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An Interview With Paul Desmond: 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: This week on the podcast, I have a special guest.
• 0:11
  Speaker 1: His name is Paul Desmond. He is the president of
• 0:15
  Speaker 1: Lowry's Research and an extremely highly regarded market technician known
• 0:21
  Speaker 1: as a technicians technician. And quick funny story about Paul.
• 0:27
  Speaker 1: I know him, I don't know fifteen years fourteen years.
• 0:31
  Speaker 1: And Paul and I had a conversation a dozen years
• 0:35
  Speaker 1: ago that essentially was the forerunner of these podcasts. He
• 0:41
  Speaker 1: had just won the Charles Dow Market Technicians Award for
• 0:47
  Speaker 1: the most significant uh technical paper looking at bear markets
• 0:54
  Speaker 1: and and how bottoms are formed. And I started a
• 0:57
  Speaker 1: correspondence with him on email and he got back to
• 1:01
  Speaker 1: me and said, oh, that paper was really interesting, but
• 1:03
  Speaker 1: now I'm working on this new paper on how market
• 1:06
  Speaker 1: tops are formed, and it's really fascinating. We had to
• 1:09
  Speaker 1: go back and re create all this data from the
• 1:11
  Speaker 1: twenties that didn't exist, and he was just really enthusiastic,
• 1:15
  Speaker 1: and so we ended up um through a series of
• 1:18
  Speaker 1: phone calls that were recorded and transcribed, created these these
• 1:24
  Speaker 1: long conversations which became A Q and A with Paul
• 1:29
  Speaker 1: Desmond Part one and two. Originally it ran on the
• 1:32
  Speaker 1: On the Street dot com and and now it's a
• 1:35
  Speaker 1: little difficult to find there. I know it's buried somewhere
• 1:39
  Speaker 1: in there, but I reproduced it on my blog, The
• 1:43
  Speaker 1: Big Picture, which is results dot com. I'll put a
• 1:45
  Speaker 1: link in uh the page I I do on this
• 1:50
  Speaker 1: podcast to those original um Q and A s if
• 1:53
  Speaker 1: you want to uh, if you want to see them.
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  Speaker 1: I actually just reread them the other day and they're
• 1:58
  Speaker 1: really really good. But at Conversation was really the first
• 2:04
  Speaker 1: time it popped into my head. Hey, I could find
• 2:07
  Speaker 1: these really smart guys with really really interesting experiences and
• 2:12
  Speaker 1: get them to speak about that, and maybe someone would
• 2:15
  Speaker 1: want to pay attention and and and listen to it
• 2:19
  Speaker 1: or read it. And um really, Paul Desmond was the
• 2:23
  Speaker 1: first Masters in Business we've ever done before we were
• 2:27
  Speaker 1: doing radio, by the way, he be. This is a
• 2:31
  Speaker 1: long podcast, but he tells some fascinating stories about how
• 2:34
  Speaker 1: he met Mr Lowry and and some anecdotes about Joe
• 2:39
  Speaker 1: Granville that I find to be hilarious if you know
• 2:42
  Speaker 1: who Joe Granville is. But um really an unusual and
• 2:46
  Speaker 1: interesting conversation with a lot of of details. If you're
• 2:50
  Speaker 1: a technician. If you're a chartist, this is the podcast
• 2:56
  Speaker 1: for you. So, without any further ado, here is my
• 2:59
  Speaker 1: conversation in with Lowry's Paul Desmond. This is Masters in
• 3:06
  Speaker 1: Business with Barry Ridholts on Bloomberg Radio. This week on
• 3:11
  Speaker 1: Masters in Business on Bloomberg Radio, my guest is Paul Desmond.
• 3:15
  Speaker 1: For those of you who may not know who Paul is. No,
• 3:18
  Speaker 1: he is not a member of Dave Brubeck's quartet. He
• 3:22
  Speaker 1: is president of Lowry's Research, which is the oldest advisory
• 3:26
  Speaker 1: firm in the United States. Paul joined Lowry's as Director
• 3:30
  Speaker 1: of Research in nine four, meaning you just had your
• 3:34
  Speaker 1: fiftieth anniversary last year. UM. The vast majority of Lowry's
• 3:39
  Speaker 1: subscribers or professional investors, including many of the largest hedge
• 3:43
  Speaker 1: funds in the world. Paul was the president of the
• 3:46
  Speaker 1: Market Technicians Association and the recipients of the Charles H.
• 3:51
  Speaker 1: Dow Award given for original and groundbreaking research. And the
• 3:56
  Speaker 1: piece that you won that award for was called Identify
• 4:00
  Speaker 1: bear market Bottoms and New bull Markets. We'll talk about
• 4:03
  Speaker 1: that a little while, um. Speaking of bear market bottoms.
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  Speaker 1: In two thousand nine, you were honored by the Technical
• 4:10
  Speaker 1: and you were honored as Technical Analysts of the Year
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  Speaker 1: by Technical Analysts magazine. Bull Desmond, Welcome to Bloomberg. Thank
• 4:17
  Speaker 1: you very much. I'm delighted to be here. So people
• 4:21
  Speaker 1: who um are not in the industry may not have
• 4:25
  Speaker 1: heard of you, but I found you a long time
• 4:28
  Speaker 1: ago when you had won that Dow Award for that paper,
• 4:32
  Speaker 1: and you and I actually had, I want to say,
• 4:35
  Speaker 1: it's about a dozen years ago, an extensive conversation about
• 4:39
  Speaker 1: how market bottoms are formed. And at the time a
• 4:43
  Speaker 1: paper you were working on which was called how Market
• 4:46
  Speaker 1: Tops Are Formed, and we I ended up writing that
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  Speaker 1: up that got published. It's actually still on the block side.
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  Speaker 1: If anyone wants to read this one from oh four
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  Speaker 1: or five something like that, it's called uh it just
• 4:58
  Speaker 1: searched for Riholts and Desmond and that will come up.
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  Speaker 1: And that's a really a fascinating conversation. Um, but let's
• 5:04
  Speaker 1: jump right into this. What did you do before you
• 5:08
  Speaker 1: were working at Lowry's. I was in the army, So
• 5:13
  Speaker 1: I went from college to the Army to Lowry just
• 5:16
  Speaker 1: like that. Yeah, I've got the shortest resume animals. There
• 5:18
  Speaker 1: you go one job years. That's that's a little unusual.
• 5:22
  Speaker 1: So that naturally leads to the next question, which is,
• 5:26
  Speaker 1: how did you become a technician right out of the army? Well,
• 5:30
  Speaker 1: I my my my father was an investor of some
• 5:33
  Speaker 1: size and UH and suffered a series of heart attacks
• 5:37
  Speaker 1: and and UH couldn't handle the portfolio anymore, and so
• 5:42
  Speaker 1: I took over for a short term, short time, and
• 5:47
  Speaker 1: and I knew nothing about what I was doing. So
• 5:50
  Speaker 1: I spent a great deal of time at the public
• 5:51
  Speaker 1: library trying to try to figure out what made sense
• 5:56
  Speaker 1: and would you learn? In the library, I saw a
• 6:00
  Speaker 1: lot of things that did not work, that I did
• 6:03
  Speaker 1: not enjoy or did not feel what it was the
• 6:06
  Speaker 1: right way to go. But but I did run into
• 6:10
  Speaker 1: I had. I had a major economics in college, and
• 6:13
  Speaker 1: so I was very familiar with the laws supply and demand,
• 6:16
  Speaker 1: and believed in the law supplying the man very much.
• 6:20
  Speaker 1: And I started looking for things that fit along with
• 6:24
  Speaker 1: the law supplying the man. Finally got down to the
• 6:27
  Speaker 1: point where I was doing some point in figure charting.
• 6:31
  Speaker 1: I was looking at value line and then all of
• 6:35
  Speaker 1: a sudden I ran across the lowry material. And I
• 6:39
  Speaker 1: was in the Miami Library at the time, and saw
• 6:42
  Speaker 1: that the Lowry's had a Miami address, and so so
• 6:49
  Speaker 1: I read a lot of their material and and felt
• 6:52
  Speaker 1: this was exactly what I was looking for because it
• 6:55
  Speaker 1: was based on the law of supplying demand. So how
• 6:58
  Speaker 1: do you go from research markets to manager Dad's portfolio
• 7:04
  Speaker 1: to applying for the job as had of research. I
• 7:07
  Speaker 1: really wasn't applying for the job. I was trying to
• 7:10
  Speaker 1: learn more about the stock market, and so with the
• 7:14
  Speaker 1: Miami address, I thought, well, this is a chance to
• 7:17
  Speaker 1: just go over there and maybe get a chance to
• 7:20
  Speaker 1: learn more. Serendipitous right there, Yes, I was, I was
• 7:23
  Speaker 1: put together. I went over to the address that was
• 7:26
  Speaker 1: on the reports, and instead of an office building, what
• 7:29
  Speaker 1: I found was I was. I was in the State
• 7:34
  Speaker 1: area of Miami and right along the Brickle Avenue estates
• 7:40
  Speaker 1: and I got to a gate. UH went through the
• 7:45
  Speaker 1: gate and at the at the end of the property
• 7:49
  Speaker 1: was three or four story brick colonial homes, incredibly unusual
• 7:56
  Speaker 1: in Miami, and Uh, I pulled over. They had a
• 8:01
  Speaker 1: separate garage and I guess mads quarters. And I pulled
• 8:09
  Speaker 1: in there and there was a there was a man
• 8:12
  Speaker 1: in the bushes tending to the flowers, and I said
• 8:17
  Speaker 1: I said to him, is there anybody around here from
• 8:19
  Speaker 1: the Lowry organization? This is actually on a Saturday. And
• 8:23
  Speaker 1: he came up out of the bushes with an old
• 8:26
  Speaker 1: head on, you know, dirt all over his fingernails, and said,
• 8:30
  Speaker 1: I think we can find somebody around here. And his
• 8:32
  Speaker 1: name was L. M. Lowry, the founder of Larry Research.
