26
Speaker 1: each persons seen. That's unbelievable. It's amazing. But boy, you like,
17:31
Speaker 1: just like you said, how do you get a better
17:33
Speaker 1: feel than doing it that way? But you can't do there.
17:35
Speaker 1: You know, there's only a certain amount of things you
17:37
Speaker 1: can do. Take for instance, if we wanted to create
17:39
Speaker 1: a matrix on the standard pours five. In other words,
17:42
Speaker 1: I want to create the way we do a relative
17:44
Speaker 1: strength charters, divide one thing by another. If I wanted
17:46
Speaker 1: to compare coca cola to pepsi, I would divide the
17:48
Speaker 1: price of coke by pepsi. That gives me a number.
17:51
Speaker 1: I take that number. I plotted on a chart. It
17:53
Speaker 1: looks like a regular trend chart, but it's not. It's
17:55
Speaker 1: a relative strength chart between the two. When it's rising,
17:58
Speaker 1: the first one is doing better what it fall Precisely,
18:01
Speaker 1: it's just spread between the two exactly. And if I
18:04
Speaker 1: did that on the SMP five hundred, we have to
18:06
Speaker 1: create two fifty charts. In other words, each one relative
18:10
Speaker 1: to a number, two, relative to the number three, relative
18:14
Speaker 1: to all five hundred. So two fifty charts. You've gotta
18:17
Speaker 1: have a lot of employees or good computer exactly. Now,
18:21
Speaker 1: we do overnight seven and a half million relative strength
18:24
Speaker 1: charts every single night, comparing the world, Malaysia, Indonesia, Indonesia
18:29
Speaker 1: to France, France to the United States, everything you can
18:32
Speaker 1: think of. That that's an incredible number of permutations, which
18:35
Speaker 1: actually leads me to my next question. So you run
18:38
Speaker 1: a lot of different strategies. How do you develop these
18:41
Speaker 1: new strategies? How do you come up with these ideas? Well,
18:43
Speaker 1: you come up with the ideas. We sat in a
18:46
Speaker 1: circle for twenty eight years. Nobody's ever had an office
18:49
Speaker 1: at Dorsey Wright. I never had an office of doors. Right,
18:51
Speaker 1: we sit together. So there's a constant hum in the
18:55
Speaker 1: office of discussing things and talking about different things. And
18:59
Speaker 1: they all come from that type of thing. Person will
19:01
Speaker 1: a company will call us and say, hey, we're interested
19:03
Speaker 1: in X, y Z, can you create that forest? Then
19:07
Speaker 1: the ideas start to float around, and and they come
19:09
Speaker 1: in the most unusual ways. I was looking at I
19:12
Speaker 1: was looking one day out the window and I saw
19:14
Speaker 1: a guy cutting the grass with one of these big moors,
19:16
Speaker 1: And I thought to myself, who helps him? Does he
19:19
Speaker 1: go to a major wirehouse and open an account with
19:21
Speaker 1: two thousand dollars? No, they don't let him in the door.
19:24
Speaker 1: So who helps him? So I created a model called
19:28
Speaker 1: the People's Portfolio, and I compared in contrasted three things
19:32
Speaker 1: on a relative strength basis, the standard ports cap weight
19:35
Speaker 1: against the standard ports equal weight. Both trade. They trade
19:37
Speaker 1: totally differently against cash. Cash was in there as the
19:42
Speaker 1: risk management tool of the piece, and whichever one won
19:46
Speaker 1: the arm wrestling contest against the three of the portfolio
19:50
Speaker 1: went in over what time period is that just continuous?
19:55
Speaker 1: How often does that readjust maybe once every three years?
19:58
Speaker 1: Oh yes, I was gonna say, that's a longer term cycle,
20:02
Speaker 1: very long term cycle. But I define many money managers
20:04
Speaker 1: to outperform it. It's a challenge because sim typically the
20:08
Speaker 1: cap weighted does great at the end of his cycle, right,
20:11
Speaker 1: and then when it rolls over, it's the eagle weight
20:13
Speaker 1: that does much precisely. But instead of trying to call
20:17
Speaker 1: the point that that you're at the end of the cycle,
20:19
Speaker 1: let the work do it. Let the relative strain do it.
20:22
Speaker 1: And when that changes and it points to another direction,
20:24
Speaker 1: that's where you go. And So instead of sitting back saying, gee, whiz,
20:27
Speaker 1: you know, I've got all I've I've got a PhD
20:29
Speaker 1: in and this and that and mathematics, and I'm going
20:31
Speaker 1: to figure out when that end is No, wait for
20:33
Speaker 1: the wait for the rules based program to do it.
20:36
Speaker 1: I'm Barry rid Halts. You're listening to Masters in Business
20:39
Speaker 1: on Bloomberg Radio. My special guest today is Tom Dorsey.
20:43
Speaker 1: He is the founder of Technical analyst firm Dorsey Wright
20:47
Speaker 1: and basically a fixture on Wall Street for many years.
20:51
Speaker 1: Dorsey Wright is now part of NASDAC, having been sold
20:54
Speaker 1: last year. Let's talk a little bit about momentum and
20:57
Speaker 1: what it means. What's the significant momentum to either a market,
21:02
Speaker 1: a sector, or a specific stock. Simply this berry. Everyone
21:06
Speaker 1: understands things in motion and to stay in motion until
21:10
Speaker 1: acted upon by an opposite force. That's the same thing
21:13
Speaker 1: that happens in the market. People are trying to catch
21:16
Speaker 1: a knife, so often they want to buy things that
21:18
Speaker 1: are down or going down, and they think that the
21:20
Speaker 1: lower I buy it, the better I'm going to be
21:22
Speaker 1: getting nice bounce back up. That's not the case. Things
21:24
Speaker 1: in motion tend to stay in motion. That's where you
21:26
Speaker 1: want to be and what acts upon it. It's all
21:30
Speaker 1: supply and demand. If you have demand for a particular stock,
21:33
Speaker 1: there are more buyers and sellers willing to sell. Prices
21:35
Speaker 1: gonna rise until all of a sudden supply comes in.
21:38
Speaker 1: That's where that opposite force comes in and supply overtakes
21:42
Speaker 1: the amount of demand available. The up move stops and
21:45
Speaker 1: it begins to down move. So that's really all it is.
21:49
Speaker 1: So One of the things that early in my career
21:51
Speaker 1: I had explained to me was that when institutions buy something,
21:56
Speaker 1: they just don't go out and buy a million shares
21:58
Speaker 1: today and that's it. Typically it's in response to some
22:02
Speaker 1: portfolio change. They're buying it. For larger institutions, pension funds,
22:08
Speaker 1: retirement accounts, and money just flows in on a regular basis.
22:12
Speaker 1: So as long as that four oh one k or
22:15
Speaker 1: institutional money keeps flowing in, they're going to continue to
22:18
Speaker 1: buy more or less the same names over and over again.
22:22
Speaker 1: And as long as there's a limited amount of supply
22:25
Speaker 1: at various prices, that stock is just gonna keep marching
22:29
Speaker 1: higher until more supply comes in or the buying slows down.
22:33
Speaker 1: Is that a fair way to describe. Yeah. Absolutely, And
22:35
Speaker 1: they don't go in and just buy today, and they
22:37
Speaker 1: buy until they've they've got enough in that sitt and
22:39
Speaker 1: then he go do something else. They have more accounts
22:42
Speaker 1: coming in, more money coming in, they're gonna buy in
22:44
Speaker 1: the right places. Take for instance, back in the year
22:46
Speaker 1: two thousand October two thousand, an interesting thing happened all
22:49
Speaker 1: of a sudden, after a number of years where large
22:52
Speaker 1: cap was the place to be uh a large cap
22:55
Speaker 1: and cap weight it was the place to be. It
22:56
Speaker 1: switched to small cap and equal weight. And not only
23:00
Speaker 1: it went from growth which was the place to be,
23:02
Speaker 1: to value and that was a major change. All you
23:06
Speaker 1: had to do at that point in time with that
23:07
Speaker 1: major change is by a value stock equal weighted small
23:11
Speaker 1: cap and leave your customer alone for the next thirteen years,
23:15
Speaker 1: go play golf every day. Precisely you did extremely well.
23:19
Speaker 1: So these things are not overnight phenomenons that happened, and
23:23
Speaker 1: there was buying pressure in that for probably thirteen years
23:26
Speaker 1: until this begins to change. So put that into context.
23:28
Speaker 1: You have throughout the nineties, technology, especially big cap, is
23:33
Speaker 1: just running away. You had some especially on the NASTAC,
23:37
Speaker 1: you had some thirty years. People forget the young guns
23:42
Speaker 1: out there, don't remember what it was like in the
23:44
Speaker 1: late nineties. It was insane. It was like the Roaring
23:48
Speaker 1: twenties had to be pretty close. And and at least
23:50
Speaker 1: when you look at it historically, I not that old,
23:52
Speaker 1: so I don't remember, but I do remember. I do
23:55
Speaker 1: remember the nineties, and I do remember that was astonishing.
23:59
Speaker 1: That peak them around March of that year, and you're
24:02
Speaker 1: saying it took another six months or so for the
24:05
Speaker 1: money to start flowing in a different direction. It clearly
24:08
Speaker 1: was flowing out of the big cap. You know, you
24:11
Speaker 1: had only a certain number of horsemen in the SMP
24:15
Speaker 1: five hundred. I think it was something like ten or
24:17
Speaker 1: twenty stocks were responsible for almost all of the games.
24:20
Speaker 1: And absolutely because towards the end of the what do
24:23
Speaker 1: you want that that's a point in time where when
24:26
Speaker 1: it switches to cap waited saying, you know what you
24:28
Speaker 1: should own an index just only SMP five hundred. Don't
24:31
Speaker 1: worry about diversifying. That's what you should own. And that's
24:34
Speaker 1: where it was at the end of into the year
24:37
Speaker 1: two thousand UM. Most of the time from there it's
24:40
Speaker 1: been a market of stocks where you want to own
24:42
Speaker 1: individual stocks, but that was the point in time you
24:44
Speaker 1: want to own the index. So let's go back to
24:46
Speaker 1: October two thousand. What was it in point and figure
24:51
Speaker 1: charting that would have given you an indication, Hey, go
24:54
Speaker 1: from big cap too small cap, from cap weighted to
24:58
Speaker 1: equal weighted, and go from growth to vale. You it's
25:00
Speaker 1: that relative strength calculations that we do. When they're done
25:04
Speaker 1: every night, they don't change every night. I mean this
25:07
Speaker 1: was five years coming, and all of a sudden, you're
25:10
Speaker 1: watching these two guys aren't wrestling, and the guy who
25:12
Speaker 1: loses every single time for five years, all of a
25:15
Speaker 1: sudden beats the other guy. Why he's in the gym
25:17
Speaker 1: working out. He's getting stronger. You don't realize it, but
25:20
Speaker 1: all of a sudden, that day comes that he wins.
25:22
Speaker 1: And if you're watching it and you have alert set,
25:26
Speaker 1: they it can't escape you. So I do recall from
25:29
Speaker 1: March two thousand, two October there was a pretty hefty
25:32
Speaker 1: sell off. But I also noticed, from having been in
25:36
Speaker 1: the industry for as long as I have, that when
25:38
Speaker 1: you reverse yourself and say, I know, we've been talking
25:40
Speaker 1: about big cap and growth and and momentum uh for
25:45
Speaker 1: a long time, but now it's time to switch. What
25:48
Speaker 1: sort of pushback do you get from clients and investors
25:52
Speaker 1: when you've basically trained them, Hey, you get rewarded by
25:55
Speaker 1: this over and over again, and now a new it's
25:57
Speaker 1: a new game. Yeah, it's not so much the push
26:00
Speaker 1: back that there's a new game. It's a pushback that
26:02
Speaker 1: when you say there's a new game and they don't
26:04
Speaker 1: see the new game yet, we're experiencing it right now,
26:07
Speaker 1: right now, we have where there's a major change taking
26:09
Speaker 1: place in this market. When you think back to two
26:12
Speaker 1: October of two thousand and eleven, that was a tough year.
26:14
Speaker 1: But at the end of two thousand eleven, all of
26:17
Speaker 1: a sudden, for US to six asset classes, US equities
26:20
Speaker 1: became number one that you should overweight in your portfolio,
26:23
Speaker 1: and that stayed from two thousand and eleven to two
26:26
Speaker 1: thousand and sixteen. Just recently it moved out of number
26:30
Speaker 1: one place, number two, went to number three, slid back
26:33
Speaker 1: to number two marginally. But it's saying something is wrong here.