• 8:37
  Speaker 1: And so we we went into actually the major quarters
• 8:41
  Speaker 1: have been converted into his private office and so we
• 8:45
  Speaker 1: sat went in and sat down and I just said,
• 8:48
  Speaker 1: you know, I've seen your material in the library and
• 8:51
  Speaker 1: like to learn more about it. And we sat and
• 8:54
  Speaker 1: talked for oh, I think three hours. The first time
• 8:57
  Speaker 1: you're meeting him, just come on into my lair and
• 9:00
  Speaker 1: talk to me. Yeah. I always thought in college that
• 9:03
  Speaker 1: there must be some place in the world that you
• 9:06
  Speaker 1: could go to get a master's degree or PhD in
• 9:09
  Speaker 1: stock market analysis, and I think this is it. And
• 9:14
  Speaker 1: he said, well you can learn you know, I think
• 9:17
  Speaker 1: I think you can learn a few things here. And um,
• 9:21
  Speaker 1: did he offer you a job? Well, yeah, sort of
• 9:24
  Speaker 1: sort of a sort of a job at a phenominal
• 9:29
  Speaker 1: again as an intern it was almost almost an internship.
• 9:34
  Speaker 1: Is this is masters in business on Bloomberg Radio. I'm
• 9:38
  Speaker 1: Barry Ridholtz. My guest this week on Masters in Business
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  Speaker 1: is technical analyst Paul Desmond of Lowry's. You've been called
• 9:45
  Speaker 1: the technicians technician, which is a term I I really like.
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  Speaker 1: Before we start talking about market bottoms, I have to
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  Speaker 1: ask one question, which is a quote of yours. You said,
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  Speaker 1: if you're looking at fundamentals, you're already too late. Explain
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  Speaker 1: what you meant by that, Well, the fundamentals are are delayed.
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  Speaker 1: People buy and sell stocks not because of what they
• 10:09
  Speaker 1: know today, but what they think is going to happen
• 10:13
  Speaker 1: in the future. So they look at today's or rings
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  Speaker 1: reports and they say, I can see the ear rings
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  Speaker 1: are positive now, but I just don't think they're going
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  Speaker 1: to be that positive six months from now, and therefore
• 10:25
  Speaker 1: the market starts to turn down because of that change
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  Speaker 1: in psychology, and um the ear rings reports are still positive,
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  Speaker 1: but the but the market turns out the same thing.
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  Speaker 1: At market bottoms, the market traditionally turns up because investors
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  Speaker 1: are saying, yeah, I can see how bad things are
• 10:45
  Speaker 1: right now, but I think in the next six months
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  Speaker 1: things are going to get better. So so let's talk
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  Speaker 1: a little bit about that. Let's talk about market bottoms.
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  Speaker 1: This is the piece that you won the Charles Dowe
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  Speaker 1: Award for um how how bare market bought ms are made.
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  Speaker 1: Let's talk a little bit about the oh seven o
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  Speaker 1: nine financial crisis and market bottom. How did that compare
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  Speaker 1: to prior bear markets? Was that typical or was that
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  Speaker 1: an a typical bottom? No, it was it was rather
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  Speaker 1: rather typical bottom. We we we saw. The conditions that
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  Speaker 1: are necessary for a bottom are twofold number number one.
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  Speaker 1: You have to see the the selling exhausted. In other words,
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  Speaker 1: people have to capitulate, dump stock and just give up exactly.
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  Speaker 1: You have. It has to reach the point where people say,
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  Speaker 1: just get me out of the stock market. I don't
• 11:43
  Speaker 1: ever want to see his stock again in my life.
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  Speaker 1: And at that point there's no more sellers to drive
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  Speaker 1: prices down. That's what you mean by exhausting, exhausted exactly. Now.
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  Speaker 1: The second part of it which has to be there
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  Speaker 1: is uh that the buyers who are sitting on the
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  Speaker 1: sidelines have to look at the bargains that are available
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  Speaker 1: at that point and say, boy, this is an opportunity
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  Speaker 1: that I haven't seen in a dozen years, and they
• 12:13
  Speaker 1: come running back in with great enthusiasm to grab up
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  Speaker 1: all these bargains. So it's a one two punch. You
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  Speaker 1: have to exhaust the sellers and then you have to
• 12:22
  Speaker 1: bring the bring the buyers back in again. That's interesting
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  Speaker 1: that simultaneously you have the psychology of some people I'm
• 12:30
  Speaker 1: going to describe it as reacting emotionally, Hey, just make
• 12:34
  Speaker 1: the pain stop, do whatever you have to do, versus
• 12:37
  Speaker 1: the more objective, value oriented people who say, well, it
• 12:41
  Speaker 1: may feel terrible, but look how reasonable these things are.
• 12:44
  Speaker 1: That's right. And what you find generally is that the
• 12:48
  Speaker 1: average investor is panicking right at the bottom. They're saying,
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  Speaker 1: oh my goodness, I you know, I have to sell
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  Speaker 1: now because I'm gonna lose. If I don't, I'm gonna
• 12:57
  Speaker 1: lose everything I've got. I remember, and we were at
• 13:00
  Speaker 1: Dow or so during the O nine bottom, and all
• 13:06
  Speaker 1: of a sudden, out of the woodworks, we were getting
• 13:08
  Speaker 1: forecast for Dow five thousand, Dow three thousand, Dow one thousand,
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  Speaker 1: and that sort of background noise I think really scared
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  Speaker 1: the living daylights out of people. Absolutely did. And and
• 13:19
  Speaker 1: that those are the conditions that typically invest occur at
• 13:23
  Speaker 1: a market bottom. So let's talk a little bit about
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  Speaker 1: that bottom in your um white paper that won the
• 13:30
  Speaker 1: dowt Ward. You talk about down days and days. Describe
• 13:36
  Speaker 1: what that is and tell us what it means. Well,
• 13:39
  Speaker 1: we were looking for some way to to to to
• 13:43
  Speaker 1: indicate that we reached a market bottom, and a lot
• 13:47
  Speaker 1: of writers have talked about capitulation and uh and in
• 13:52
  Speaker 1: a in a very vague general sense, but nobody had
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  Speaker 1: come up with a way to specifically identify the kind
• 14:00
  Speaker 1: capitulation that occurs at market bottoms. So we went back
• 14:03
  Speaker 1: and looked at the amount of volume that was traded
• 14:06
  Speaker 1: on the downside during periods of the market decline. And
• 14:10
  Speaker 1: there's the sellers volume, how much how much of the
• 14:13
  Speaker 1: volume was due to sellers and how much of it
• 14:15
  Speaker 1: was due to buyers? And what we found that when
• 14:19
  Speaker 1: you get into the point where investors are panicking, uh
• 14:24
  Speaker 1: or more of all of the volume traded on the
• 14:27
  Speaker 1: market that day is traded on the downside, meaning it's
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  Speaker 1: at a price lower than the previous price. Exactly, because
• 14:33
  Speaker 1: whenever I've brought this up to people, one of the
• 14:36
  Speaker 1: comments I often hear is, well, what do you mean
• 14:38
  Speaker 1: more sellers and buyers? Every share that's sold someone's buying
• 14:41
  Speaker 1: it shouldn't there be an equal amount. But you're really
• 14:44
  Speaker 1: talking about are these shares sold um sold lower or
• 14:48
  Speaker 1: are they bought higher? Yeah? Yeah, which you have to
• 14:51
  Speaker 1: look at. The stock market is a double auction system
• 14:54
  Speaker 1: where the buyers can raise or lower their prices and
• 14:58
  Speaker 1: the sellers can lower or raise their prices. And so
• 15:02
  Speaker 1: what you're constantly watching for is to say, um is
• 15:06
  Speaker 1: the mood of investors towards selling more than towards buying. Uh.
• 15:12
  Speaker 1: So there's always a buyer, always a seller. But the
• 15:16
  Speaker 1: question is who is the most anxious to do business,
• 15:19
  Speaker 1: who's driving the actions. If the seller is anxious, then
• 15:23
  Speaker 1: the price will go down. If the buyer is anxious,
• 15:27
  Speaker 1: the only way he's going to get that stock away
• 15:29
  Speaker 1: from the seller is to raise the price. So it's
• 15:31
  Speaker 1: who's impatience and just wants either in or out at
• 15:34
  Speaker 1: that moment's right, and and at the at these at
• 15:37
  Speaker 1: near these major market bottoms, the impatience is all on
• 15:41
  Speaker 1: the downside. Just get me out of this place. I
• 15:43
  Speaker 1: don't I don't want to ever see a stock again.
• 15:46
  Speaker 1: So we talked about down days when the vast majority
• 15:50
  Speaker 1: of the trading volume is to the downside, but surprisingly
• 15:54
  Speaker 1: right around bottoms you also end up, as you've written,
• 15:58
  Speaker 1: with an update, explain what happens. You don't always and
• 16:02
  Speaker 1: that's the that's the important point is you can have
• 16:05
  Speaker 1: a series of these ninety percent downside days where investors
• 16:09
  Speaker 1: are are panicking, but the buyers are sitting on the
• 16:12
  Speaker 1: sidelines saying, you know, prices just don't look that good
• 16:16
  Speaker 1: to me. I really can't get too enthusiastic about buying here.
• 16:20
  Speaker 1: If that, if that's the way they view the bargain prices,
• 16:25
  Speaker 1: that there will be more sellers, there will be more
• 16:29
  Speaker 1: downside days, and so you don't you can't just view
• 16:33
  Speaker 1: the selling as being the key to the market bottom.
• 16:37
  Speaker 1: It's it's a one two punch of you need to
• 16:39
  Speaker 1: see the sellers panic and then you need to see
• 16:43
  Speaker 1: the buyers come rushing back in. If the buyers won't
• 16:45
  Speaker 1: rush back any and then the market decline will continue
• 16:49
  Speaker 1: until prices eventually reach the point where the buyers are
• 16:52
  Speaker 1: really enthusiastic about coming back into the mark. And that's
• 16:55
  Speaker 1: when we get that's what is upside day so and
• 16:59
  Speaker 1: others in nineties, in the nineteen seventy nine seventy four
• 17:03
  Speaker 1: market decline. We saw sixteen downside days without ever seeing
• 17:09
  Speaker 1: and until we finally saw a ninety percent ups a day.