26:37
Speaker 1: But what's happened is you have healthcare, biotechnology, drugs and
26:42
Speaker 1: whatnot that that helped carry this the whole way have
26:44
Speaker 1: totally fallen out of bed. So they had positive relative
26:47
Speaker 1: strength when they came out. I mean it was like
26:49
Speaker 1: the snap of a finger bingo. Now all the things
26:52
Speaker 1: that you were doing that were positive relative strengths for
26:54
Speaker 1: those years. You find this year in two thousand and
26:56
Speaker 1: sixteen year at a loss relative to the SMP five.
26:59
Speaker 1: That's when people begin to get upset. They think everything
27:02
Speaker 1: has to be perfect. We're speaking with Tom Dorsey, formerly
27:05
Speaker 1: of Dorsey Wright and now c I O of his
27:08
Speaker 1: own family office. So if the US as a market
27:12
Speaker 1: was leading the train and now is two or three,
27:16
Speaker 1: what has risen to the four? What parts of the
27:19
Speaker 1: world are are starting to look more attractive. It's interesting
27:22
Speaker 1: because what went to what number one and number two
27:25
Speaker 1: and then six asset classes that we have. We look
27:27
Speaker 1: at international equities, US equities, cash, fixed income, commodity commodities,
27:33
Speaker 1: and foreign currencies. What moved into number one place? Fixed
27:36
Speaker 1: income to place was held for a few weeks and
27:41
Speaker 1: it's still marginally there. Uh is cash now that was interesting.
27:46
Speaker 1: Cash has moved up, not to US Cash has a
27:48
Speaker 1: simple m N Y m k T, so we look
27:50
Speaker 1: at it just like money, regular money market. We look
27:53
Speaker 1: at that symbol like it's like it's IBM or General
27:55
Speaker 1: Motors or whatever, and it has moved up to number
27:58
Speaker 1: two spot. Um, something is going on here and there's
28:02
Speaker 1: a major change taking place. I see commodities began to
28:06
Speaker 1: move up from number six level to number five level,
28:09
Speaker 1: So they were the bottom of the barrel. Now they're
28:12
Speaker 1: beginning to come off of the bottom of the barrel.
28:14
Speaker 1: What about international which is emerging? Internationals at is at
28:17
Speaker 1: the bottom, but I'm finding some international some some emerging markets.
28:22
Speaker 1: I trade Indonesia direct doing extremely well. They're in Indonesia's
28:26
Speaker 1: So going back to the original concept of waiting for
28:31
Speaker 1: a momentum to develop, if you're looking at emerging markets,
28:36
Speaker 1: you're probably if you're long emerging markets, you're probably not
28:39
Speaker 1: going to see a whole lot of positive gains anytime soon.
28:43
Speaker 1: But if you're looking at something that's ranked six out
28:45
Speaker 1: of six, does that mean there's a lot of potential
28:48
Speaker 1: upside down the road. Yeah, but where's down the road?
28:51
Speaker 1: I don't know. It might be down the road. That's
28:54
Speaker 1: a trillion dollar question. That could be. That's the thing,
28:56
Speaker 1: it's a trillion dollar question. You don't know how long
28:58
Speaker 1: that road is. So you have to wait until the
29:01
Speaker 1: actual change your relative strength charts begin to change and
29:04
Speaker 1: begin to win the arm wrestling contest, you'll find I
29:07
Speaker 1: think if if commodities is is one of the ones
29:09
Speaker 1: that's gonna move up to number one, like two thousand
29:11
Speaker 1: and eight, commodities held number one rank for what sure
29:14
Speaker 1: you know, if that's going to be the case, then
29:17
Speaker 1: you probably find international move up to during the during
29:20
Speaker 1: the decade of two thousand and two, thousand and ten,
29:22
Speaker 1: the last place you'd want to invest in equities was
29:25
Speaker 1: the United States. International was the play that whole time.
29:28
Speaker 1: We'll think of all the emerging markets are big commodity exporters.
29:31
Speaker 1: Is at the time, China was one of the big
29:34
Speaker 1: drivers of that. In China's in the Emerging Market index.
29:37
Speaker 1: So that that makes perfect sense. So you had mentioned
29:41
Speaker 1: earlier you don't have an issue with cap weighted indices.
29:44
Speaker 1: I know some people do. You're just suggesting there are
29:48
Speaker 1: times when cap weighted is desirable or more desirable, and
29:51
Speaker 1: there are other times when equal weighted is more. That's
29:54
Speaker 1: exactly right, you know. And and when I explained cap
29:56
Speaker 1: weighted to people, it's like Congress. In the Senate, Congress
30:00
Speaker 1: is um cap weighted. If you look at look at California,
30:04
Speaker 1: state state, the more and more more representatives the Senate
30:08
Speaker 1: is equal weighted gets to and that's a great, great
30:13
Speaker 1: way to look at it. So sometimes it's the Senate,
30:14
Speaker 1: sometimes it's the Congress. You just wait to see what
30:17
Speaker 1: happens because this it's that they both sit down their
30:20
Speaker 1: arm wrestle every single day and you watch and see
30:22
Speaker 1: who's gonna be winning. It's you don't change on a
30:24
Speaker 1: daily basis. Signals on on relative strength and point and
30:27
Speaker 1: Figure can last two or two and a half years.
30:29
Speaker 1: So if people want to find your writings or your perspective,
30:32
Speaker 1: what's the best place for them to track you down. Well,
30:35
Speaker 1: you can go to Dorsey Right dot com www dot
30:37
Speaker 1: Dorsey Right dot com. We do a podcast every week
30:40
Speaker 1: that's free to anybody. If you just go to that site,
30:43
Speaker 1: Dorsey Right dot com you can see it. And we're
30:45
Speaker 1: one of the oldest podcasters in the country. We're on
30:47
Speaker 1: five hundred and some weekly podcasts. And you also you
30:51
Speaker 1: have a number of books, but the big one important
30:53
Speaker 1: figure is called it's called Point and Figure Charting exactly
30:55
Speaker 1: that and you'll see my picture on the cover. Um
30:58
Speaker 1: it's the fourth edition Point and Figure Charting. It's pretty
31:01
Speaker 1: much all you need to know. You know, we've been
31:03
Speaker 1: hiding in the open for twenty eight years. We you
31:06
Speaker 1: really read that book, you see exactly what we do.
31:08
Speaker 1: We tell you exactly how to do it, but nobody
31:11
Speaker 1: wants to do it. You know. Harvard professor once said, uh,
31:14
Speaker 1: people don't want the quarter inch drill, they want the
31:16
Speaker 1: quarter inch hole. And that's what we try to give
31:20
Speaker 1: a manefits or teach the same thing. If you enjoy
31:24
Speaker 1: this conversation, be sure and stick around for a podcast
31:26
Speaker 1: extras where we keep the tape rolling and continue chatting.
31:30
Speaker 1: Be sure and check out my daily column on Bloomberg
31:33
Speaker 1: View dot com or follow me on Twitter at Riolts.
31:37
Speaker 1: I'm Barry Hults. You've been listening to Masters in Business
31:41
Speaker 1: on Bloomberg Radio. Tom. Thank you so much for doing this.
31:44
Speaker 1: I'm really excited to have you here. I've been looking
31:46
Speaker 1: forward to this for a while, Barry. Anytime, I love it,
31:49
Speaker 1: I enjoy it. I said this earlier when we first met.
31:52
Speaker 1: I've been reading your stuff, no exaggeration, for so many years. Um,
31:58
Speaker 1: I feel like I know you personally. And it's funny
32:01
Speaker 1: because people say that to me and I have a
32:03
Speaker 1: hard time understanding that. And now it's like, oh, I
32:06
Speaker 1: kind of get that you read somebody for a decade.
32:09
Speaker 1: It's like I kind of not understand what he thinks.
32:11
Speaker 1: I understand the philosophy, and like I mentioned earlier, I
32:15
Speaker 1: started as a trader. I went into the research side.
32:18
Speaker 1: I worked with some people where that were religious Dorothy
32:22
Speaker 1: Right adherents, if only because it was clear the fundamental
32:26
Speaker 1: side of things wasn't getting it done, and they wanted
32:29
Speaker 1: a structure, they wanted a model. You're really popular, or
32:33
Speaker 1: at least in my experience in the nineties and the
32:35
Speaker 1: two thousands, Dorothy Doroth c right was really popular amongst
32:41
Speaker 1: a certain contingent of the brokerage community. Right. Exactly, it's
32:44
Speaker 1: always been professional for us. We don't have any real
32:48
Speaker 1: uh any, any real large clientele and individual investors, not
32:52
Speaker 1: not a retail audience, no, not retail at all, only
32:54
Speaker 1: professional oriented. And now that business is changing, are you
32:58
Speaker 1: still finding the same reception to what you guys do
33:02
Speaker 1: or how has that morphed over the years. Well, back
33:05
Speaker 1: in back in the beginning, advisors needed something desperately to
33:09
Speaker 1: help them manage portfolios, and the technical side was just
33:13
Speaker 1: never there at the firm was always fundamental. So the
33:16
Speaker 1: technical side resonated with them an in particular point and
33:18
Speaker 1: figure because it's easy for anyone to understand. In fact,
33:22
Speaker 1: Tammy was my right hand. Remember Tammy, We've been into
33:26
Speaker 1: Gates Elementary school teaching this to seventh graders and and
33:29
Speaker 1: and they catch on in about forty minutes. Adults take
33:31
Speaker 1: a lot longer to d program. But it's so simple
33:35
Speaker 1: that kids can understand it, and it's it's professionals need
33:39
Speaker 1: the help to stay in the business where individual investors
33:43
Speaker 1: will do it for a while, all of a sudden
33:45
Speaker 1: the stock goes down. They thought it would go up
33:47
Speaker 1: there going on vacation, they canceled. So we're professional and
33:50
Speaker 1: we and our portfolio and charting system for what we
33:55
Speaker 1: do in portfolio charting because it's probably the largest in
33:57
Speaker 1: the world on the internet for portfolio and charting. So
34:00
Speaker 1: I'm We talked about relative strength, we talked about some
34:03
Speaker 1: of your favorite indicators. What what are some of your
34:06
Speaker 1: least favorite indicators? And I went to Twitter and asked
34:09
Speaker 1: people and these are the suggestions they had given me
34:12
Speaker 1: to ask you. Um, Elliott Wave, everything rings in here.
34:17
Speaker 1: It's crazy Elliott Wave. Your fan of Elliot Wave at all? No,
34:21
Speaker 1: I don't understand it. That's my five waves, three waves,
34:24
Speaker 1: two up, seven down down, two thousands something like that.
34:28
Speaker 1: I don't Barry, I don't get it. You know, that's
34:31
Speaker 1: my problem. I've I'm not even a member of the
34:33
Speaker 1: Market Technicians Association. That's interesting, and that's because I am.
34:37
Speaker 1: I'm a member of the Egyptian Technical as Society. Why
34:40
Speaker 1: is that well, because I've been to Egypt so much
34:43
Speaker 1: and I like these like them they're great people. Do
34:45
Speaker 1: they use point and figure in Egypt practically a bunch
34:50
Speaker 1: of X is. You're exactly right. I've been there, uh
34:54
Speaker 1: so numerous times. There are some people to do. But
34:57
Speaker 1: um I'm remember the International Technical and Society, but only
35:01
Speaker 1: because I like to go internationally and meet all the
35:03
Speaker 1: different technicians. I don't understand a lot of the types
35:07
Speaker 1: of things like Fibonacci, retracements, gan angles. You know, it's
35:11
Speaker 1: it's the thing, the sixties seven percent or whatever the
35:15
Speaker 1: heck it is. I don't get it always looks good
35:18
Speaker 1: in retrospect, but never perspectively. My problem is I'm not
35:22
Speaker 1: smart enough to understand that. I think that a lot
35:24
Speaker 1: of these things have a degree of randomness in it,
35:27
Speaker 1: and we're easily fooled by our pattern recognition subroutines. Um.
35:32
Speaker 1: So people sort of impose what they you know, it's
35:36
Speaker 1: a roth Chack test. People impose order on on that
35:40
Speaker 1: disorder and see things that I don't know if it's there.
35:42
Speaker 1: I think Fibonacci is a fascinating concept. I love the
35:46
Speaker 1: idea of him as a mathematician and what he's done.
35:49
Speaker 1: But UM, if you read this defense fascinating book called
35:53
Speaker 1: Um Against the Gods, where there's a whole discussion on
35:57
Speaker 1: on Fibonacci as a mathematician, as an early person who
36:03
Speaker 1: identified how to deal with risk, how to mathematically determined risk.
36:08
Speaker 1: But it had nothing to do with stock patterns or
36:10
Speaker 1: anything like that exactly. And that's the problem. That's why
36:12
Speaker 1: with me. If it doesn't apply to UM, if it
36:16
Speaker 1: doesn't apply to portfolio management, doesn't mean anything to you.