• 17:12
  Speaker 1: And what year was that? When seventy three and nineteen
• 17:15
  Speaker 1: seventy four was two year two year bear market? Amazing.
• 17:19
  Speaker 1: This is Masters in Business on Bloomberg Radio. I'm Barry Ridalts.
• 17:23
  Speaker 1: Our guest this week on Masters in Business is Paul Desmond,
• 17:27
  Speaker 1: President of Lowry's and a gentleman known as a technicians
• 17:31
  Speaker 1: technician UH, an award winning analyst of stock market history.
• 17:36
  Speaker 1: Let's talk a little bit about a fairly interesting problem
• 17:40
  Speaker 1: which I think a lot of people are unaware of,
• 17:43
  Speaker 1: and that's what happens when we market cap weight various industries.
• 17:48
  Speaker 1: The SMP five hundred is cap weighted, many of the
• 17:51
  Speaker 1: other industries are also. Other indusicries are also cap weighted.
• 17:57
  Speaker 1: What you've been critical about this, what's the problem with
• 18:00
  Speaker 1: cap waiting market in disease, well, particularly in particularly in
• 18:04
  Speaker 1: old bull markets, the camp being late in the cycle,
• 18:10
  Speaker 1: not not not nineteenth century bull markets liked or something
• 18:16
  Speaker 1: along those lines, and where you're transitioning from from an
• 18:19
  Speaker 1: old bull market into a bearer market in that period,
• 18:24
  Speaker 1: the big cap price indexes are incredibly deceptive, and we're
• 18:33
  Speaker 1: in that kind of stage right now in two thousand
• 18:36
  Speaker 1: and fifteen. This is now an old six years old
• 18:39
  Speaker 1: bull market exactly. And what what you're seeing is that
• 18:42
  Speaker 1: is that the small camp segment of the market was
• 18:47
  Speaker 1: the first part to begin to turn down, most sensitive
• 18:51
  Speaker 1: to economic conditions, or just the first thing that sellers
• 18:55
  Speaker 1: started dump. Well, I think they're the most speculative stocks
• 18:57
  Speaker 1: that they tend to be overpriced more than more than
• 19:01
  Speaker 1: most stocks. They're they're the the most uh a liquid,
• 19:08
  Speaker 1: least amount of coverage, not much about there. They're kind
• 19:12
  Speaker 1: of one trick ponies. If if, if there, if their
• 19:15
  Speaker 1: companies don't if their company's product does not do well,
• 19:19
  Speaker 1: that you know they're pretty much gone. So anyway, what
• 19:22
  Speaker 1: we've seen is that the market does not always move
• 19:27
  Speaker 1: in tandem and knows it's not a single entity. It's
• 19:31
  Speaker 1: a series of of areas of strength and weakness. And
• 19:36
  Speaker 1: so the first stage of of a transition from a
• 19:40
  Speaker 1: bowl market to a bearer market is weakness in small caps.
• 19:45
  Speaker 1: Then at the later point, maybe several months later, you
• 19:48
  Speaker 1: see the deteriorations start to occur in the mid cap stocks.
• 19:52
  Speaker 1: And then later than that it occurs in the big
• 19:55
  Speaker 1: cap stocks. So if you're watching the big cap indexes
• 19:58
  Speaker 1: like the SMP five index, you're missing out on all
• 20:03
  Speaker 1: the weakness that has already occurred in the um, in
• 20:07
  Speaker 1: the small cap, in the mid cap and Nicklas. Example,
• 20:11
  Speaker 1: at the top on the top day in two thousand,
• 20:14
  Speaker 1: which I think was January twelve, or this is the
• 20:19
  Speaker 1: this is the absolute top day of the of the
• 20:22
  Speaker 1: SMP five index. If you look to inter inside the market,
• 20:26
  Speaker 1: you'd see the fifty five percent of all of the
• 20:30
  Speaker 1: stocks listed on the New York Stock is Change were
• 20:33
  Speaker 1: already down by twenty or more from there from their high.
• 20:37
  Speaker 1: So more than more than half of the index is
• 20:39
  Speaker 1: already in a bullmarket. Yeah, but you can't tell that
• 20:42
  Speaker 1: because the leaders are still going higher. Absolutely, because the
• 20:45
  Speaker 1: big caps are the last thing to turn down, and
• 20:48
  Speaker 1: therefore they hide all of the weaknesses occurring in the
• 20:52
  Speaker 1: small cap and mid cap stop. So we saw that
• 20:55
  Speaker 1: in two thousand with what people called the Horsemen of
• 20:58
  Speaker 1: the Technology index. We saw that in the late sixties
• 21:02
  Speaker 1: or mid sixties, we had a twenty year bull market
• 21:06
  Speaker 1: after the World War two ended, and that narrowed to
• 21:10
  Speaker 1: the nifty fifty similar concept. Those were the best known
• 21:13
  Speaker 1: biggest gap stocks. Yeah, that wasn't That was in seventy,
• 21:17
  Speaker 1: seventy two and seventy three, so really forty years into uh,
• 21:21
  Speaker 1: twenty years into a huge post war rally. Yeah, and
• 21:25
  Speaker 1: you and you see other You see other situations in
• 21:29
  Speaker 1: which a part portion of the market is going in
• 21:33
  Speaker 1: one direction and a portion of the market is going
• 21:36
  Speaker 1: in another direction. For example, in seventy seven, the Dow
• 21:40
  Speaker 1: Jones Industrial Average was down almost all year long. They
• 21:44
  Speaker 1: was down from his highs. At the same time, the
• 21:49
  Speaker 1: small caps and mid caps were making new bull market highs.
• 21:53
  Speaker 1: You saw the same pattern in two thousand. Actually, what
• 21:57
  Speaker 1: was happening in two thousand was the technology stocks were
• 22:00
  Speaker 1: extremely weak. They were probably down. The big caps were
• 22:05
  Speaker 1: down maybe thirty five, and the mid caps and small
• 22:10
  Speaker 1: caps we're making new highs. The SMP mid cap and
• 22:15
  Speaker 1: the SMP small cap indexes made their highs in UM
• 22:21
  Speaker 1: April of two thousand two. Most people say, well, the
• 22:26
  Speaker 1: bear markets started in early two thousand and lasted until
• 22:30
  Speaker 1: March of two thousand three. UM. But first big for
• 22:35
  Speaker 1: mid caps and small caps, they were actually going in
• 22:38
  Speaker 1: the opposite direction from the big caps. Again, if an
• 22:43
  Speaker 1: investor can't couldn't see that that condition, they missed a
• 22:48
  Speaker 1: huge opportunity. This is Masters in Business on Bloomberg Radio.
• 22:52
  Speaker 1: I'm Barry Ridholtz. We're speaking with Paul Desmond, technical analysts
• 22:57
  Speaker 1: at Lowry's also president, and he has been either working
• 23:02
  Speaker 1: there or running the place since nineteen sixt you. Um,
• 23:07
  Speaker 1: last time we spoke, you were working on a paper
• 23:10
  Speaker 1: about how market tops were formed. What you subsequently put
• 23:14
  Speaker 1: out and has become a widely acclaimed piece of research.
• 23:18
  Speaker 1: Let's talk about a data point that I pulled from
• 23:22
  Speaker 1: your research that I find absolutely fascinating. Of the fourteen
• 23:26
  Speaker 1: major market tops from ninety nine to two thousand, the
• 23:31
  Speaker 1: average percentage of stocks making new highs for the day
• 23:36
  Speaker 1: was only six percent. Explain how that happens and and
• 23:40
  Speaker 1: what that means? Well, uh uh what? What? What occurs
• 23:46
  Speaker 1: is that in the past, people used to think of
• 23:51
  Speaker 1: the market as a single entity. The market goes up
• 23:55
  Speaker 1: and it goes down, all in unison, that that stocks
• 24:00
  Speaker 1: moved together. That's true at market bottoms, but it's far
• 24:05
  Speaker 1: from true at market tops. Market tops are very much
• 24:09
  Speaker 1: like the autumn season, which is what we are right
• 24:13
  Speaker 1: in the middle of now. And and in the autumn,
• 24:18
  Speaker 1: what's happening is the leaves are changing color, and everybody's saying, oh,
• 24:21
  Speaker 1: isn't that isn't that beautiful? But the if the leaves
• 24:24
  Speaker 1: could talk, they'd be screaming out to you saying, winner's coming,
• 24:28
  Speaker 1: winner's coming, winners coming. You better get prepared because winners coming.
• 24:33
  Speaker 1: And nobody's paying any sense to it, all say, oh,
• 24:35
  Speaker 1: are there the leaves? Pretty well, the same thing happens
• 24:39
  Speaker 1: in the stock market is that individual stocks drop out
• 24:42
  Speaker 1: of the bull market one by one by one, very
• 24:46
  Speaker 1: much like the leaves falling off the trees. That the
• 24:49
  Speaker 1: process starts with the small caps. Almost always starts with
• 24:54
  Speaker 1: the small caps. Then it moves to the mid caps. Uh.
• 24:59
  Speaker 1: In those are area is the few people are looking at.
• 25:02
  Speaker 1: You know, if you said, when was the last time
• 25:04
  Speaker 1: you saw open the paper or a magazine and saw
• 25:07
  Speaker 1: a picture of the chart of the small cap Price INDEXUS,
• 25:12
  Speaker 1: it's you never see it. You see the SMP five.