36:21
Speaker 1: I don't know how it can because people don't trade anymore.
36:25
Speaker 1: The regulation that's come on us since has been incredible,
36:29
Speaker 1: the new regulation that's coming from the Department of Labor.
36:32
Speaker 1: Now you have to be a portfolio manager. You've got
36:34
Speaker 1: to be a retirement portfolio manager. These things don't necessarily
36:39
Speaker 1: fit in that vernacular, so to me, I don't use them.
36:45
Speaker 1: So let's let's talk about some other technicians who who
36:49
Speaker 1: are out there. Are there any technicians that stand out
36:51
Speaker 1: to you, anybody you particularly like? Follow? No or you? Yeah,
36:56
Speaker 1: there's you know, like UM. Number one would be Ralph Akapor,
37:00
Speaker 1: great friend of mine. He's the founder of the Market
37:02
Speaker 1: Technicians Association. He's just a wonderful, wonderful person. He's retired
37:06
Speaker 1: now and I would love to go on the road
37:08
Speaker 1: with him and do some talks. That would be fun.
37:10
Speaker 1: We had him here as a guest. He was terrific.
37:13
Speaker 1: I took the course with him. I don't know, twenty
37:16
Speaker 1: years yeah, absolutely, it was really it was really i
37:20
Speaker 1: opening and fascinating. And even though I'm no longer an
37:23
Speaker 1: active trader I was twenty years ago. Understanding what he
37:27
Speaker 1: taught me is just helped my understanding of what's going on.
37:31
Speaker 1: I don't trade day to day, but it's nice to
37:33
Speaker 1: understand what people are thinking about day to day as
37:36
Speaker 1: someone in the business as I, but but as I
37:39
Speaker 1: go a little further. If I go to go to
37:41
Speaker 1: the far East, let's go to the other Let's go
37:43
Speaker 1: halfway around America, I would say, Mohammed al faith In
37:47
Speaker 1: in Indonesia, Jakarta, Uh, Gideon Lapian in Chicago. In Jakarta,
37:53
Speaker 1: I go to Malaysia. Qualit. I'm poor. Fred tam one
37:55
Speaker 1: of the greatest in the world. So you think technicians
37:58
Speaker 1: are everywhere, are around the world, in every country. It's
38:02
Speaker 1: not just the United States. People think, oh, technicians are here,
38:05
Speaker 1: They're everywhere. You mentioned three countries in the Pacific, rim Indonesia.
38:10
Speaker 1: What are those folks trading, Well, they trade Indonesia. They're
38:13
Speaker 1: trading the Indonesian market and the Far East market, which
38:16
Speaker 1: would be Malaysia. In Malaysia, each each one of the
38:19
Speaker 1: technicians in his own country will trade that his own
38:21
Speaker 1: country mostly. But um, those markets deep and broad enough
38:27
Speaker 1: and liquid enough that these guys can trade. That's a
38:30
Speaker 1: great question because I've been trading now probably for fourteen
38:33
Speaker 1: years direct in Indonesia, and I have an account at
38:36
Speaker 1: east Samuel dot com. And you could trade the Indonesian
38:40
Speaker 1: market from the US directly through a third party broker. Yeah,
38:44
Speaker 1: absolutely online. I mean, the world is open for business.
38:47
Speaker 1: Anyone that wants to do this can do it. And
38:50
Speaker 1: I love trading Indonesia because it's there's a lot of
38:54
Speaker 1: anomalies there that can be It's still not perfectly efficient
38:59
Speaker 1: a lot of time. So I don't can't pronounce the
39:01
Speaker 1: name of the company, But is that is that important
39:04
Speaker 1: when I look at the chart? You know? So we
39:08
Speaker 1: run models on all these countries too, So you you
39:12
Speaker 1: mentioned models is a question I've always wondered about. Maybe
39:16
Speaker 1: you can help me with this, So when you have
39:18
Speaker 1: a model, how could you tell the difference between a
39:21
Speaker 1: model that's temporarily out of favor and something that no
39:25
Speaker 1: longer works well for us? It's always gonna be temporarily
39:30
Speaker 1: out of favor, because I know relative strength works absolutely
39:34
Speaker 1: for us. That's the direction we have. Relative strength has
39:38
Speaker 1: been working since before I was born. And that's a
39:41
Speaker 1: long long time ago, Barry. Let me tell you. And Uh,
39:46
Speaker 1: it's a matter of being out of favor for a while.
39:49
Speaker 1: Like I said, relative strength will be out of favor
39:53
Speaker 1: one quarter out of four or five. It's going to
39:55
Speaker 1: happen while it's trying to find attraction, you know, because
39:59
Speaker 1: some years you have, Barry, some years when you look
40:01
Speaker 1: at the disparity between the best performing asset class and
40:04
Speaker 1: the worst performing asset class, there's not much in the
40:07
Speaker 1: middle there. My favorite graphic is that quilt the chart
40:12
Speaker 1: of all the boxes representing and and they more than six.
40:16
Speaker 1: They'll break it into twelve or fourteen asset classes. And
40:19
Speaker 1: here the returns for each asset class year by year,
40:23
Speaker 1: and some years the best performing one is worst is
40:27
Speaker 1: flat or negative. Exactly. That's a huge spread. Exactly, that's
40:30
Speaker 1: a huge spread, but a lot of times you don't
40:32
Speaker 1: find a huge spread in these, so a lot of
40:34
Speaker 1: times the spread is pretty narrow. And when the spread
40:36
Speaker 1: is narrow, picture of car spinning its wheels and it's
40:39
Speaker 1: trying to find traction. It just can't. It just keeps
40:42
Speaker 1: throwing the dirt behind it, and once it finds traction,
40:45
Speaker 1: something breaks out. Like um, let's let's say back in
40:48
Speaker 1: two thousand eleven, you had the healthcare drugs biotechnologies break out.
40:53
Speaker 1: All of a sudden, those wheels catch and that and
40:56
Speaker 1: the car shoots forward. You know, until then it's spinning
40:59
Speaker 1: its wheels, So that will happen with relative strength when
41:01
Speaker 1: there's no real dispersion between best and worst. Around that time,
41:06
Speaker 1: it's so funny. I'm fond of reminding people to not
41:09
Speaker 1: allow their personal politics to influence their investing. And around
41:15
Speaker 1: that time you had the Supreme Court say, uh, what
41:19
Speaker 1: we call Obamacare was not going to be overturned. And
41:24
Speaker 1: we looked at each other and said, well, hospitals, pharmaceuticals,
41:27
Speaker 1: the whole health care sector just got another ten million
41:31
Speaker 1: people courtesy of the taxpayer, are going to be consumers.
41:35
Speaker 1: That's probably good for the sector. And we got huge
41:38
Speaker 1: pushback from people saying, well, you know, I don't know.
41:40
Speaker 1: I don't really like opomacare or this or that. I'm
41:43
Speaker 1: not asking you how you're going to vote. I'm asking
41:46
Speaker 1: you what sectors are gonna do well relatives. That's exactly right.
41:49
Speaker 1: And you have to be agnostic totally. I mean you've
41:52
Speaker 1: got to walk down. You know, people will ask me,
41:54
Speaker 1: what do you think? I don't. I don't have the
41:56
Speaker 1: luxury of doing that, because if I could figure these
41:59
Speaker 1: things out, if I was clairvoyant, we'll be doing this
42:02
Speaker 1: talk from Verona, Italy on my shipping fleet. It's an
42:06
Speaker 1: expensive indulgence to allow your politics and to on either side,
42:09
Speaker 1: left or right. It should really be kept separate, it
42:12
Speaker 1: asked me. Politics are for the voting booth, but when
42:15
Speaker 1: it comes to investing, you have to be an object
42:18
Speaker 1: like we're we're right here in a room that's self contained. Here,
42:21
Speaker 1: there's no noise outside, double glass and that type of thing.
42:25
Speaker 1: That's where you need to operate with your portfolio. Double glass,
42:28
Speaker 1: no noise, and that's it. Objective evidence bets right and
42:32
Speaker 1: keep it separate. So let me ask you another question.
42:35
Speaker 1: And again I asked people on Twitter, Hey, what should
42:38
Speaker 1: I ask Tom Dorsey, and one of the questions came
42:41
Speaker 1: up was this, what's the problem with buy and hold? Well,
42:46
Speaker 1: the problem with buy and hold and and and there,
42:48
Speaker 1: and there is no problem with that if a person
42:51
Speaker 1: wants to do that, because there may be it may
42:54
Speaker 1: be an investor who says, you know what, I'm gonna
42:56
Speaker 1: make a bet on the five largest companies of America.
43:00
Speaker 1: And that's it. And exactly I'm done. And I don't
43:05
Speaker 1: have to have a broker, I don't have to pay fees.
43:07
Speaker 1: I buy it one time. I'm making a bet on America.
43:10
Speaker 1: Fantastic if you did that hundred years ago, Man, you
43:14
Speaker 1: made a great bet. I mean it's been it's been
43:16
Speaker 1: a great ride. But what will happen, though, two, is
43:19
Speaker 1: when you when you put your foot in that stirrup
43:22
Speaker 1: and you're just you're just a buy and hold, you
43:24
Speaker 1: miss things that are happening. Let's say you were buying
43:27
Speaker 1: hold back in October of two thousand and all of
43:29
Speaker 1: a sudden, what happened was the market went to small
43:32
Speaker 1: cap uh equal weight and value. You missed it. So
43:39
Speaker 1: for you're you're sitting there in a in a in
43:42
Speaker 1: a cap weighted SMP five hundred the next thirteen years
43:45
Speaker 1: you wander performed. I want everyone let's listen to this.
43:48
Speaker 1: Go just go on on Yahoo finance and look at
43:51
Speaker 1: the difference in performance between the RSP which is the
43:55
Speaker 1: equal weighted standard, and the SPX, which is the cap
43:58
Speaker 1: weighted Look at the difference. Go back twenty years and
44:02
Speaker 1: say which one would I have preferred to be in,
44:04
Speaker 1: and you'll see that they traded totally different. Right in
44:06
Speaker 1: the nineties, you want the cap weighted. In the two thousands,
44:09
Speaker 1: you want the equal weighted exactly. And then after when
44:12
Speaker 1: when has now we're now we're at cap weight. It's
44:15
Speaker 1: been cap weight here recently, but if you look at
44:18
Speaker 1: the long term picture, it's long term picture is still
44:21
Speaker 1: equal weight, but more recently cap weighting has been been
44:24
Speaker 1: to play and large cap has given way to small
44:27
Speaker 1: cap or small cap has given way to large cap. Now.
44:30
Speaker 1: So so now your e t F that looks at
44:33
Speaker 1: both of these variations, it's always in either cap weight
44:37
Speaker 1: or equal weight. That that's the option. No, it's not.
44:41
Speaker 1: That's not the option. We could be in some of each.
44:43
Speaker 1: I mean it doesn't how how how doesn't have Well
44:47
Speaker 1: what we look at as as a general As a
44:50
Speaker 1: general rule, we don't cap weight any of our e
44:52
Speaker 1: t f s. They're all equal weighted. Take for instance,
44:56
Speaker 1: our PDP, our technical leaders. We look through stocks one
45:00
Speaker 1: it's a quarter, and we do that arm wrestling calculation,
45:04
Speaker 1: massive number of charts we have to create. We pick
45:06
Speaker 1: out the one hundred strongest out of and that goes
45:11
Speaker 1: into the portfolio and that's gonna be your your PDP
45:14
Speaker 1: for the next quarter. And that's done pretty well, that's
45:16
Speaker 1: been out right. What what's the track record of that
45:20
Speaker 1: e t S? Oh god, I couldn't begin to performed.
45:24
Speaker 1: It has um But here's the thing. Very when you
45:27
Speaker 1: look at that, it's almost like a sector rotation kind
45:30
Speaker 1: of model, because when you look at the things in
45:32
Speaker 1: that universe and it says, gee, we're gonna push you
45:35
Speaker 1: into the one hundred, it's pushing into the one hundred strongest.
45:38
Speaker 1: So pushing you into the one strongest is going to
45:40
Speaker 1: put you into the sectors that are doing the best.
45:44
Speaker 1: And you you mentioned earlier the strategy that shifted back
45:48
Speaker 1: and forth. Is that an e t F or is
45:50
Speaker 1: that state? Well, we have probably eighty five different models
45:55
Speaker 1: that run on on our system, on our portfolio excuse me.
45:59
Speaker 1: On our website, those are like unwrapped ETF. So that's
46:04
Speaker 1: an interesting question. Take for instance, our F v. Frank Victor.
46:09
Speaker 1: That's that E t F garnered the most sponsorship in
46:13
Speaker 1: in buying any E t F in a shorter period time.
46:17
Speaker 1: Came out in two thousand and fourteen. In one year,
46:19
Speaker 1: we had about four billion dollars in a snow four billion.
46:23
Speaker 1: Now f E stands for it's set first trust five. Okay,
46:26
Speaker 1: so we look at the first trust twenty sectors. We
46:28
Speaker 1: do the arm wrestling contest on a rollatives train basis,
46:31
Speaker 1: pick the top five and that is basically it. We
46:34
Speaker 1: let the top five wiggle back and forth until it's
46:37
Speaker 1: until they cross a particular level. So that's not readjusted
46:40
Speaker 1: on a on a set timeline. It's based on price exactly,
46:44
Speaker 1: I mean based on relative straight as long as they
46:46
Speaker 1: stay in that, you know, which is like a picture,
46:48
Speaker 1: like a baseball game. You watch your picture and your
46:52
Speaker 1: picture starts out and he's doing really well until the
46:54
Speaker 1: fifth inning. Then all of a sudden he's sarting to
46:56
Speaker 1: hit people with the ball and they're hitting home runs
46:58
Speaker 1: on him, and and boy, all of a sudden, the coaches,
47:02
Speaker 1: something's wrong with his relative strength. I gotta I gotta
47:05
Speaker 1: take him out of the portfolio. In other words, I
47:07
Speaker 1: gotta call over to the bullpen. He calls over the
47:10
Speaker 1: bullpen and says, who's throwing the heat? He means, who's
47:13
Speaker 1: got the best relative strength? Because I gotta take this
47:15
Speaker 1: guy off the mound, because he's starting to get weak.
47:18
Speaker 1: I put him in the dugout. I bring the guy
47:19
Speaker 1: who has the best relative strength out of the dugout,
47:22
Speaker 1: and he becomes the picture. So that's how things come
47:25
Speaker 1: in and out of the portfolio like that. The f
47:27
Speaker 1: V the First Trust five has been has gone years
47:31
Speaker 1: without without a change until recently all of a sudden
47:35
Speaker 1: would happen in First Trust five. The things that carried
47:37
Speaker 1: it over the last five years, which was we were
47:39
Speaker 1: in the healthcare drugs, we were in um technology big
47:44
Speaker 1: time we had and also we had no oil. It
47:49
Speaker 1: would not let a relative strength portfolio a sector that's
47:53
Speaker 1: been in free falls, right. But if you were a
47:55
Speaker 1: fundamental portfolio, you'd have you'd have to have part of it.
47:57
Speaker 1: You wouldn't be able to be out of oil, which
48:00
Speaker 1: we were out of oil. We wouldn't let it in.
48:01
Speaker 1: So a lot of times it's what you don't that
48:03
Speaker 1: really makes the difference. So the first Trust five was
48:07
Speaker 1: a model. Those were the five E t fs and
48:10
Speaker 1: and what you did is you bought those five E
48:12
Speaker 1: t f s as a professional, and whenever a change
48:14
Speaker 1: took place, we emailed you if you're running that as
48:20
Speaker 1: a separate model and a separate model, and probably about
48:22
Speaker 1: four billion dollars was in that model because it's available
48:25
Speaker 1: to our professionals. Now, the interesting thing there is the
48:27
Speaker 1: wirehouse broker who needs Q SIPs. He has to satisfy compliance,
48:32
Speaker 1: he has to satisfy branch manager, customers want to see
48:34
Speaker 1: things in the portfolio and whatnot. He buys the model.
48:37
Speaker 1: We took that model and wrapped it up into an
48:40
Speaker 1: E t F which was symbol f V Frank Victor
48:43
Speaker 1: exactly the same thing, except one Q SIP over here,
48:47
Speaker 1: which service the individual investor UH managers who pay a
48:54
Speaker 1: fee whenever they buy a stock, they have to pay
48:56
Speaker 1: a commission. So this worked perfectly for them to have
49:00
Speaker 1: one symbol that wrapped up that model. But on the
49:03
Speaker 1: other side you had the wirehouse broker who wanted the
49:06
Speaker 1: QUE SIPs. So they both trade side by side. We
49:12
Speaker 1: have eighty five different models that could be wrapped up
49:16
Speaker 1: into an A t F. And and how many A
49:18
Speaker 1: t F do you have? I'm actually trying to pull
49:20
Speaker 1: that up. Probably about seventeen, uh well totally total, maybe twenty.
49:26
Speaker 1: I'm not sure exactly how many of them, um And
49:30
Speaker 1: what's the U M of all those I'm trying to do.
49:34
Speaker 1: If you just look at the E t s themselves,
49:36
Speaker 1: I would say probably after this last decline. Maybe that's
49:40
Speaker 1: not an insubstantial amount of money. No, it was higher
49:44
Speaker 1: before the market market took them away. But we've been
49:47
Speaker 1: at this game for a long time. I worked with
49:49
Speaker 1: the first d t F that ever came out with
49:51
Speaker 1: which Joseph Rosello was head of marketing at the Philadelphia Exchange.
49:55
Speaker 1: That was the first E T F that ever came out,
49:57
Speaker 1: which was what the cash index participation unit symbol BUS
50:01
Speaker 1: participation right. This was back in the mid eighties. Joseph
50:05
Speaker 1: Rizzello was the head of marketing at the Philly Exchange.
50:07
Speaker 1: They brought this this, uh we called it the SIP.
50:11
Speaker 1: It was simple b I G which was dal Jones
50:14
Speaker 1: and simple SNP, which was standard in ports, and they
50:17
Speaker 1: traded on the Exchange. So it was the first e
50:19
Speaker 1: t F that traded, but they ran into trouble and
50:22
Speaker 1: got sued by the Futures Exchange in Chicago because that
50:26
Speaker 1: e t F was backed by futures not stocks. And
50:31
Speaker 1: so now you have the Dale Diamonds and the SMP Spiders.
50:34
Speaker 1: That's the same thing, except they're backed by stocks not futures.
50:38
Speaker 1: I wonder why they used futures and stead guess it
50:40
Speaker 1: was just it was it was cheaper to do it
50:43
Speaker 1: that way. You had the same thing, but it was cheaper.
50:46
Speaker 1: What happened then then the next e t F that
50:48
Speaker 1: came was the Toronto Stock Exchange came down and used
50:51
Speaker 1: the same template and created the Toronto Index Participation units
50:55
Speaker 1: backed by stock, and that still trades. That's amazing, that's
51:00
Speaker 1: still trades to this day. I'm looking for this. Look
51:05
Speaker 1: at that list. That's impressive. Um. So we went over
51:10
Speaker 1: buy and hold. We went over a number of different strategies,
51:14
Speaker 1: and we talked about your love of Fibonacci and Elliott wave,
51:17
Speaker 1: which is always it's just it's just that I don't
51:20
Speaker 1: understand them. So it's not I'm not slamming them. I
51:22
Speaker 1: wouldn't say anything against them in the right hands, every
51:26
Speaker 1: every every bit of technical analysis works. But it's just
51:29
Speaker 1: in my hands. The only thing I've ever looked at
51:31
Speaker 1: or used or anyone a d w A has ever
51:33
Speaker 1: done this point in figure charting. So let me get
51:36
Speaker 1: to my last two questions that we skipped during the
51:38
Speaker 1: main part, and then I'll get to my favorite questions. Um, So,
51:43
Speaker 1: the past twenty years, we've seen the rise of high
51:45
Speaker 1: frequency trading. We've seen all these ztfs, we've seen a
51:48
Speaker 1: shift towards index thing. What has any of this stuff
51:52
Speaker 1: done to the strategies that you employ? Nothing? Nothing, nothing,
51:57
Speaker 1: absolutely nothing in fact, In fact, the point in figure charts,
52:00
Speaker 1: if you look back to the old guys who wrote
52:02
Speaker 1: about it, A. W. Cohen and Ernest Staby, they always
52:05
Speaker 1: said the faster chart forms, the better it is because
52:09
Speaker 1: the same players are still there. It's not like a
52:11
Speaker 1: chart pattern forms today and two and a half years
52:13
Speaker 1: it's still the same chart pattern everybody's going. So you say, wow,
52:17
Speaker 1: the market has moved got more volatile, things have gone faster. Okay,
52:20
Speaker 1: that's great, it's even better for us. And um, the
52:23
Speaker 1: other question we I skipped, so smart beta has been
52:27
Speaker 1: getting quite popular is there a risk that becomes too popular. Well,
52:33
Speaker 1: now you have to understand, Barry, that smart beta really
52:35
Speaker 1: is a marketing term. You're not the first person who
52:38
Speaker 1: said that. You know, it really is because to me,
52:42
Speaker 1: smart the way they look at smart beta is anything
52:44
Speaker 1: that's not capitalization weighted. But the way I look at
52:47
Speaker 1: smart beta is things that are rules based that if
52:50
Speaker 1: you're going to be smart about it. You know, let's
52:53
Speaker 1: say with the kale. We talked about the kale before
52:56
Speaker 1: on the radio. If you want to make kale taste good,
52:59
Speaker 1: there are a thing you need to do to it.
53:01
Speaker 1: If you want to create a portfolio of of exchange
53:03
Speaker 1: trader funds, there are some things that fit together well,
53:06
Speaker 1: some things that don't fit together well. So with the
53:09
Speaker 1: rules based program, that's how you're gonna create your portfolio.
53:12
Speaker 1: I always look at you. You ever watch the Master
53:14
Speaker 1: Chef on TV show all right now? Whenever they go
53:17
Speaker 1: into the Master Chef pantry, everyone runs in with their basket,
53:21
Speaker 1: same ingredients or different ingredients, right, different ingredients they got
53:25
Speaker 1: the same They have to make the same thing, but
53:26
Speaker 1: they're gonna pick different things. When I look at that
53:29
Speaker 1: Master Jef pantry, I see E T. F s. That's
53:32
Speaker 1: all I see. And they're assembling things out of exactly
53:34
Speaker 1: they're picking the protein to picking everything. And with with
53:37
Speaker 1: a money manager like yourself, you have all those things
53:40
Speaker 1: available to you. It's your job to create a fantastic
53:43
Speaker 1: meal for your customers. So you have the selection of
53:46
Speaker 1: everything in that master chef pantry, and that's how you
53:49
Speaker 1: create your your your portfolio for e t f S.
53:52
Speaker 1: That's really interesting, you know. I always thought it was
53:55
Speaker 1: a fascinating coincidence that the standard for an index is
54:00
Speaker 1: cap waited when we know there are so many problems
54:03
Speaker 1: with cap waiting towards the end of the sectors, at
54:06
Speaker 1: the end of the cycle especially. But that said, I
54:09
Speaker 1: don't really see so much of a difference between cap
54:12
Speaker 1: waiting profitability rating. If you look at some of the
54:16
Speaker 1: things that UM Research Affiliates does rob or not, instead
54:20
Speaker 1: of doing it cap waiting, they do it by profitability
54:23
Speaker 1: dived and yield. All these different metrics, you still end
54:26
Speaker 1: up with an index that isn't actively traded. You're just
54:30
Speaker 1: using a different basis for assembling it, like the relative
54:34
Speaker 1: strength First, I'm sorry, you hit on it perfectly very
54:37
Speaker 1: when you said a different way of assembling it. So
54:40
Speaker 1: you come to me and you say, Tom, I'm going
54:41
Speaker 1: to use astrology to pick my stocks. And I'm gonna
54:46
Speaker 1: come to you with a hunter stocks and and and
54:48
Speaker 1: this is like when Jupiter's line with Mars. We're gonna
54:50
Speaker 1: do this sector and when you bring to me the
54:53
Speaker 1: stocks will organize it. We'll do We'll put our relative
54:56
Speaker 1: strength on it. Organize it. If it's junk that you
54:59
Speaker 1: give me, I'm gonna give you the best junk. I
55:01
Speaker 1: put the best junk precisely, precisely, so it's two hands.
55:07
Speaker 1: What's the name of the et F by the way,
55:08
Speaker 1: the astrologer relative is that one that's out there. No,
55:12
Speaker 1: there's not one out there, but you never you never
55:14
Speaker 1: can't tell when that will happen, you know. But but
55:17
Speaker 1: that's the idea that you play with piano with both hands.
55:19
Speaker 1: You could give me. I love to have a fundamental
55:22
Speaker 1: report saying, hey, these stocks are truly right and just
55:25
Speaker 1: a fundamentally sound et cetera. Can you deal with these
55:28
Speaker 1: beautiful I love it first trust does the alphabex way
55:32
Speaker 1: of fundamental rea alpha dex. I'm not sure exactly how
55:37
Speaker 1: they haven't never come to me and told me how
55:38
Speaker 1: they do it, but they do a great job at it.