• 25:15
  Speaker 1: So so those are stocks that you don't even know exists. Um,
• 25:21
  Speaker 1: so they start to roll over. First, they're the first
• 25:24
  Speaker 1: leaves to fall off the trees. Then the mid caps
• 25:26
  Speaker 1: start to fall off the trees. And that process is
• 25:29
  Speaker 1: all taking place while the s m P five hundred
• 25:32
  Speaker 1: is still in a rising pattern, because the big caps
• 25:36
  Speaker 1: are the last thing to turn down. So the what
• 25:40
  Speaker 1: you typically find is the this This study started with
• 25:45
  Speaker 1: us going back and looking at at what was going
• 25:47
  Speaker 1: on in I've I've always been fascinated with the idea
• 25:52
  Speaker 1: that I've had a number of people who a number
• 25:56
  Speaker 1: of our clients who were actually at in the market
• 26:00
  Speaker 1: in nineteen say to me, you know, the market was
• 26:03
  Speaker 1: just going up in and then it just crashed. There
• 26:06
  Speaker 1: was no warnings, there was no nothing, And I thought,
• 26:10
  Speaker 1: that just doesn't make any sense to me. Nothing happens
• 26:14
  Speaker 1: without some warning signs around it. That you can't think
• 26:17
  Speaker 1: of anything in life that doesn't have warning signs. Lightning
• 26:23
  Speaker 1: can't occur without white clouds turning the dark clouds turning
• 26:27
  Speaker 1: to black clouds. At least in hindsight, you should be
• 26:31
  Speaker 1: able to say, oh, this was the warning sign we missed. Sure,
• 26:34
  Speaker 1: if you know what to look for, then it's pretty
• 26:37
  Speaker 1: simple to see. If you don't know what to look for,
• 26:40
  Speaker 1: then you're gonna miss it almost every time. So so
• 26:42
  Speaker 1: what did you find in ninety nine? We found that
• 26:45
  Speaker 1: when the when the Doal Jones Industrial Average reached its
• 26:48
  Speaker 1: peak in on September three, only two point three percent
• 26:55
  Speaker 1: of the stocks on the New York Stock and Change
• 26:57
  Speaker 1: we're making new highs that day. Now, that was supposed
• 26:59
  Speaker 1: to be the market high. How could only two point
• 27:04
  Speaker 1: three percent be making new highs? There be six making
• 27:08
  Speaker 1: new highs in actuality, thirty thirty or thirty five percent
• 27:15
  Speaker 1: of the stocks on the New York Stock Exchange, we're
• 27:17
  Speaker 1: already down by or more from their highs. So we
• 27:21
  Speaker 1: went back and we created an advanced decline line. That's
• 27:24
  Speaker 1: a simple way of just saying how many stocks are
• 27:26
  Speaker 1: participating in the up trend, how many stocks are not
• 27:29
  Speaker 1: participating in the up trind. And what we found was
• 27:32
  Speaker 1: the advanced decline line was in a steep decline from
• 27:38
  Speaker 1: September two years, two years prior to the to the top.
• 27:44
  Speaker 1: And each day, what that was saying was there are
• 27:47
  Speaker 1: more more and more leaves falling off the trees and
• 27:50
  Speaker 1: winters coming u So it was constantly warning you that
• 27:54
  Speaker 1: the market was becoming thinner. There were fewer and fewer
• 27:57
  Speaker 1: stocks that were producing profits for portfolio. It was it
• 28:01
  Speaker 1: was encouraging portfolio managers to get rid of all of
• 28:06
  Speaker 1: the dead wood that was in their portfolios and start
• 28:09
  Speaker 1: start calling out stocks that were no longer in the
• 28:12
  Speaker 1: bull market and therefore moving towards a more defensive position
• 28:17
  Speaker 1: for the coming winter. So let's stay with that full
• 28:21
  Speaker 1: foliage metaphor that that you use so well. If I
• 28:25
  Speaker 1: recall what you had said previously, at the average market peak,
• 28:30
  Speaker 1: at least of the stocks and the brought in the
• 28:33
  Speaker 1: seas are already down. Is that a rough number the
• 28:39
  Speaker 1: equivalent of at the peak of full foliage leaves have
• 28:43
  Speaker 1: already fallen off the trees, exactly. And those are the
• 28:48
  Speaker 1: stocks that have already dropped off are almost always initially
• 28:52
  Speaker 1: in the small cap segment and in the mid cap segment.
• 28:57
  Speaker 1: So again, very different called for the average investor to see,
• 29:01
  Speaker 1: and so you need the tools to say, I can
• 29:05
  Speaker 1: see that, I can see that stocks are falling off
• 29:08
  Speaker 1: the trees. I can see that I can see that
• 29:10
  Speaker 1: it's the small caps that are rolling first, and that's
• 29:13
  Speaker 1: a warning sign of a coming bearer market. Let's talk
• 29:17
  Speaker 1: a little bit about something related, which is uh something
• 29:21
  Speaker 1: you had written about the New York Stock Exchange, which
• 29:24
  Speaker 1: you had termed as really not much of a stock
• 29:27
  Speaker 1: exchange because more than half of the issues on it
• 29:31
  Speaker 1: are on stocks. UM. So, so describe what's actually on
• 29:35
  Speaker 1: the New York Stock Exchange, and then we'll talk a
• 29:38
  Speaker 1: little bit about your operating company only index. Well, if
• 29:42
  Speaker 1: you if you go back in time and and let's
• 29:46
  Speaker 1: say you went back to the forties or the even
• 29:49
  Speaker 1: the fifties and looked at what was registered on the
• 29:52
  Speaker 1: New York Stock Exchange. At the time, it was all
• 29:55
  Speaker 1: common stocks, and then it was preferred stocks that were
• 29:59
  Speaker 1: general convertible into common stocks UM also operating common stock
• 30:07
  Speaker 1: companies and preferred and and and and convertible preferred So
• 30:14
  Speaker 1: the convertible preferreds because they were tied to the common
• 30:18
  Speaker 1: stock through the through the conversion process, they moved like
• 30:23
  Speaker 1: common stocks. What happened in was there were products around,
• 30:31
  Speaker 1: particularly particularly from the developer called neuven Nouvene had developed
• 30:37
  Speaker 1: a number of products that were primarily for the retirement community,
• 30:41
  Speaker 1: mostly bonds and interest issuing. Yeah, they were. They were.
• 30:45
  Speaker 1: They were essentially portfolios of of individual bonds, all with
• 30:50
  Speaker 1: an approximately same maturity date. And UM they didn't have
• 30:57
  Speaker 1: an aftermarket. They had no way to sell if somebody
• 31:01
  Speaker 1: wanted to sell the shares for any reason in between
• 31:04
  Speaker 1: the maturity dates. There was no market. So Nouvene and
• 31:09
  Speaker 1: a number of products like that went to the New
• 31:11
  Speaker 1: York Stock Exchange and said, we need we need an
• 31:15
  Speaker 1: aftermarket and you need more volume on the on the exchange,
• 31:20
  Speaker 1: and so they made a deal, uh that that essentially
• 31:24
  Speaker 1: said the place should have been renamed the New York
• 31:29
  Speaker 1: Stock and Bond Market, but they didn't do it. That
• 31:33
  Speaker 1: was still called the New York Stock Market. But investors
• 31:36
  Speaker 1: were not aware of the distortions that were occurring because
• 31:41
  Speaker 1: of the fact that so many bonds were now listed
• 31:44
  Speaker 1: on the New York Stock Exchange. So so you mentioned
• 31:46
  Speaker 1: it's bonds, it's closed in funds, it's reads. But more
• 31:50
  Speaker 1: than half is that still true today? More than half
• 31:52
  Speaker 1: of the NYC is not operating company domestic common stock. Yeah,
• 31:57
  Speaker 1: it's actually about fift and and another part of it's
• 32:01
  Speaker 1: in there that is that instead of convertible preferred stocks,
• 32:05
  Speaker 1: we now just have preferred stocks, and those stocks trade
• 32:09
  Speaker 1: more like bonds than they do like stocks. So in
• 32:12
  Speaker 1: order to in order to eliminate all these potential distortions,
• 32:18
  Speaker 1: we simply said what what investors wanted to know is
• 32:21
  Speaker 1: how are common stocks domestic common stocks moving on the exchange.
• 32:27
  Speaker 1: And so we created a new universe called the operating
• 32:34
  Speaker 1: Companies only, and the only thing that's in that group
• 32:38
  Speaker 1: is is is domestic common stocks. So let's let's go
• 32:43
  Speaker 1: back to how market tops were formed. Then I want
• 32:46
  Speaker 1: to talk about specific market tops. So what do your
• 32:49
  Speaker 1: clients said? Nine? There was no warning, but you went
• 32:52
  Speaker 1: back and there was plenty of warnings warning what about
• 32:56
  Speaker 1: which a lot of people look at the black Monday
• 33:00
  Speaker 1: van as having no warning. It just came out of
• 33:03
  Speaker 1: no act. Now the same same thing again. You need
• 33:06
  Speaker 1: to know where to look and you need to have
• 33:09
  Speaker 1: the indicators to be able to see it. The advanced
• 33:11
  Speaker 1: decline line that we were talking about in nine in
• 33:15
  Speaker 1: the seven case topped out in March of Night seven
• 33:22
  Speaker 1: and was in a significant decline by the time that
• 33:25
  Speaker 1: the break occurred in October. We've been speaking with Paul Desmond.
• 33:30
  Speaker 1: He is the president and had to research at Lowry's
• 33:34
  Speaker 1: Market Research. You can you can hang around and continue
• 33:36
  Speaker 1: chatting for a while. So if you enjoy this conversation,
• 33:40
  Speaker 1: be sure and check out our podcast extras where we
• 33:42
  Speaker 1: keep the tape rolling and continue speaking. Be sure and
• 33:46
  Speaker 1: check out my daily column. You can see that at
• 33:49
  Speaker 1: Bloomberg View dot com. Follow me on Twitter at rid Halts.
• 33:53
  Speaker 1: I'm Barry Ridults. You're listening to Masters in Business on
• 33:56
  Speaker 1: Bloomberg Radio. You're listening to the podcast portion. I don't
• 34:00
  Speaker 1: know why I do this with my arms. I do
• 34:02
  Speaker 1: that every uh every time. Paul, thank you so much
• 34:04
  Speaker 1: for for coming by today. I've been looking forward to
• 34:08
  Speaker 1: to revisiting this conversation. I still get emails about that
• 34:13
  Speaker 1: earlier conversation we had. I actually had someone at the
• 34:17
  Speaker 1: Street dot com transcribe it and we published it in
• 34:21
  Speaker 1: two parts the Street dot com. It's somewhere on the
• 34:25
  Speaker 1: side it's buried, but I I took the original text
• 34:28
  Speaker 1: and and reposted it on my blog it hilts dot
• 34:31
  Speaker 1: com years ago. I still get emails about that, and
• 34:36
  Speaker 1: people ask me about lowry Is. I'm like, hey, they're
• 34:38
  Speaker 1: an operating company. You have questions, contact them. I know
• 34:41
  Speaker 1: you could download all of your white papers at Lowriies
• 34:45
  Speaker 1: dot com and order reprints of all sorts of stuff.