55:40
Speaker 1: They give us the list. Everything that First Trust does
55:42
Speaker 1: is alphabex fundamentally organized. Then we take that fundamentally organized
55:47
Speaker 1: and create the portfolio and manage the portfolio. And so
55:51
Speaker 1: we play with the piano with both hands. They play
55:53
Speaker 1: the fundamental side, we play the the technical side. I've
55:56
Speaker 1: worked with a friend years ago. He used to call
55:58
Speaker 1: that technamentals is the technical side. He is the fundamental side.
56:03
Speaker 1: You marry the two together. Ralph at Kempor you mentioned earlier,
56:06
Speaker 1: was fond of saying, fundamentals tell you what to buy,
56:09
Speaker 1: Technicals tell you when when exactly precisely. All right, so
56:14
Speaker 1: let's jump to some of my favorite questions. These are
56:16
Speaker 1: what I asked all my guests, and and usually we
56:19
Speaker 1: get some we get some some interesting questions. You mentioned
56:24
Speaker 1: you were an economics major at university. What did you
56:28
Speaker 1: do before you found your way to merrow lynch Well,
56:31
Speaker 1: I spent four years in the Navy, first and a
56:34
Speaker 1: couple in Vietnam off the coast, and they so I
56:40
Speaker 1: was in from nineteen nineteen sixty seven, beginning of nineteen
56:43
Speaker 1: saw some submction of it. I didn't see that I
56:46
Speaker 1: was on an aircraft carrier. Okay, the planes we shot
56:50
Speaker 1: off the action, so you were relatively safe work on
56:53
Speaker 1: the ship. Absolutely so, so how did you get from
56:57
Speaker 1: you're in the South Pacific Sea to Maryland. That's when
57:00
Speaker 1: I went back to college, and so I did the
57:02
Speaker 1: Navy first college. Second, I went on the g I
57:04
Speaker 1: bill and going to school. And g I bill was, well,
57:08
Speaker 1: I could, I could pay my tuition, but you know,
57:10
Speaker 1: much money left. And by the end of the By
57:13
Speaker 1: the end of that, I was driving a car with
57:14
Speaker 1: no reverse, and you know, so by the time it
57:17
Speaker 1: was it was time to graduate, I said, I'm tired
57:19
Speaker 1: of being poor. Wait, you're driving a car with no reverse.
57:22
Speaker 1: Reverse you wherever you parked it, you had to make
57:24
Speaker 1: sure you're coming straight out of it. That's hilarious. I
57:27
Speaker 1: I had a VW bug that there were periods of
57:30
Speaker 1: time where I had no battery, but it was a stick.
57:32
Speaker 1: So as long as I parked on a hill, that's right.
57:34
Speaker 1: It was the same thing I could pop it into.
57:36
Speaker 1: And that's the stuff we did back then. You know,
57:38
Speaker 1: when hey, your college, you're broke, you're putting it working
57:41
Speaker 1: away through school. No way I could pay to get
57:43
Speaker 1: a reverse put in that thing. So I just kept
57:44
Speaker 1: on going forward. That hilarious. But by the way, that's
57:47
Speaker 1: where the momentum strategy came from. As long as you're
57:50
Speaker 1: facing in the right direction, exactly there you go. That's uh.
57:55
Speaker 1: I gotta go where there's money. And a friend of
57:57
Speaker 1: mine said, well, i'd be Wall Street and said what
57:59
Speaker 1: do they do. He said, well, it's like Merrill Lynch
58:01
Speaker 1: and you know stock market. So I applied to Merrill Lynch.
58:04
Speaker 1: I applied exactly at the end of the terrible bear
58:07
Speaker 1: market that customers have gone through. They were not hiring
58:10
Speaker 1: anyone and most of their customers had left them. So
58:13
Speaker 1: I went to Richard's Wine Cellars, which is part of
58:16
Speaker 1: Canadagua Industries, one of the largest wineries in the country.
58:19
Speaker 1: This was in Petersburg and I was a production supervisor
58:23
Speaker 1: until and this is the way paths happened to you
58:26
Speaker 1: in life. Certain things happened. You can take the path
58:29
Speaker 1: or not to take the path that leads you somewhere else.
58:31
Speaker 1: And this came to me and he said, you know what,
58:33
Speaker 1: I was at um a career counseling meeting up in Washington,
58:37
Speaker 1: d C. He said, Merrill Lynches is now hiring, and
58:40
Speaker 1: I said, you're kidding me. So I reapplied to Merrill Lynch.
58:43
Speaker 1: I badgered them to the point they couldn't take it anymore.
58:45
Speaker 1: Gave me an interview. They figured, hey, this guy's a
58:48
Speaker 1: good sales Yeah, he won't give The secretary of the
58:51
Speaker 1: manager finally called me and says, you've gotta stop this.
58:53
Speaker 1: He can't you know you kill see you Tuesday, I
58:56
Speaker 1: knew I was in. I still didn't know what a
58:58
Speaker 1: stockbroker did. It didn't matter, No, it didn't matter. It
59:02
Speaker 1: was like, I'm in the best company, the biggest company
59:04
Speaker 1: in Wall Street, Wall Streets kind of cool. I don't
59:06
Speaker 1: know what they do yet, but I'm going to study.
59:08
Speaker 1: And when I passed the series seven, in one second,
59:12
Speaker 1: when I saw that on one Liberty Plaza down here,
59:14
Speaker 1: I saw that posted up there, I went from a
59:16
Speaker 1: nobody to a somebody in one second. How long did
59:19
Speaker 1: you stay at Mery Lynch for Well, I stayed to
59:21
Speaker 1: Mary Lynch about five years, close to that, and then
59:23
Speaker 1: went to Wheat for Securities to develop and manage their
59:25
Speaker 1: option department. All right, and you were with Wheat first
59:28
Speaker 1: for how long? Nine years? And nine years? Because I
59:32
Speaker 1: had set the age of forty to start my own company.
59:35
Speaker 1: That was the last forty was to cut off day.
59:38
Speaker 1: And at thirty nine I gave my resonation, so I
59:40
Speaker 1: had to go on Target. I didn't do that until fifty.
59:44
Speaker 1: But that's okay, you did it worked out. Um, that's
59:47
Speaker 1: that's kind of fascinating. So you were at at two
59:52
Speaker 1: well regarded places. Wheat First, which eventually became First was
59:58
Speaker 1: bought by First Union First Union First, and then there
1:00:02
Speaker 1: might have been one or two other steps before that
1:00:04
Speaker 1: became Well. I think there were two other steps before
1:00:06
Speaker 1: a while Fargo Fani took him and you were at
1:00:08
Speaker 1: you were at Meryl. So who were your mentors at
1:00:11
Speaker 1: these places? Well, I had no mentors at those places.
1:00:15
Speaker 1: The two mentors I had in my in my business
1:00:18
Speaker 1: life was one the late Jim Yates, I know the
1:00:22
Speaker 1: name Jim Yates of d y R and Associates, Dalton
1:00:25
Speaker 1: Yates and Revco. Jim was I think the most premier
1:00:28
Speaker 1: option expert in the world. To me, he was He
1:00:32
Speaker 1: was able to teach me and understanding of options that
1:00:35
Speaker 1: I have rarely ever seen in anyone else and rarely
1:00:39
Speaker 1: ever utilize his way of thinking, which brought me back
1:00:42
Speaker 1: to statistics one on one, the second most important course
1:00:44
Speaker 1: in college and the normal distribution, and Jim was very
1:00:49
Speaker 1: important in that. Next was um was that Chartcraft and
1:00:56
Speaker 1: um oh my thinking about his name art Craft. Art
1:01:03
Speaker 1: Craft was been around for a while. It had been
1:01:06
Speaker 1: around for a long time. Chart Craft and Investor Intelligence,
1:01:09
Speaker 1: and the late Mike Burke was the president, not president,
1:01:12
Speaker 1: but he was the editor the chart Craft in and
1:01:15
Speaker 1: um Um Investor Intelligence. They came together and chart Craft
1:01:19
Speaker 1: was that was the company that sent you the monthly
1:01:21
Speaker 1: books on point and figure charting. You've got the big
1:01:23
Speaker 1: thick books and they updated you once a month and
1:01:26
Speaker 1: that type of thing. Mike Burke was one of my mentors.
1:01:30
Speaker 1: He was a great guy. He was almost like he
1:01:32
Speaker 1: was almost like Einstein. He would get up in the
1:01:35
Speaker 1: morning and he would walk out in one sleeve would
1:01:37
Speaker 1: be buttoned down the other sleep we rolled up and
1:01:39
Speaker 1: he would figure out why why not do that? You know?
1:01:42
Speaker 1: But he was the very clear thinker. And one of
1:01:45
Speaker 1: the things I'll never forget about Mike. He came to
1:01:47
Speaker 1: me when didn't come to me, but we were talking
1:01:49
Speaker 1: one day and he said, Tom, he says, let me
1:01:52
Speaker 1: tell you something. I said, what's that, Mike? He said,
1:01:54
Speaker 1: the market will do what it wants to do, and
1:01:57
Speaker 1: that was it didn't anymore. And that's so profound owned
1:02:00
Speaker 1: that when you sit back and think about it, why
1:02:04
Speaker 1: watch TV, Why get ideas from all these different places?
1:02:07
Speaker 1: When the market will do what it wants to do.
1:02:09
Speaker 1: Then listen to the market, which you have to listen
1:02:11
Speaker 1: to the market. Don't listen to something else, the things
1:02:14
Speaker 1: that you think the market should do because of X,
1:02:16
Speaker 1: y Z, because of Janet. Yellen did this and and
1:02:19
Speaker 1: Greenspan did that. The market will do what it wants
1:02:21
Speaker 1: to do. I started as a trader, and I used
1:02:24
Speaker 1: to have those discussions with people, and I would get
1:02:28
Speaker 1: these long, convoluted explanations as to why this should happen.
1:02:32
Speaker 1: Or I love hearing people say, well, you know, if
1:02:35
Speaker 1: the market wasn't interfered with, here's what would happen. How
1:02:39
Speaker 1: do you know? How do you know what the market
1:02:40
Speaker 1: would do? And how do you how do you know
1:02:43
Speaker 1: that every time the market you know, you look at history,
1:02:46
Speaker 1: every time the market is cut in half, there's always
1:02:49
Speaker 1: some sort of response from the powers that be. You
1:02:52
Speaker 1: could pretend it doesn't exist, but the market tends to
1:02:55
Speaker 1: anticipate that, and it tends to respond regardless of whatever
1:03:00
Speaker 1: our narratives on. That's exactly right. It's gonna do what
1:03:02
Speaker 1: it wants to do, and you could either be along
1:03:05
Speaker 1: for the ride or not. That's right, exactly, we'll be
1:03:08
Speaker 1: going in the opposite direction. It's it's and that's always
1:03:11
Speaker 1: been summed up with don't fight the tape, but some
1:03:14
Speaker 1: people never seem to uh learn that message. Well, today,
1:03:17
Speaker 1: with news blogs, all kinds of different things, you can
1:03:22
Speaker 1: get news and information about the markets twenty four hours
1:03:24
Speaker 1: a day everywhere you go, and there's always an ax
1:03:28
Speaker 1: to grind. There's always uh no, there are no disinterested parties,
1:03:33
Speaker 1: you know, so you've got to be disinterested yourself. You've
1:03:37
Speaker 1: got to look at the rules and regulations that you
1:03:39
Speaker 1: set up, you know. It's it's also fascinating you mentioned
1:03:42
Speaker 1: that I always hear from various people about, well, I'm
1:03:47
Speaker 1: gonna do this as opposed to that because I've read
1:03:50
Speaker 1: all this research and I think this is what's going
1:03:52
Speaker 1: to happen. My answer is always yeah, but everybody's read
1:03:55
Speaker 1: that research. It's out there, it's public. You're trying to
1:03:58
Speaker 1: forecast based on on on a some public information. If
1:04:05
Speaker 1: everybody has access to the same info and you're if
1:04:08
Speaker 1: you're using to use your your chef metaphor, if you're
1:04:12
Speaker 1: using the same ingredients as everybody else, you can't really
1:04:16
Speaker 1: do anything special. Everybody is is cooking more or less
1:04:19
Speaker 1: the same thing. If you want to do something special,
1:04:22
Speaker 1: you need some special ingredient or special approach. And either
1:04:26
Speaker 1: it's going to be a disaster or a home run.
1:04:29
Speaker 1: But if everybody's cooking the same things and reading the
1:04:31
Speaker 1: same things, everybody is going to be part of the crowd,
1:04:34
Speaker 1: and they're gonna be so so performance. Yeah, and people today,
1:04:38
Speaker 1: you know, money managers today, I implore anyone I talked to,
1:04:41
Speaker 1: I said, whatever you do, get it computerized. Anything that
1:04:45
Speaker 1: can be computerized, anything it can be, will be. And
1:04:49
Speaker 1: you've got to understand that a lot of people out
1:04:51
Speaker 1: there that thought they were going to get by with
1:04:54
Speaker 1: a particular investment approach is now out there for everybody.
1:04:57
Speaker 1: So let's let's talk about other investors might have influenced
1:05:01
Speaker 1: your approach to point and fear who who else has
1:05:05
Speaker 1: been If not a mentor, but who else has influenced
1:05:07
Speaker 1: your thought process? Well, it's gonna sound like a strange answer, Verry,
1:05:11
Speaker 1: But no one, no one. Those two were the most
1:05:14
Speaker 1: important to me, and for what I learned from them
1:05:18
Speaker 1: and how they opened my mind in the way they
1:05:20
Speaker 1: think it's a lifetime. I can continue on down those
1:05:25
Speaker 1: two lines. Yeah, I and I and I try to
1:05:29
Speaker 1: put the blinders on, because, um, these things are distractions.
1:05:34
Speaker 1: There's a lot of noise relative to the signal, and
1:05:36
Speaker 1: the noise, you know, I have to block the noise out.
1:05:39
Speaker 1: So a couple of things, to me, you know, is simple, straightforward. Economics,
1:05:45
Speaker 1: to me, is the most important and icon one on one,
1:05:47
Speaker 1: the most important course I ever had. I was going
1:05:50
Speaker 1: to ask you if statistics was the second most stat
1:05:52
Speaker 1: one on one, because it taught me the normal distribution.
1:05:55
Speaker 1: Those two things right there, the irrefutable off supply and
1:05:58
Speaker 1: demand and the normal distribution. My god, you have a
1:06:01
Speaker 1: lifetime of thinking about strategies and things like if I
1:06:06
Speaker 1: mentioned to you said, you know, if you look at
1:06:08
Speaker 1: a normal distribution, I'm looking at men's heights in the world.
1:06:11
Speaker 1: Some some men are too hot to all, some of
1:06:13
Speaker 1: the men are too short. Most of us are in
1:06:16
Speaker 1: the Middlebury were one standard deviation above or below trend
1:06:19
Speaker 1: if you look at every trade you made in the market,
1:06:22
Speaker 1: and we've done this with our models, sixty eight percent
1:06:25
Speaker 1: of US men's heights are in the middle. Sixty percent
1:06:29
Speaker 1: of everything you do with will be one standard deviation
1:06:31
Speaker 1: above trend goes up, a little down, a little bit
1:06:33
Speaker 1: down up. So it says, if sixty eight percent of
1:06:35
Speaker 1: the time everything is middle, and what's the right strategy
1:06:38
Speaker 1: that will be a neutral strategy. So for most investors,
1:06:42
Speaker 1: what's that neutral strategy that makes the most sense? Covered writing? Oh,
1:06:46
Speaker 1: really absolutely, because you're dealing with something that's sixty eight
1:06:50
Speaker 1: percent of the time is going to be hanging around
1:06:52
Speaker 1: the center. You can't do naked straddles, you can't do nate,
1:06:56
Speaker 1: you can't do naked anything. You're gonna be in court.
1:06:59
Speaker 1: I mean as an there's a ton of risk relative
1:07:03
Speaker 1: to reward with that. But the covered right is the
1:07:07
Speaker 1: one strategy that's a neutral strategy. That's right sixty. You
1:07:11
Speaker 1: own an index or you own a group of specific stocks.
1:07:14
Speaker 1: You're writing call options on this, so you're taking in
1:07:17
Speaker 1: that that income stream from that, and the only major
1:07:20
Speaker 1: shift is going to be either when you get the
1:07:22
Speaker 1: stock gets called away to the upside or if there's
1:07:25
Speaker 1: a downside move which ultimately either leads to new covered
1:07:30
Speaker 1: writing or using a stop blow strategy to get out
1:07:33
Speaker 1: exactly do you understand it completely? But also to for
1:07:35
Speaker 1: someone like yourself, where you run a tremendous amount of money,
1:07:38
Speaker 1: you could look a little bit of money. You could
1:07:40
Speaker 1: look at you run a tremendous amount. I'm I'm running
1:07:44
Speaker 1: a smidgeon. You could create an index that, let's say,
1:07:48
Speaker 1: looked like the standard and Pours five looked like the
1:07:50
Speaker 1: Russell two thousand, and there's index options that trade, so
1:07:54
Speaker 1: you could sell these index options against that portfolio where
1:07:58
Speaker 1: nothing is kept off. So two out of so it's
1:08:02
Speaker 1: more than two out of three times. This is going
1:08:05
Speaker 1: to be an outperforming strategy. Absolutely absolutely and that and
1:08:08
Speaker 1: that takes you to stat one on one. Anybody should
1:08:11
Speaker 1: just go google normal distribution, learn it, love it, embrace it,
1:08:16
Speaker 1: and uh. It just gives you an idea of what
1:08:19
Speaker 1: to do. So whenever you look at you might buy
1:08:21
Speaker 1: a particular stock. On our charts, we have a normal
1:08:25
Speaker 1: distribution on the side of each chart. So if you
1:08:28
Speaker 1: see it move up to where it says top your
1:08:31
Speaker 1: three standard deviations above trend, that's telling you the stock
1:08:34
Speaker 1: has done well, but the probability is it wants to
1:08:36
Speaker 1: go back to the middle reversion coming back being reversion.
1:08:40
Speaker 1: That's the point you sell a call against the position.
1:08:42
Speaker 1: So there's a lot of simple stuff that you can
1:08:44
Speaker 1: do with stat one on one, any con one on one. Fascinating.
1:08:48
Speaker 1: So let's talk about books. What are some of your
1:08:50
Speaker 1: favorite books out there? Well, you said books in general, right,
1:08:56
Speaker 1: any from any any live that you can walk in
1:09:00
Speaker 1: or Amazon or whatever. My favorite book that when I
1:09:04
Speaker 1: finished reading it, I said, what do I read now?
1:09:07
Speaker 1: Is Shanta Ram Shanta Ram. I can't think of it now,
1:09:13
Speaker 1: who um? But it's about a guy who breaks out
1:09:16
Speaker 1: of um a maximum security prison in Australia, goes to Bombay,
1:09:21
Speaker 1: India and it begins there. Oh my lord, you're not
1:09:25
Speaker 1: gonna put this book down. This book, and I suggest
1:09:28
Speaker 1: you listen to it rather than read it, because the
1:09:30
Speaker 1: book is so thick. Listening to it you get all
1:09:33
Speaker 1: of the accents and things that are involved in the
1:09:35
Speaker 1: Indian accents. It's wonderful for me. I listened to books
1:09:38
Speaker 1: because I'm dyslexic, uh, and I easier than read it. Yeah.
1:09:42
Speaker 1: I don't read books because it's too hard for me.
1:09:44
Speaker 1: It was hard for me all my life to In fact,
1:09:46
Speaker 1: I wrote my first book before I read my first book.
1:09:49
Speaker 1: But when books on tape came out, then I found
1:09:52
Speaker 1: out I was a bookworm and I didn't even know it,
1:09:54
Speaker 1: you know. So whenever I get in the car, I'm
1:09:55
Speaker 1: pressing the button. If I'm on the treadmill and press
1:09:57
Speaker 1: I'm listening to books constantly. So Anti ram I would say,
1:10:00
Speaker 1: listen to the book that sounds interesting. What else do
1:10:03
Speaker 1: you like? Another one I like is the four hour
1:10:06
Speaker 1: work week. Excuse me, yeah, four, it's four our workwek exactly.
1:10:10
Speaker 1: I was gonna be about to say day, but it's weak.
1:10:13
Speaker 1: The reason this is important one of the guys in
1:10:15
Speaker 1: my office is a huge fan of his. The reason
1:10:18
Speaker 1: that's important, Barry, is I believe that through technology, if
1:10:23
Speaker 1: you have things that are computerized, everything that can be
1:10:26
Speaker 1: computerized is going to be. You should be able to
1:10:28
Speaker 1: run a billion dollar portfolio from a cruise ship with
1:10:30
Speaker 1: an iPhone. We we've been talking about this pretty consistently,
1:10:34
Speaker 1: and again I've been finding that running a small office,
1:10:40
Speaker 1: what we're capable of doing with fourteen thirteen people. Twenty
1:10:46
Speaker 1: years ago would take fifty people to do just simple
1:10:49
Speaker 1: things like the portfolio rebalancing once or twice a year,
1:10:53
Speaker 1: and things like tax lost harvesting. It used to take
1:10:56
Speaker 1: three or four Green visored accountants a week to do
1:11:01
Speaker 1: this for a portfolio of a few hundred families. Now
1:11:04
Speaker 1: you push your button as a software called i reboll
1:11:08
Speaker 1: that's integrated into the custodian and you could set it up,
1:11:11
Speaker 1: go find me some tax losses to offset the tax games,
1:11:15
Speaker 1: and it's it's astonished. That's a great example. Back in
1:11:18
Speaker 1: the day you said you needed all these people with
1:11:20
Speaker 1: the green shades or a week, but exactly for a week.
1:11:23
Speaker 1: Now it's been automated. What will be automated, can be,
1:11:26
Speaker 1: will be. So now it's automated. So why couldn't you
1:11:29
Speaker 1: do that from Thailand? You certainly could. Why then why
1:11:33
Speaker 1: aren't you on the beach in Thailand because I'm here
1:11:35
Speaker 1: talking to you. But the concept is you can, and
1:11:39
Speaker 1: that's why the four hour work week. What's cool about
1:11:41
Speaker 1: the four hour work week is it's got all kinds
1:11:43
Speaker 1: of websites and things you can go to. Yeah, that
1:11:46
Speaker 1: will help you become more efficient yourself. Like if you
1:11:51
Speaker 1: wanted to have an assistant in India. You can do that.
1:11:53
Speaker 1: There are places you can go in India there will
1:11:55
Speaker 1: be your assistant, just like she's with you now, except
1:11:58
Speaker 1: when you're asleep. She's working. He's sleeping. When you're working.
1:12:02
Speaker 1: You want to get get me reservations for dinner to night.
1:12:04
Speaker 1: So and so I also need flowers from my wife.
1:12:06
Speaker 1: I need you to do this whatever it's there available.
1:12:10
Speaker 1: So The Four Hour work Week is a great book
1:12:13
Speaker 1: to make you think about more things that you can
1:12:16
Speaker 1: do become more competent in less time. Alright, that's book
1:12:20
Speaker 1: number two. Give me one last book. I love this
1:12:23
Speaker 1: broad selection of stuff because normally it's the Intelligent Investor
1:12:27
Speaker 1: and and things like that. This is really fascinating. Yeah,
1:12:31
Speaker 1: and I'm you know, all of a sudden you start
1:12:32
Speaker 1: to go blank. You think about all of the books
1:12:34
Speaker 1: that that that. What are you reading right now? Right now?
1:12:37
Speaker 1: What am I reading? That's a great question. The Great Deformation, Um,
1:12:42
Speaker 1: that was trying to remember who wrote it? That was
1:12:45
Speaker 1: by um, oh god, what's his name? He worked for
1:12:48
Speaker 1: Ronald Reagan, got taken out to the wood stock stockman,
1:12:51
Speaker 1: exactly stockman. This is the phrase the wood shed too.
1:12:54
Speaker 1: I remember exactly. Remember that taken out to the see
1:12:57
Speaker 1: I'm all dough to appreciate that. Remember that. Well. The
1:12:59
Speaker 1: answer thing thing about this book is if you really
1:13:01
Speaker 1: want to understand the deformation or the desecration of our
1:13:07
Speaker 1: free market system within with interest rates in the and
1:13:11
Speaker 1: the financial system, this is going to give you a
1:13:13
Speaker 1: great understanding going back to FDR days. It's not an
1:13:17
Speaker 1: easy thing. That's why I think you should listen to
1:13:19
Speaker 1: this book too, because, yeah, if you sit down and
1:13:22
Speaker 1: start reading it in five minutes, you might fall asleep.
1:13:24
Speaker 1: But if you're driving the car and you know, I
1:13:29
Speaker 1: think you're gonna stay awake. But it's a pretty meaningful book.
1:13:32
Speaker 1: And I find myself going back over and re listening
1:13:35
Speaker 1: and re listening. He's a fascinating guy. He really I
1:13:38
Speaker 1: saw him. I think it was Stephanie Rue. I think
1:13:40
Speaker 1: it was on Bloomberg. I saw him describe how the
1:13:44
Speaker 1: way he described it was. Stockman described it was the
1:13:48
Speaker 1: financialization of the US economy took fifty years to slowly
1:13:53
Speaker 1: develop and then blew up in the crisis, and we've
1:13:56
Speaker 1: we've basically the tail is wagging the dog. He used
1:13:59
Speaker 1: to say, finance in Wall Street. That's where he came from.