• 34:49
  Speaker 1: So let's let's talk about some of the questions and
• 34:51
  Speaker 1: some of the things um we missed. Before I get
• 34:55
  Speaker 1: into some of my regular questions, and these are these
• 34:59
  Speaker 1: are actually real questions. I'm not just making this stuff up. Um,
• 35:04
  Speaker 1: So let's talk a little bit about technical analysis, which
• 35:07
  Speaker 1: some of my friends think of as voodoo, and I
• 35:09
  Speaker 1: always have looked at it as really, let's think of
• 35:14
  Speaker 1: this as a measure of psychology and as the battle
• 35:17
  Speaker 1: between supply and demand for market shares. And I found
• 35:21
  Speaker 1: that has always been a helpful way to to frame
• 35:25
  Speaker 1: technical analysis. What do most people misunderstand about about technicals? Oh,
• 35:32
  Speaker 1: you know, it's a broad, uh broad category, and there
• 35:36
  Speaker 1: are a lot of different approaches to the stock market
• 35:40
  Speaker 1: that all kind of fit within the in the category
• 35:44
  Speaker 1: of technical. Now, O, if it's not fundamental, then it
• 35:48
  Speaker 1: fits into the category of of of technical. So if
• 35:51
  Speaker 1: you're not looking at earnings and value and price, then
• 35:54
  Speaker 1: you're you're it's a big umbrella. And that's everything from
• 35:58
  Speaker 1: charts to momentum to fib cycles. It's it's the moon,
• 36:04
  Speaker 1: the tides of the moon. Well, we're trying to keep
• 36:07
  Speaker 1: it serious, like when I and I know there are
• 36:10
  Speaker 1: people who and I apologize to those of you who
• 36:13
  Speaker 1: follow astrology as a way to invest your money, and
• 36:16
  Speaker 1: I apologize for you essentially being broke. But um, but
• 36:21
  Speaker 1: within the realm of quasi, I don't even know the
• 36:27
  Speaker 1: right words. Let's hold tides and and astrology aside. But
• 36:32
  Speaker 1: when we look at things like Fibonacci and Elliott wave.
• 36:35
  Speaker 1: So I'm gonna ask you the same question in two
• 36:38
  Speaker 1: different ways. The first, let me ask you this, what
• 36:41
  Speaker 1: are your favorite indicators, favorite technico indicators that you use
• 36:46
  Speaker 1: to help form your view of the market. Well, let
• 36:49
  Speaker 1: me go back just the second. Nobody knows where the
• 36:52
  Speaker 1: word technical came from, right, other than it's different than fundamental. Yeah,
• 36:59
  Speaker 1: when I when I was president of the Market Technicians Association,
• 37:02
  Speaker 1: we made an effort to try to go back and
• 37:05
  Speaker 1: find out who first used the word technical. Couldn't figure
• 37:09
  Speaker 1: it out, and what you know, in my in my estimation,
• 37:15
  Speaker 1: we should not use the word technical. We should be
• 37:17
  Speaker 1: using the word supply and demand. Right, how do you
• 37:20
  Speaker 1: how would you call that it? So I'm not a
• 37:22
  Speaker 1: fundamental analyst, I'm a supply demand That's very interesting. You
• 37:26
  Speaker 1: think that more accurately describes what the so called technicians do. Yes,
• 37:32
  Speaker 1: it's it's the it's the foundation of everything that that
• 37:36
  Speaker 1: people in the general category of technical analys so when
• 37:40
  Speaker 1: when you're looking at a chart, what you're really seeing
• 37:43
  Speaker 1: is the daily battle of demand versus supply. Exactly as
• 37:47
  Speaker 1: prices rise is because the buyers were more anxious to
• 37:51
  Speaker 1: do business than the sellers. Or if prices are dropping,
• 37:54
  Speaker 1: is because the sellers are trying to get rid of
• 37:57
  Speaker 1: their stocks and they're lowering the price in order to
• 37:59
  Speaker 1: get rid of it. And the important point is that
• 38:03
  Speaker 1: if you if you go back to every economic textbook
• 38:07
  Speaker 1: that's probably that's ever been published, in turn to chapter one,
• 38:12
  Speaker 1: maybe chapter two, it's about the law supplying demand, and
• 38:17
  Speaker 1: it says the law supply demand is the foundation is
• 38:20
  Speaker 1: the starting point of all all economic analysis. MM. So
• 38:27
  Speaker 1: it makes sense that that we would look at that,
• 38:32
  Speaker 1: at those at that chapter and say, okay, now what
• 38:35
  Speaker 1: we need to be doing is because they're saying this
• 38:37
  Speaker 1: is the foundation, this is the starting point. We need
• 38:41
  Speaker 1: to be looking at supply and demand. But somehow the
• 38:45
  Speaker 1: Fundamental school says, well, we look at supply and demand
• 38:49
  Speaker 1: for loyal we look at it for real estate, we
• 38:51
  Speaker 1: look at it for gold, we look at it for
• 38:53
  Speaker 1: orange juice, we look at it for qualities, but not
• 38:56
  Speaker 1: the stock market. For some reason, some and they exclude uh,
• 39:03
  Speaker 1: the laws supplying demand from from the analysis of the
• 39:07
  Speaker 1: stock market. That's a fascinating thing. How the how the
• 39:11
  Speaker 1: stock market is all of a sudden excluded or supplying
• 39:16
  Speaker 1: demand is excluded from the stock market. It's almost you know,
• 39:19
  Speaker 1: it's almost the same as saying, um, we all recognize
• 39:23
  Speaker 1: that at night when they get start out, you tend
• 39:26
  Speaker 1: to come in the house, and when the sun is up,
• 39:30
  Speaker 1: it's it's tend to get outside and and and uh
• 39:33
  Speaker 1: go about your business. In the wintertime, we wear heavy
• 39:37
  Speaker 1: clothes and we turn on a heater. Uh. In the summertime,
• 39:40
  Speaker 1: we turn on an air condition here, and we're light clothes.
• 39:42
  Speaker 1: So we're constantly adapting. We're changing as conditions are around us. Change.
• 39:48
  Speaker 1: But then the fundamental school says, well, that all applies
• 39:52
  Speaker 1: to everything else in life, but not the stock market.
• 39:55
  Speaker 1: The stock market, we just stay fully invested. We always
• 39:58
  Speaker 1: stay invested. We wear this same clothes all year round. Uh,
• 40:03
  Speaker 1: we were if we're wearing bathing suits when winner comes,
• 40:06
  Speaker 1: we just keep wearing bathing suits. Makes no sense at all.
• 40:10
  Speaker 1: That's a fascinating way to look at it. Well. Supply
• 40:13
  Speaker 1: demand approach simply says the supply the changes in the
• 40:18
  Speaker 1: forces of supplying demand will warn you of the changes
• 40:23
  Speaker 1: in investor psychology, so that when uh summer in place,
• 40:30
  Speaker 1: or when we go back earlier, and when when springtime comes,
• 40:35
  Speaker 1: you're aware that this is a wonderful opportunity to plant
• 40:38
  Speaker 1: your money in in common stocks and and see it grow.
• 40:42
  Speaker 1: But it also shows you the erosion that takes place
• 40:47
  Speaker 1: in autumn, in the autumn of the stock market, and
• 40:50
  Speaker 1: allows you to to recognize that a lot of stocks
• 40:54
  Speaker 1: are not not not going up anymore. And if they're
• 40:57
  Speaker 1: not going up, then you then you are exposed to
• 41:00
  Speaker 1: the risk without any of the reward, and the better,
• 41:03
  Speaker 1: more logical thing to do is to to go to cash.
• 41:07
  Speaker 1: So let's talk a little bit about the psychology of this.
• 41:13
  Speaker 1: How much of what technicals are so called technicals, I
• 41:17
  Speaker 1: shouldn't really use that that tim around you. How much
• 41:20
  Speaker 1: of that is really just a measure of psychology. It's
• 41:23
  Speaker 1: it's it's it's exactly what you're doing. And then that's
• 41:27
  Speaker 1: exactly why the fundamental school doesn't like us technical analysis,
• 41:34
  Speaker 1: because they're saying psychology is is an art form, it's
• 41:37
  Speaker 1: not a it's not a science. And um, but but
• 41:42
  Speaker 1: prices go up and down because buyers are more anxious
• 41:46
  Speaker 1: to buy than sellers are to sell. And so what
• 41:51
  Speaker 1: you find is that the major turning points in the
• 41:56
  Speaker 1: stock market occur because of psychology, not because of evidence
• 42:02
  Speaker 1: provided by fund the fundamental school. In other words, at
• 42:07
  Speaker 1: a major market bottom when you should be buying, the
• 42:12
  Speaker 1: economic news is all bad. Earnings are horrible, corporations are
• 42:17
  Speaker 1: going bankrupts. Uh, you know, everything is bad. I think
• 42:21
  Speaker 1: think back to March o nine, earnings had plummeted almost
• 42:26
  Speaker 1: a hundred percent. That we're still doing four hundred thousand
• 42:31
  Speaker 1: job losses a month. GDP was still contracting. If if
• 42:35
  Speaker 1: you were looking at the economic fundamentals, the last thing
• 42:38
  Speaker 1: you would want to do is put money into stocks
• 42:41
  Speaker 1: in March o nine. And yet there's no better time
• 42:44
  Speaker 1: in the past decade to have put money into the
• 42:46
  Speaker 1: equity market, exactly. And so and so an intelligent investor
• 42:51
  Speaker 1: has to learn that they need to be a contrarian
• 42:55
  Speaker 1: investor and they need to view major mark at declines
• 43:01
  Speaker 1: as as an opportunity to make profit. Is that the
• 43:04
  Speaker 1: decline is producing the opportunity to buy it extremely low prices.
• 43:09
  Speaker 1: The bowl market as it goes higher and higher and
• 43:14
  Speaker 1: higher is creating an opportunity for people to be caught
• 43:18
  Speaker 1: in that in the in the in the coming bear
• 43:20
  Speaker 1: market and um and suffer those losses. So so you
• 43:25
  Speaker 1: need you need to be able to see whether buyers
• 43:29
  Speaker 1: and sellers are gaining control of the markets so that
• 43:34
  Speaker 1: you can change as market conditions change. So, so let's
• 43:40
  Speaker 1: stick with various technical indicators. Um, what are your favorite
• 43:45
  Speaker 1: things to look at? Obviously market breath one of the
• 43:48
  Speaker 1: most important things. Yeah, it's it's it's all subsets of
• 43:52
  Speaker 1: supply and demand. So its case to say, how, how
• 43:55
  Speaker 1: in what ways can you measure your supply and demand.
• 43:58
  Speaker 1: While you can measure it in terms of value, you
• 44:00
  Speaker 1: can measure it in terms of momentum. Do you find volume?
• 44:05
  Speaker 1: Is um worthwhile to to analyze or it's extremely important? Sure,
• 44:10
  Speaker 1: Let's let's say that. Let's say that you're there, Uh,
• 44:16
  Speaker 1: let's say that you're thinking about buying a piece of
• 44:19
  Speaker 1: real estate and you're you're saying, I'm looking for a
• 44:22
  Speaker 1: piece of real estates are going to appreciate in value.
• 44:25
  Speaker 1: So I'm going to go over to this new development
• 44:27
  Speaker 1: that's down down the street and I'm going to say, um, uh,
• 44:32
  Speaker 1: if I bought one of these houses, do you think
• 44:35
  Speaker 1: that would appreciate and value and the and the answer
• 44:38
  Speaker 1: to that is the case of saying, uh, well, here's
• 44:42
  Speaker 1: one development where where the buyers are lined up around
• 44:45
  Speaker 1: the block trying to get in, trying and have money
• 44:49
  Speaker 1: in their hand, trying to trying to buy these buy
• 44:52
  Speaker 1: these buildings. Here's another development mile away where there's two
• 44:58
  Speaker 1: or three people looking at the properties, which one do
• 45:03
  Speaker 1: you think is going to appreciate in value? So the
• 45:06
  Speaker 1: volume of transactions simply tells you the strength of buyers
• 45:11
  Speaker 1: or the strength of the lack of lack of strength.
• 45:15
  Speaker 1: And if if there's only a few people interested in
• 45:18
  Speaker 1: a particular piece of property, then the chances are the
• 45:22
  Speaker 1: value of those pieces of property are not going to
• 45:25
  Speaker 1: increase very much. Whereas where the line that around the block,
• 45:30
  Speaker 1: the prices are probably gonna go up is because people
• 45:32
  Speaker 1: want that that particular kind of house. So it's it's
• 45:36
  Speaker 1: Brooklyn versus Staten Island. Is really the housing market in
• 45:40
  Speaker 1: Brooklyn is on fire. Other borrows not not as much,
• 45:44
  Speaker 1: although I'm sure someone's gonna email me and say no,
• 45:46
  Speaker 1: everything's gone crazy. And Staten Island also starting to pick
• 45:51
  Speaker 1: up in Queens and the Bronx now is just really
• 45:55
  Speaker 1: there's not enough land and they're not building a whole
• 45:57
  Speaker 1: lot more and it's gone, it's going crazy. So when
• 46:01
  Speaker 1: you use the real estate metaphor, I'm just thinking the
• 46:04
  Speaker 1: prices of apartments in Brooklyn, you go to Park Slope
• 46:08
  Speaker 1: or Brooklyn Heights or cal Gun, they're just off the chart.
• 46:12
  Speaker 1: It's amazing, And well, let's in this process. Is supplying
• 46:15
  Speaker 1: demand works not only in real estate, not only on
• 46:20
  Speaker 1: For example, if everybody knows if you want to buy
• 46:23
  Speaker 1: a car, uh, you buy a car when there are
• 46:27
  Speaker 1: no buyers around, and there's a huge inventory of cars
• 46:31
  Speaker 1: on the on the dealer's lot, and end of the
• 46:34
  Speaker 1: month or end of the year, the last week between
• 46:36
  Speaker 1: Christmas and New Year's those are your best deals exactly.
• 46:39
  Speaker 1: And that that's simply a case of saying you're you're
• 46:41
  Speaker 1: you are going to buy when the forces of supplying
• 46:44
  Speaker 1: demand are at their worst for the for the dealer.
• 46:47
  Speaker 1: The same thing with if you want to buy an
• 46:48
  Speaker 1: air conditioner, you better buy it in the wintertime. They'll
• 46:52
  Speaker 1: buy it in July. That's a mistake where there are
• 46:54
  Speaker 1: no buyers lined up in the middle of winter to
• 46:57
  Speaker 1: buy air conditioning units, and so you get a you
• 46:59
  Speaker 1: get a drum antically better deal. That's using the law
• 47:02
  Speaker 1: supply and demand in in a smart fashion to to
• 47:06
  Speaker 1: take advantage of the changes in in the forces of
• 47:11
  Speaker 1: supplying demand. So, so we mentioned some of your your
• 47:13
  Speaker 1: favorite indicators. What sort of approaches the technico analysis do
• 47:18
  Speaker 1: you think the jury is still out on or or
• 47:21
  Speaker 1: you don't think really is provides a whole lot of insight.
• 47:26
  Speaker 1: Anything stand out that you don't understand why people deploy
• 47:29
  Speaker 1: that astrology aside? Yeah, what what's interesting is there? There
• 47:34
  Speaker 1: there too two areas of UH interest in technical analysis.
• 47:41
  Speaker 1: One one is the UH psychology side of it. The
• 47:46
  Speaker 1: other side of it is are things like fibonacci um
• 47:52
  Speaker 1: on my list and UH game and some of some
• 47:57
  Speaker 1: of these UH And what's fascinating is that a number
• 48:04
  Speaker 1: of these approaches are based upon the physical world. In
• 48:09
  Speaker 1: other words, we've all seen that picture of that Leonardo
• 48:13
  Speaker 1: da Vinci creative, a man standing with his arms spread out,
• 48:18
  Speaker 1: And what that's demonstrating is what is called the golden measurement,
• 48:23
  Speaker 1: golden ratio, golden ratio, that the length of your arm
• 48:27
  Speaker 1: is the same as the length of your leg. Or whatever.
• 48:31
  Speaker 1: And and it's a is a physical thing that says,
• 48:33
  Speaker 1: no matter who you are, no matter when you're born,
• 48:36
  Speaker 1: where where, where you are in the world, that measurement
• 48:38
  Speaker 1: is always the same. Uh. Fibonacci is much the same
• 48:43
  Speaker 1: as as simply says that there there's a there's a
• 48:47
  Speaker 1: natural ratio that exists in nature. They've seen that the
• 48:52
  Speaker 1: nut shell with the declining spiral, And the problem with
• 48:56
  Speaker 1: that is there from the physical world. And what controls
• 49:00
  Speaker 1: the stock market is not the physical world. It's the
• 49:03
  Speaker 1: emotional world. It's a buyers versus sellers. So I'm always
• 49:07
  Speaker 1: skeptical of those things that come from the natural world
• 49:11
  Speaker 1: that say there's only so far that that stock can move. Uh.
• 49:18
  Speaker 1: You know, if you if you think of the range
• 49:21
  Speaker 1: of human emotion has almost no limit to it. And
• 49:27
  Speaker 1: so to say that, you know, that's a certain things
• 49:30
  Speaker 1: you can only go so far is a naive So
• 49:34
  Speaker 1: I know Elliott wave is the three count five count three,
• 49:38
  Speaker 1: and for some reason that's supposed to be magic. Feminacci
• 49:42
  Speaker 1: is the retracement on the golden ratio. I'm trying to
• 49:46
  Speaker 1: remember again, was gaining something with nine. It was a
• 49:49
  Speaker 1: box that people would draw dots on. And that's another
• 49:52
  Speaker 1: one that I just never was able to wrap my
• 49:54
  Speaker 1: head around. No, nobody fully understands game. Well, that makes
• 49:57
  Speaker 1: it easier to sell sell a newsletter if nobody understands it.
• 50:01
  Speaker 1: But you have the magic uh, we have the magic secret.
• 50:04
  Speaker 1: Here send us four nine your first years uh subscription.
• 50:08
  Speaker 1: So it's interesting you you said that, UM, tell me
• 50:12
  Speaker 1: about some of the technicians that you've um followed in
• 50:16
  Speaker 1: the past. Who who's always stood out to you as Wow,
• 50:20
  Speaker 1: that guy really understands charts and supplying the man and
• 50:25
  Speaker 1: is value added. Well, uh, you know, I have to
• 50:28
  Speaker 1: start with L. M. Lowery. Sure he was. He was
• 50:32
  Speaker 1: a genius. I've I really felt very privileged to spend
• 50:37
  Speaker 1: time with him. He was he was not only a
• 50:40
  Speaker 1: good analyst, but he was a good philosopher. He understood
• 50:44
  Speaker 1: he understood human nature, and having a having an understanding
• 50:48
  Speaker 1: of psychology and human nature is a very valuable tool
• 50:53
  Speaker 1: when you're trying to deal with the changes in the
• 50:55
  Speaker 1: trends of the start market. So so I'm gonna interrupt
• 50:59
  Speaker 1: you there before we talk about and I'm writing down
• 51:01
  Speaker 1: this down so I don't forget about it. I never
• 51:04
  Speaker 1: heard that story you told earlier, which sounds fascinating than
• 51:09
  Speaker 1: in en four. You're researching in the library in Miami
• 51:15
  Speaker 1: to try and get a handle on your dad's portfolio
• 51:18
  Speaker 1: after he has a heart attack. You find Lowry's and
• 51:22
  Speaker 1: just on a lark some Saturday, you drive to the address.