1:14:02
Speaker 1: He came from finance, went into politics, went back to finance.
1:14:06
Speaker 1: Finance used to serve industry and now finances just another industry.
1:14:11
Speaker 1: And that was a major shift. If I'm not not
1:14:14
Speaker 1: misquoting him at all, you're right, and which you and
1:14:16
Speaker 1: things you learned in this book is like in N. Two,
1:14:19
Speaker 1: the Thomas Amendment, you wouldn't even think about this, but
1:14:22
Speaker 1: gave FDR the right to cut the gold backing on
1:14:26
Speaker 1: the US dollar by fift gave him the right to
1:14:29
Speaker 1: back at not in gold, but in silver to create
1:14:32
Speaker 1: money if he wanted. And that was the beginning of
1:14:35
Speaker 1: the financial system getting totally out of hand. And every administration,
1:14:39
Speaker 1: bar none, from there forward has carried it even further.
1:14:42
Speaker 1: And the Obama administration now he carried even further. Every
1:14:44
Speaker 1: one of them have whether you're Republican or Democrat or whatever.
1:14:47
Speaker 1: But you think back to two when this happened with
1:14:50
Speaker 1: a Thomas Accord, that was the point at which that
1:14:52
Speaker 1: ball started rolling. The fear was that you were constrained
1:14:56
Speaker 1: with what the the uh Traasury up could do by
1:15:01
Speaker 1: the gold standard, which had its own problems. And now
1:15:04
Speaker 1: it's unconstrained and you have a whole different set of exactly,
1:15:08
Speaker 1: and it's it's damned if you do, and Dan, if
1:15:09
Speaker 1: you don't, let me give you one more. Okay, this
1:15:14
Speaker 1: this is great. Uh. The author is Martin Truce t
1:15:17
Speaker 1: R o O S. T. And his are travel books.
1:15:21
Speaker 1: But it's not the kind of travel book that you
1:15:23
Speaker 1: would think, Okay, let's go to Hawaii and here's you
1:15:25
Speaker 1: need where he needs. He actually goes to these places
1:15:27
Speaker 1: and talks about what it was like for him to
1:15:29
Speaker 1: live there, and um, all series of books he's done.
1:15:35
Speaker 1: One was Sex and Drugs with the Cannibals or something
1:15:39
Speaker 1: like that. It sounds I mean, it's he is so funny.
1:15:43
Speaker 1: He's a great wordsmith. That would be dangerous, Yeah, it
1:15:47
Speaker 1: could be. It could be very dangerous. But he talks
1:15:49
Speaker 1: about living in Vana Wattu and what it's like to
1:15:52
Speaker 1: live there. And but it's not a travel book where
1:15:55
Speaker 1: you're gonna, oh gee, I'm gonna go to this hotel
1:15:57
Speaker 1: and stay there. No way. Then he does one of them.
1:15:59
Speaker 1: My favorite was, um, it was about China and it's
1:16:03
Speaker 1: called Lost on Planet China, which is a total riot.
1:16:07
Speaker 1: His books are all as funny as you could possibly get.
1:16:10
Speaker 1: He's a great words Smith and um t R O
1:16:14
Speaker 1: double O S T Yeah, Truce Martin, Trust Martin, Truce,
1:16:17
Speaker 1: I take, and I would listen to his books because
1:16:19
Speaker 1: Cyrus Vance who reads the books, really does. That's who
1:16:24
Speaker 1: you would expect would be reading books on tape, you know,
1:16:27
Speaker 1: Cyrus Vans. Yeah, yeah, well he's a big reader of
1:16:31
Speaker 1: on tape. Maybe there's two Cyrus Vances, the former political
1:16:35
Speaker 1: guy and and is then am I thinking about the
1:16:38
Speaker 1: right person? Maybe there's two of them because this he
1:16:40
Speaker 1: I have searched for books that are read by Cyrus Van. Yeah,
1:16:44
Speaker 1: so I would read the book because he read it.
1:16:48
Speaker 1: That's fascinating, all right. When I, by the way, when
1:16:50
Speaker 1: I post this on on the blog and on on Bloomberg,
1:16:54
Speaker 1: I'll include the list of recommended books that people want
1:16:57
Speaker 1: to want to find that they'll be able to get it. So,
1:17:00
Speaker 1: last couple of questions I normally have you for a
1:17:02
Speaker 1: little lore time. Um, so what's changed since you've joined
1:17:06
Speaker 1: the industry? And is it a good thing, a bad
1:17:08
Speaker 1: thing or does it not even matter? What's changed is regulation.
1:17:14
Speaker 1: That's the big thing that's changed, because if you think
1:17:16
Speaker 1: back to nineteen seventy five, Arier, were you in business.
1:17:20
Speaker 1: I was in high school and next high school. But
1:17:23
Speaker 1: I do recall when when the commission ceiling was removed.
1:17:27
Speaker 1: That was the early seventies, exactly a huge chance exactly
1:17:31
Speaker 1: where I'm coming from right now. That's put us on
1:17:33
Speaker 1: the path of where we are now with feedbase, because
1:17:36
Speaker 1: that was May day. May one, nineteen seventy five is
1:17:39
Speaker 1: when commission deregulation happened. And we used to charge massive
1:17:43
Speaker 1: commissions uh to customers, all the same thing, but they
1:17:46
Speaker 1: were massive. Nineteen seventy five when deregulation came in Charles
1:17:50
Speaker 1: wap started, was the first year of charsh wab And
1:17:54
Speaker 1: I can tell you right now we laughed at Charles Wapson.
1:17:56
Speaker 1: Who would ever deal at a discounter? I mean that
1:17:59
Speaker 1: would do now? I mean we used to wear three
1:18:02
Speaker 1: piece suits and if you needed a standard poor sheet,
1:18:04
Speaker 1: we could mail it to you. That was technology. Then
1:18:08
Speaker 1: you know we've got the technology. It's the post office
1:18:11
Speaker 1: and Joshua began. That was what began the move toward
1:18:18
Speaker 1: discount and lower fees and and and for us, this
1:18:24
Speaker 1: was the beginning of a change from commission to fee base.
1:18:29
Speaker 1: Because what happened is I think the um the firms
1:18:32
Speaker 1: like Marrilynch, Pierce, Fentner and Smith. The partnerships look at
1:18:35
Speaker 1: this and said, you know, this is not for us
1:18:37
Speaker 1: any longer. Let's sell out to banks. And all of
1:18:39
Speaker 1: them did. Pain Webber, Jackson, Curtis Smith, Barney Harris up them.
1:18:43
Speaker 1: They all sold out to banks. Banks became the owners.
1:18:45
Speaker 1: And what do banks understand? They understand fee, They don't
1:18:48
Speaker 1: understand commissions and fee, and they understand risk. You're all
1:18:51
Speaker 1: concerned about defaults and whatever. Precisely they don't get commissions.
1:18:55
Speaker 1: So everyone began to move more towards the fee basis. Well,
1:18:58
Speaker 1: Dorsey Wrighting Associates, I looked at I looked at us
1:19:01
Speaker 1: as a pilot fist. You ever look at a pilot
1:19:03
Speaker 1: pilot fish s little fishing falls. The shark he didn't
1:19:05
Speaker 1: he didn't get close enough to the sharks amiel to
1:19:07
Speaker 1: get eaten. But he stays back and no no other
1:19:10
Speaker 1: fish bottles, lots of crumbs and exactly a little protection.
1:19:15
Speaker 1: That's right. That's us. We were pilot fish, and and
1:19:17
Speaker 1: the shark was merrill lynching and all the rest of
1:19:20
Speaker 1: the big guys. So whatever direction they went, we had
1:19:22
Speaker 1: to go. So that's why we began creating models and
1:19:25
Speaker 1: feed base models way before anyone else because we knew
1:19:29
Speaker 1: if I didn't follow that shark and I kept doing
1:19:31
Speaker 1: commission business and trading business, that's where they were going
1:19:34
Speaker 1: away from and we had to go with it. So
1:19:37
Speaker 1: that began the move towards fee base, which is which
1:19:40
Speaker 1: is where we clearly are now. The last data point
1:19:44
Speaker 1: I saw on this, between Morgan Stanley and Merrill Lynch,
1:19:47
Speaker 1: they twenty years ago they were less than ten percent
1:19:50
Speaker 1: fee based, and now about two thirds about you know,
1:19:56
Speaker 1: what's going to cover the other third is this new
1:19:58
Speaker 1: regulation now from UM Department of Labor that's on four
1:20:03
Speaker 1: oh one K that's on retirement accounts, on retirem accounts exactly.
1:20:06
Speaker 1: Is not an insubstantial amount of It's not. I would
1:20:09
Speaker 1: bet a huge chunk of their fee based stuff is
1:20:11
Speaker 1: already accounting stuff. And and that's active is probably although
1:20:18
Speaker 1: you would think the tax are qualified standard would would
1:20:21
Speaker 1: be better for active than UH than the fee based
1:20:25
Speaker 1: strictly from a tax perspective, Well, it's going to change
1:20:27
Speaker 1: things totally where the guy that typically doesn't think about
1:20:30
Speaker 1: the fiduciary and operating in the in the right exactly
1:20:35
Speaker 1: for the customers on the same side of table. But
1:20:36
Speaker 1: here's something also. If I come to you and I say, Barry,
1:20:39
Speaker 1: I want you to take your your IRA or your
1:20:42
Speaker 1: your your corporate retirement account and roll it over to
1:20:44
Speaker 1: an IRA and I'll manage it. Boy, I better be
1:20:48
Speaker 1: right in telling you that, and I better give you
1:20:49
Speaker 1: all the reasons, and I better document this. And when
1:20:53
Speaker 1: we do this, you and I are going to sign
1:20:54
Speaker 1: a contract. That's what's different now, the three changes that
1:20:59
Speaker 1: have become really really significant. When that happens, you have
1:21:03
Speaker 1: to say, Okay, I'm gonna be like a lawyer or
1:21:06
Speaker 1: an accountant, and I'm gonna be a fiduciary. In second,
1:21:09
Speaker 1: I have all these transparency rules. Anything that I need
1:21:12
Speaker 1: to disclose, I'm gonna disclose. In third, if there are
1:21:15
Speaker 1: any conflict of interest. There was just a huge article
1:21:19
Speaker 1: in New York Post today about daily News of the Post,
1:21:22
Speaker 1: one of them about one of the big firms I
1:21:26
Speaker 1: don't remember which is running these sales contests sell X
1:21:29
Speaker 1: y Z, when a when a vacation trip. If you're
1:21:34
Speaker 1: getting paid outs and therefore it's not necessarily the client's
1:21:38
Speaker 1: best interest, but you want to win a contest, you
1:21:41
Speaker 1: better disclose that and if there's a conflict, you better
1:21:44
Speaker 1: be up for it. I think that for the long
1:21:48
Speaker 1: haul it's gonna be good for investors, but over the
1:21:51
Speaker 1: short term there's going to be an adjustment process. There is.
1:21:54
Speaker 1: There really is, because a lot of a lot of
1:21:55
Speaker 1: advisors who deal in ira A type accounts and rollovers
1:21:59
Speaker 1: and that's leader business. I'm going to find that theory
1:22:01
Speaker 1: incomes probably gonna be cutting cut in half. You know,
1:22:04
Speaker 1: the thing that started this whole process way back when
1:22:07
Speaker 1: was a lot of four oh one K and the
1:22:10
Speaker 1: nonprofit version of it is four oh three B. There
1:22:13
Speaker 1: were studies that were showing that they were jammed full
1:22:16
Speaker 1: of high cost annuities that were running like you complained
1:22:19
Speaker 1: about two and twenty, these guys were charging six and
1:22:22
Speaker 1: eight percent in retirement accounts and that was just so egregious.
1:22:27
Speaker 1: That started the ball rolling downhill. Um. So, you know,
1:22:32
Speaker 1: it's always unintended consequences regardless of who's doing So back
1:22:35
Speaker 1: to your question, regulation, I mean, that's that's that's the
1:22:38
Speaker 1: big that's the main thing that has happened along the way.
1:22:40
Speaker 1: You know, back in back in if you came in
1:22:43
Speaker 1: and you want to do an option trade. Barry, I
1:22:45
Speaker 1: would do the option trade. No documents needed, No, we
1:22:47
Speaker 1: send those out two months later. Oh man, you can't
1:22:51
Speaker 1: options by the end of you want to discuss options.
1:22:55
Speaker 1: You have a whole bunch of paperwork to send, You
1:22:57
Speaker 1: have things signed that you need backed. It's uh, there
1:23:00
Speaker 1: are a lot of eyes to dot and tees to cross.
1:23:03
Speaker 1: Not that it's necessarily again on the on the UM edges,
1:23:08
Speaker 1: there was some really bad behavior and that's what led
1:23:11
Speaker 1: to a whole lot more regulations too. It's always that way.
1:23:15
Speaker 1: You have to stop the bad actors. In order to uh,
1:23:19
Speaker 1: you have to be overbroad. You're gonna bring up a
1:23:22
Speaker 1: whole lot of um, You're gonna bring up a whole
1:23:27
Speaker 1: lot of of good actors when you're trying to stop
1:23:29
Speaker 1: the bad actor. Absolutely no doubt about that. So what
1:23:32
Speaker 1: do you see if regulation has been what's changed over
1:23:35
Speaker 1: the past twenty or thirty years, what do you see
1:23:37
Speaker 1: as the next major shift that's coming. Uh, let's let's
1:23:42
Speaker 1: look at e t F s. The next major shift
1:23:45
Speaker 1: and we're already doing this at Dorsey right, is embedding
1:23:49
Speaker 1: risk and risk management in the e t F itself.
1:23:52
Speaker 1: How do you do that with cash So remember we
1:23:54
Speaker 1: said I said money market m N Y m k
1:23:57
Speaker 1: T is a symbol to us. So take for since
1:24:00
Speaker 1: our first Trust five. The first Trust five operates by
1:24:03
Speaker 1: itself and it keeps the strongest five out of twenties sectors.
1:24:07
Speaker 1: For first trust done extremely well over time, the returns
1:24:10
Speaker 1: have been been very very good. It's not because we
1:24:13
Speaker 1: have a first Trust five plus cash. So now cash
1:24:17
Speaker 1: has already moved up the level and overtaken of the portfolio.
1:24:22
Speaker 1: And that's done on a relative strength basis, not relative strength.
1:24:27
Speaker 1: This rules about this Trump guy, I'm gonna move to cash. No,
1:24:31
Speaker 1: none of that has to be rules based. So there's
1:24:34
Speaker 1: no gut feeling involved here, no emotion involved. It moves
1:24:38
Speaker 1: in so it's moved to cash with it. So these
1:24:41
Speaker 1: are this is what's gonna happen. Now, there's uh UM
1:24:44
Speaker 1: Horizons has a has a good covered writing program. We
1:24:48
Speaker 1: have a model that has our PDP, which our technical
1:24:51
Speaker 1: leaders who plus the horizon covered right. The horizon covered
1:24:55
Speaker 1: right acts as that um that buffer that acts as
1:24:58
Speaker 1: that the breaks of the portfolio. So it'll bring that
1:25:00
Speaker 1: piece of the equation down to a point five delta
1:25:03
Speaker 1: point being is we're creating products now with risk management
1:25:07
Speaker 1: embedded in it. That's fascinating. You don't really hear a
1:25:11
Speaker 1: lot of that sort of of strategies that developed that
1:25:14
Speaker 1: that's really fascinating, and you see this as the next
1:25:17
Speaker 1: phase of ET. Absolutely, we're gonna have to do that
1:25:20
Speaker 1: because again, it takes that human emotion out and a
1:25:23
Speaker 1: lot of things that you have. You say, you know,
1:25:25
Speaker 1: we have the first trust five that stays, it's always
1:25:28
Speaker 1: going to be a percent invested, even in markets that
1:25:32
Speaker 1: you shouldn't be. But that's a that's a market call
1:25:36
Speaker 1: on on our part. So we can't go in and say, gee,
1:25:38
Speaker 1: we think the market is going to go down. Now
1:25:40
Speaker 1: let's take the first trust. So someone who's an allocator
1:25:42
Speaker 1: who says I have a slot for equities, Hey, I'm
1:25:45
Speaker 1: gonna go to Tom Dorsseton and say give me the
1:25:47
Speaker 1: five best sectors and I'll build it into this and
1:25:49
Speaker 1: I'll deal with and you'll risk with your bond and
1:25:53
Speaker 1: you'll deal with it exactly in this case. It's embedded
1:25:57
Speaker 1: in the E T F. And And now I'm down
1:25:59
Speaker 1: to my asked two questions, which I are my favorite
1:26:02
Speaker 1: too when I ask everybody. So imagine a a recent
1:26:06
Speaker 1: college graduate or a millennial comes to you and seeking
1:26:09
Speaker 1: career advice. What sort of advice would you give them?
1:26:13
Speaker 1: For somebody who's interested in in going into finance, Okay,
1:26:16
Speaker 1: I would give them and I and I operate this way.
1:26:18
Speaker 1: When I when I bought the building that has my
1:26:21
Speaker 1: family office, it's right across the parking lot from the
1:26:23
Speaker 1: building from the Business School of Virginia Kamal University. So
1:26:27
Speaker 1: my office is open for any VCU business people to
1:26:29
Speaker 1: come by and talk to me. I'm always open to
1:26:32
Speaker 1: mentor them and talk to them. So they do. And
1:26:34
Speaker 1: one of the first things I tell them, I say,
1:26:36
Speaker 1: what should I do now when I when I graduate,
1:26:39
Speaker 1: go to China and teach English? I said, go to China.
1:26:44
Speaker 1: And one of we I had an intern named Jesse,
1:26:47
Speaker 1: and he came to me said I'm going into business.
1:26:49
Speaker 1: I said, I said what Why? How old are you Jesse?
1:26:51
Speaker 1: He said twenty two? I said, why do you want
1:26:53
Speaker 1: to bother with that? Right now? I said, go to
1:26:55
Speaker 1: China and teach English? Would do that right now? He
1:26:58
Speaker 1: exactly went online, got high, went to China, taught English,
1:27:01
Speaker 1: and then stayed there another year, built a business helping
1:27:05
Speaker 1: us companies come across and do the paperwork, and now
1:27:08
Speaker 1: he's back in the US working. But my point being
1:27:10
Speaker 1: is when you're twenty one and twenty two years old,
1:27:13
Speaker 1: why do you want to get into business? Now, go
1:27:15
Speaker 1: to China for a year, then go to Australia and
1:27:20
Speaker 1: bartend for a year, then then backpack for Europe around
1:27:24
Speaker 1: Europe for a year. Now you'll be all of twenty
1:27:26
Speaker 1: four and a half years old, and now you get
1:27:29
Speaker 1: a resume. I want to see and on three contents,
1:27:32
Speaker 1: you've seen the world. You might speak a little Chinese,
1:27:35
Speaker 1: which is gonna become essential, and you know the Chinese
1:27:38
Speaker 1: culture that's important. So that's what I tell these people
1:27:41
Speaker 1: is go to China to begin with and teach English. Secondly,
1:27:44
Speaker 1: if they want to get into this business man, it's
1:27:47
Speaker 1: not the same as when I got into it. When
1:27:49
Speaker 1: back in the day it was so romantic. I mean,
1:27:52
Speaker 1: if you went to a cocktail party and you said
1:27:53
Speaker 1: you were a stockbroker, that was the coolest thing in
1:27:56
Speaker 1: the world. Because nobody could buy stocks themselves, they had
1:27:59
Speaker 1: to do it through you. You were registered with the
1:28:01
Speaker 1: New York Stocking Change. Today, anybody can do anything they
1:28:03
Speaker 1: want to do. It's not even it's not even eight bucks.
1:28:07
Speaker 1: It's free. That's it's a site called robin Hood. You
1:28:09
Speaker 1: could buy stocks for free, absolutely no cost whatsoever. Folio Advisor,
1:28:14
Speaker 1: same thing. You know. So the world has changed, and
1:28:19
Speaker 1: I'm not sure I would say get into this business.
1:28:21
Speaker 1: But if they really wanted to learn something that you
1:28:24
Speaker 1: will become the best at it. Be the go to
1:28:27
Speaker 1: person for whatever it is that you want to do.
1:28:30
Speaker 1: Don't just learn in a cursory way because you're gonna
1:28:33
Speaker 1: end up at the call center. If you're truly great
1:28:36
Speaker 1: at something, then you won't. That's fascinating. And my final question.
1:28:41
Speaker 1: You began in nine seventy five. You said, say four
1:28:46
Speaker 1: right at the end of that, so that was forty
1:28:50
Speaker 1: two years ago. What do you know about investing today
1:28:53
Speaker 1: that you wish you knew when you started forty two
1:28:56
Speaker 1: years ago. Well, I'll tell you what. It takes a
1:29:02
Speaker 1: lot of whiskers in this business. And you know, you
1:29:04
Speaker 1: gotta walk around the block a lot of times to
1:29:06
Speaker 1: get to a point where you have a general good
1:29:09
Speaker 1: understanding about what's going on in Wall Street. But I
1:29:11
Speaker 1: would say the point in figure charting. You know, if
1:29:14
Speaker 1: I could have been serious about it at that age,
1:29:16
Speaker 1: in my twenties. Then it would have gotten me on
1:29:19
Speaker 1: this road a lot sooner. You know, I had to
1:29:21
Speaker 1: learn through the school of hard knocks. If if that,
1:29:23
Speaker 1: if that guy didn't bring that point and figure charting
1:29:25
Speaker 1: book to me that day as he walked in, What's
1:29:28
Speaker 1: what's the probability that the first guy I hired my
1:29:31
Speaker 1: option department brings me this book? This one book, it's
1:29:36
Speaker 1: a lot and it was a lost art. Why this
1:29:39
Speaker 1: one book? And then the two of us look at
1:29:41
Speaker 1: this book. He looks at it as a way of trading.
1:29:43
Speaker 1: I look at it as a way of changing the
1:29:44
Speaker 1: whole industry. And these things that happened to you along
1:29:49
Speaker 1: the way. Sometimes you've got to have a little age
1:29:51
Speaker 1: on you to have that perception and understanding, you know.
1:29:54
Speaker 1: So I guess it all was exactly right. At age
1:29:57
Speaker 1: thirty nine, I had to start the company. By forty
1:30:00
Speaker 1: I did at them. I was ready. Then I'd learned enough.
1:30:03
Speaker 1: If I tried before that, maybe maybe maybe I wasn't ready,
1:30:06
Speaker 1: Maybe it would have failed. I don't know, Tom. This
1:30:08
Speaker 1: has been absolutely fascinating for me personally. Like I said,
1:30:13
Speaker 1: I've been reading your work for early since early early
1:30:17
Speaker 1: in my career. I mentioned, I uh was introduced to
1:30:21
Speaker 1: you at a place called Prime Charter, which is now
1:30:24
Speaker 1: part of Oppenheimer and it has been um absolutely a
1:30:29
Speaker 1: privilege and pleasure to chat with you. Thank you so
1:30:32
Speaker 1: much for for doing this. I want to say one
1:30:34
Speaker 1: more thing, Mary hit me. You know how we got together.
1:30:37
Speaker 1: I've been a reader of you. I read your blog.
1:30:40
Speaker 1: Remember I loved what you had written, and I emailed
1:30:44
Speaker 1: you tell you that the the Mutual Admiration Admiration Society
1:30:48
Speaker 1: will it's you guys used to quote me. I used
1:30:52
Speaker 1: to pull stuff out that I had done in quote
1:30:54
Speaker 1: exactly and it was always a thrill from me. It's
1:30:56
Speaker 1: like God, I was in a green newbie when I
1:30:59
Speaker 1: started reading to us, see right, and now I'm occasionally
1:31:01
Speaker 1: quoting in there, and I was just thrilled to death. Well,
1:31:04
Speaker 1: well it's a pleasure me in absolutely. For those of
1:31:07
Speaker 1: you who enjoyed this conversation, please be sure to look
1:31:10
Speaker 1: up an Inch or down an inch on Apple iTunes
1:31:13
Speaker 1: and you could see the other eighty five or so
1:31:15
Speaker 1: of these. Be sure and check out my daily column
1:31:19
Speaker 1: on Bloomberg View dot com. The blog Tom was talking
1:31:22
Speaker 1: about is the big picture. It's at Ridholtz dot com.
1:31:25
Speaker 1: I would be remiss if I did not mention Taylor
1:31:29
Speaker 1: Riggs and Charlie Volmer, the producer and booker of the show.
1:31:32
Speaker 1: Mark is my recording engineer, and Michael bat Nick is
1:31:36
Speaker 1: my research assistant. You've been listening research assistant. He's actually
1:31:40
Speaker 1: the director of research and helps me put all these
1:31:43
Speaker 1: questions together every week, and I wouldn't be able to
1:31:46
Speaker 1: do these shows without him. You've been listening to Masters
1:31:49
Speaker 1: in Business on Bloomberg Radio.