• 51:26
  Speaker 1: What were you expecting, like an office park, and you're
• 51:29
  Speaker 1: gonna pull in and and let me go see what
• 51:32
  Speaker 1: this brokerage like firm is gonna have. What what was
• 51:36
  Speaker 1: your thinking to say, let's go visit Lowry's. Uh, you know,
• 51:41
  Speaker 1: the Mimi Library um is four or five miles away
• 51:48
  Speaker 1: from the address that was on the on the on
• 51:51
  Speaker 1: these reports. So that's that's just so coincidental. And see
• 51:56
  Speaker 1: what's going on? How how serendipitous is that that you're
• 52:00
  Speaker 1: in Miami you look at this and it's five miles away. Yeah. Well,
• 52:04
  Speaker 1: a lot of life, a lot of good things in
• 52:06
  Speaker 1: life occur because of serendipitous theme on this show. I
• 52:11
  Speaker 1: can't tell you how many people have said that over
• 52:13
  Speaker 1: and over again. Hey, you gotta get lucky. So well,
• 52:16
  Speaker 1: you know, this whole study in nineteen nine was the
• 52:18
  Speaker 1: same kind of a thing. We were doing this study
• 52:21
  Speaker 1: in nineteen twenty nine. We were collecting this data and
• 52:24
  Speaker 1: a very boring process, and it occurred to me, you know,
• 52:30
  Speaker 1: I wonder what was going on in people's minds in
• 52:34
  Speaker 1: September of ninety nine. What what do you suppose the
• 52:37
  Speaker 1: news stories were that were in the journal? And what
• 52:40
  Speaker 1: what was the thinking of the day and so on
• 52:43
  Speaker 1: and so forth. So I got out the micro film
• 52:47
  Speaker 1: for September third nine, put it up on the machine,
• 52:50
  Speaker 1: and there wasn't much commentary in the Wall Street Journal
• 52:53
  Speaker 1: in those days, and so I quickly ended up on
• 52:56
  Speaker 1: the trading page. And I I started looking down the
• 53:02
  Speaker 1: trading page, and what obviously is over on the left
• 53:04
  Speaker 1: hand side is always the same thing today. The high
• 53:10
  Speaker 1: for for each stock was over on the left hand column,
• 53:14
  Speaker 1: and then over on the right side was the clothes
• 53:18
  Speaker 1: for for for that day. And the first stock on
• 53:23
  Speaker 1: the list was not a New Highs. And the second
• 53:28
  Speaker 1: stock on the list was not a New Highs. And
• 53:30
  Speaker 1: the third stock on the list was down about twenty
• 53:35
  Speaker 1: And I thought, something's wrong here, because this is supposed
• 53:38
  Speaker 1: to be the high for the market. And that was
• 53:42
  Speaker 1: part of the the recognition that the market is doesn't
• 53:49
  Speaker 1: exist at major market tops. It's all about individual stocks,
• 53:55
  Speaker 1: and so what we what we found from from just
• 53:59
  Speaker 1: that serendiper us, the question is, you don't wonder what
• 54:02
  Speaker 1: was going on in the day we we we found
• 54:06
  Speaker 1: out that two point three percent of all the stocks
• 54:08
  Speaker 1: on the New York Stock Exchange were at new highs
• 54:10
  Speaker 1: that day, meaning nine seven point seven percent of all
• 54:13
  Speaker 1: stocks were not at recognized when the market is at
• 54:17
  Speaker 1: a record exactly and and at the same time, thirty
• 54:21
  Speaker 1: around thirty five of all the stocks on the New
• 54:25
  Speaker 1: York Stock Exchange we're already down by or more from
• 54:29
  Speaker 1: their highs. So so so on the top day of
• 54:32
  Speaker 1: the doal Jones Industrial lanverage of the stocks were already
• 54:36
  Speaker 1: in bear markets. And what was was interesting about it
• 54:40
  Speaker 1: is what we now know is that it was it
• 54:43
  Speaker 1: was the small caps and the mid caps that had
• 54:47
  Speaker 1: been rolling over for some time that caused that particular situation.
• 54:52
  Speaker 1: But if you were simply looking at the doal Jones
• 54:55
  Speaker 1: Industrial Average, which is a big cap index, you could
• 54:58
  Speaker 1: never see the weakness that was a ring in the
• 55:00
  Speaker 1: small caps or the manicamps. So the big caps camouflage
• 55:03
  Speaker 1: what's happening. They completely completely hit it. And the doal
• 55:07
  Speaker 1: Jones Nostra language was actually deceptive in holding people into
• 55:12
  Speaker 1: the market when they should have been looking at the
• 55:14
  Speaker 1: individual stocks. Although who knew back then? Who had the
• 55:17
  Speaker 1: faintest idea, Hey, the mids small caps are rolling over,
• 55:19
  Speaker 1: I better sell in September twenty nine. Let me bring
• 55:23
  Speaker 1: you back to that day, that Saturday when you decide
• 55:28
  Speaker 1: to leave the Miami Library and drive over. So was
• 55:32
  Speaker 1: that Mr Lowry's home, the big man right on It
• 55:36
  Speaker 1: was right on Biscayne Bay. So he obviously was very successful.
• 55:42
  Speaker 1: Was that as an investor? Or? Was that? As How
• 55:44
  Speaker 1: did he become so successful and sitting with such a
• 55:48
  Speaker 1: huge homestead. He had a strong understanding of supplying the man,
• 55:53
  Speaker 1: So you can make money with that in the market,
• 55:55
  Speaker 1: in real estate, in in buying and selling cars, and
• 55:59
  Speaker 1: in iron is selling oil. He made his He made
• 56:04
  Speaker 1: a variety of fortunes in a number of areas really well,
• 56:08
  Speaker 1: by recognizing the changes that we're going on in the
• 56:11
  Speaker 1: economy and saying now is a good time to invest
• 56:14
  Speaker 1: in oil. Now is not a good time to invest
• 56:17
  Speaker 1: in oil, but it is a good time to invest
• 56:19
  Speaker 1: in real estate. Uh, it's not good to invest in
• 56:22
  Speaker 1: real estate in one area of the country, but it
• 56:24
  Speaker 1: is good to do it in another So you you
• 56:27
  Speaker 1: pull up, you're you're on Biscayne Bay. Is this like
• 56:30
  Speaker 1: a big gated property. I'm trying to ualize, you know.
• 56:33
  Speaker 1: I started to drive in, and I was I was
• 56:37
  Speaker 1: in my late twenties, and I had, you know, I
• 56:41
  Speaker 1: had what were you driving? Oh? So this is sixty
• 56:44
  Speaker 1: three sixty four a little sports car. Um not a
• 56:51
  Speaker 1: didn't belong in that area of the city, you know.
• 56:54
  Speaker 1: And I actually I drove in the gate and there
• 56:57
  Speaker 1: was a line of royal palms going down the driveway
• 57:01
  Speaker 1: to leading to the house. And my first thought was
• 57:06
  Speaker 1: I'm going to get arrested. He really And I turned
• 57:09
  Speaker 1: around and left, No kidding, yeah, because I thought, you know,
• 57:13
  Speaker 1: I don't belong in this. I don't belong in this area.
• 57:16
  Speaker 1: This this was the prime pieces of real estate in
• 57:20
  Speaker 1: all of South Florida, And um, what made you turn
• 57:24
  Speaker 1: around and go back? I thought, what are they gonna
• 57:28
  Speaker 1: arrest me for? I'm not doing anything wrong? You have
• 57:31
  Speaker 1: the I'm here, I'm looking for this. The people who
• 57:33
  Speaker 1: put this out. You gotta take some risks in life,
• 57:36
  Speaker 1: you know. So I just thought, you know, what are
• 57:38
  Speaker 1: they gonna do to me? So you turned around you
• 57:41
  Speaker 1: went back down down this driveway with centuries of royal
• 57:46
  Speaker 1: palms on either side. Yeah, and then and and there
• 57:49
  Speaker 1: was there was this elderly man in the bushes, picking flower,
• 57:54
  Speaker 1: tending to a bunch of flowers. Did you assume this
• 57:57
  Speaker 1: was the gardener? Oh? Sure, you had no idea straw
• 58:02
  Speaker 1: hat overalls, absolutely governed in soil and who knows what
• 58:08
  Speaker 1: notn on his knees. That's that's some some picture, some
• 58:11
  Speaker 1: picture you're painting. So so this is the the garage
• 58:16
  Speaker 1: slash maid's quarters away from the main It was a
• 58:21
  Speaker 1: house I think there were four or five uh for
• 58:25
  Speaker 1: you know, area for four or five cars, and then
• 58:29
  Speaker 1: and then a two story building attached to that that
• 58:32
  Speaker 1: was I think originally it was maid's quarters, smaller obviously
• 58:37
  Speaker 1: than the main the main house, dramatically small y. Yeah,
• 58:42
  Speaker 1: and uh he converted it into his office and so,
• 58:45
  Speaker 1: uh it fits very nicely for these roles will be
• 58:49
  Speaker 1: small operation that he was running at that point. So
• 58:53
  Speaker 1: you see the gardener on his knees, playing in the dirt.
• 58:57
  Speaker 1: How do you what do you say to him? Said?
• 58:59
  Speaker 1: Is there in anybody around here from the lowry organization?
• 59:03
  Speaker 1: And he said, yeah, I think we could find somebody.
• 59:05
  Speaker 1: And he got up, he got up all of his knees,
• 59:07
  Speaker 1: and he took me into the into the office, and
• 59:10
  Speaker 1: and I thought he was just leading me, you know,
• 59:14
  Speaker 1: somewhere where there'd be somebody to talk to. And uh,
• 59:17
  Speaker 1: and all of a sudden we were in in an office. Um,
• 59:23
  Speaker 1: and he was sitting in a big chair. And how
• 59:26
  Speaker 1: did that conversation progress? That sounds like that's just one
• 59:30
  Speaker 1: of those stories, uh, that you couldn't make up if
• 59:33
  Speaker 1: you tried. Yeah, it was simply case to saying, you know,
• 59:36
  Speaker 1: I was at the public library. I saw little Harry material.
• 59:39
  Speaker 1: I was really enthused and attracted to it. I went
• 59:44
  Speaker 1: through a lot of it and and UH found it,
• 59:49
  Speaker 1: uh that I was drawn to it, that it had
• 59:52
  Speaker 1: a natural, natural draw to it. It was based on
• 59:56
  Speaker 1: a little law supplying to me, and I've never seen
• 59:58
  Speaker 1: anything else that it was really focused on supplying demand.
• 1:00:02
  Speaker 1: How long had he been running Lowry's research at that
• 1:00:06
  Speaker 1: point in time. Oh, he started the company in nineteen
• 1:00:10
  Speaker 1: and he he created a five year history going back
• 1:00:15
  Speaker 1: to ninety three. So our history had always been from
• 1:00:19
  Speaker 1: nineteen thirty three to the present time. And it wasn't
• 1:00:23
  Speaker 1: until uh, nineteen, we finished a study that that we
• 1:00:29
  Speaker 1: started in the mid seventies that covered the period from
• 1:00:34
  Speaker 1: nineteen twenty five to nineteen thirty two. So now our
• 1:00:37
  Speaker 1: history goes from to the present time, eighty eight years.
• 1:00:41
  Speaker 1: Where did you find the data for five to thirty two?
• 1:00:45
  Speaker 1: The Wall Street Journal on microfilm? So you're looking at
• 1:00:48
  Speaker 1: daily stock prices in order to figure out what was
• 1:00:51
  Speaker 1: going on. Yeah, and it's a horrendously difficult job. I
• 1:00:56
  Speaker 1: can image so, because you have to not only pull
• 1:00:59
  Speaker 1: that ada, but then you have to verify it and
• 1:01:02
  Speaker 1: second check it in. But I'm still entranced by the
• 1:01:05
  Speaker 1: story of you in Mr Lowry's office. So you start
• 1:01:10
  Speaker 1: speaking with the gardener slash owner of the place. Give
• 1:01:16
  Speaker 1: me a little color on on that conversation. How did
• 1:01:18
  Speaker 1: that progress? Well, I just told him I think I
• 1:01:22
  Speaker 1: think he was impressed that there was a young man
• 1:01:26
  Speaker 1: sitting there that that had an interest in the same
• 1:01:29
  Speaker 1: things that he had an interest in. Who were his
• 1:01:31
  Speaker 1: clients at the time they were The clientele has always
• 1:01:35
  Speaker 1: been primarily professional investors institutions. That's where we've always aimed
• 1:01:41
  Speaker 1: at work. We don't really make any attempt to go
• 1:01:45
  Speaker 1: after the general public. Our stuff is a little too
• 1:01:49
  Speaker 1: esoter for most of most investors, so he's surprised that
• 1:01:54
  Speaker 1: some twenty year old kid pulls up in a sports
• 1:01:56
  Speaker 1: car wants to talk about his work, not the you
• 1:02:00
  Speaker 1: conversation he has. You said, you spoke for three hours. Yeah.
• 1:02:05
  Speaker 1: Finally his wife called him on the phone and said,
• 1:02:07
  Speaker 1: we're in a world, are you? Said, I was afraid that,
• 1:02:10
  Speaker 1: you know, you got bit by a snake or something,
• 1:02:13
  Speaker 1: and she she said, you know, I can't imagine what
• 1:02:16
  Speaker 1: was taking you so long? And he said, oh, having,
• 1:02:19
  Speaker 1: we're having a good time here. And uh so I
• 1:02:22
  Speaker 1: think we went on for maybe another half an hour
• 1:02:24
  Speaker 1: or so, and finally she, I think she called again
• 1:02:28
  Speaker 1: and said the dinners ready, you know, get up here. So, so,
• 1:02:31
  Speaker 1: when did he offer you a job? There? Was it
• 1:02:33
  Speaker 1: that conversation or subsequence of it? Um? Uh? I said
• 1:02:39
  Speaker 1: to him. I said to him, uh, you know, all
• 1:02:44
  Speaker 1: the time that I was in college, I was interested.
• 1:02:48
  Speaker 1: My interest was not in banking and economics. My interest
• 1:02:53
  Speaker 1: was how do you make money in the stock market?
• 1:02:56
  Speaker 1: And I never had a course in that, and I
• 1:02:59
  Speaker 1: didn't teach that, and I kept thinking there must be
• 1:03:02
  Speaker 1: some place in the world you can go and take
• 1:03:04
  Speaker 1: a course and how to make money in the stock market.
• 1:03:08
  Speaker 1: And I told him, I said, you know, I'm sitting
• 1:03:10
  Speaker 1: here talking to you. This is the place to come
• 1:03:15
  Speaker 1: to get a PhD and how to make money in
• 1:03:19
  Speaker 1: the stock market. And I want to I want to
• 1:03:21
  Speaker 1: be around here. I'm willing to work for nothing. I
• 1:03:25
  Speaker 1: just and he said, well, we can work that out,
• 1:03:30
  Speaker 1: and we almost did. Um. So when did you start
• 1:03:33
  Speaker 1: working for them? That's less than ten days later, And
• 1:03:38
  Speaker 1: that was so you essentially asked for a job. The
• 1:03:42
  Speaker 1: job was created for you looking for a job, you know,
• 1:03:45
  Speaker 1: I was. I was looking for education. That's an amazing thing.
• 1:03:49
  Speaker 1: How many people were actually working for him at the time, Oh,
• 1:03:53
  Speaker 1: I think four or five? So it was a small
• 1:03:56
  Speaker 1: research shop and institutional client base. Was he sending a
• 1:04:00
  Speaker 1: written newsletter or how was he? Well? Everything everything? Pretty much?
• 1:04:04
  Speaker 1: When I got there, everything that we did was on
• 1:04:06
  Speaker 1: a weekly basis um. Because there wasn't no internet, no computers,
• 1:04:11
  Speaker 1: no technology like the telephones were all long distance calls
• 1:04:15
  Speaker 1: and nobody nobody made long distance calls that they could
• 1:04:18
  Speaker 1: avoid it, um. And so everything that we did was
• 1:04:22
  Speaker 1: mailed out on Fridays and we did it. We did
• 1:04:27
  Speaker 1: an analysis of the general market as a as a
• 1:04:30
  Speaker 1: separate product, and then we had a an analysis of
• 1:04:34
  Speaker 1: about oh maybe four or five individual stocks that we
• 1:04:38
  Speaker 1: put out in uh and uh you know, we had
• 1:04:42
  Speaker 1: a printing press and used a backup of a memeorgraph.
• 1:04:45
  Speaker 1: So that's how rough, how rough things were in those days.
• 1:04:49
  Speaker 1: And so that would get stuffed in an envelope and
• 1:04:51
  Speaker 1: sent out the clients. Yeah, we have that. We had
• 1:04:53
  Speaker 1: we had to beg all that stuff up and take
• 1:04:55
  Speaker 1: it to the post office and in the get a processed.
• 1:04:59
  Speaker 1: We take it to the Miami Airport just to try
• 1:05:01
  Speaker 1: and speed up the process and get it to him,
• 1:05:03
  Speaker 1: get it to much as soon as we could. So
• 1:05:06
  Speaker 1: you mail that on a Friday afternoon. When does that
• 1:05:08
  Speaker 1: show up in investors homes or offices? Well, you know,
• 1:05:12
  Speaker 1: in those days, uh, even even in Los Angeles, you'd
• 1:05:17
  Speaker 1: pretty much have it on Monday morning. Oh yeah, post office.
• 1:05:21
  Speaker 1: Post office was a you know, a different entity than
• 1:05:24
  Speaker 1: it is today. Just to say the least. Um. So
• 1:05:27
  Speaker 1: you had mentioned obviously Lowry, I don't know it does
• 1:05:31
  Speaker 1: what did he always go by initials or is there
• 1:05:33
  Speaker 1: a first name there? Uh? He he always he always
• 1:05:36
  Speaker 1: went by initials, that there was a there was a
• 1:05:39
  Speaker 1: tendency in those days to be more formal and uh.
• 1:05:46
  Speaker 1: For example, uh uh, the founder of Fidelity phones, Mr Johnson,
• 1:05:54
  Speaker 1: no one, no one would dare to call him by
• 1:05:58
  Speaker 1: his first name. It's always Mr Johnson and uh. And
• 1:06:04
  Speaker 1: so Mr lur felt very much and he was in
• 1:06:09
  Speaker 1: he was in that same era and you just you
• 1:06:13
  Speaker 1: just didn't use first names until until you were engaged. Quick,
• 1:06:18
  Speaker 1: quick digression. I know there's a formal protocol around Bloomberg,
• 1:06:24
  Speaker 1: what you say and do around Mr Bloomberg, But I'm
• 1:06:28
  Speaker 1: a high functioning idiot and I don't know these things,
• 1:06:31
  Speaker 1: and I have, Um who was it? Oh? Is Professor
• 1:06:33
  Speaker 1: Taylor from Chicago? And sometimes your mouth operates before your
• 1:06:38
  Speaker 1: brain has an opportunity to to engage. We walk out
• 1:06:42
  Speaker 1: of the studio and literally as we're walking out, Michael
• 1:06:46
  Speaker 1: Bloomberg is walking by, and like in the idiot that
• 1:06:49
  Speaker 1: I am, I just blurred out, Hey, Mike, do you
• 1:06:52
  Speaker 1: do you know Professor Taylor? And the second it comes
• 1:06:55
  Speaker 1: out of my mouth, I'm thinking, well, this was a
• 1:06:58
  Speaker 1: good run, thanks for coming by. You're done, and um,
• 1:07:02
  Speaker 1: he turns around Andy Chicago, Right, He's got an amazing
• 1:07:06
  Speaker 1: memory's great with names and faces. And he turns around
• 1:07:08
  Speaker 1: it and so the two of them start having a
• 1:07:10
  Speaker 1: conversation and I'm like, wow, that I dodged a bullet there.
• 1:07:13
  Speaker 1: And every time I've interacted with him, it's always been
• 1:07:18
  Speaker 1: me speaking before the brain has a chance to get
• 1:07:21
  Speaker 1: in the way, and it's always hey, Mike, And I
• 1:07:23
  Speaker 1: know that's the wrong, wrong thing to say, but well
• 1:07:27
  Speaker 1: he seems to be very good natured about it. You know.
• 1:07:29
  Speaker 1: I think everybody goes a little bit of that. Uh.
• 1:07:33
  Speaker 1: One of one of our employees introduced me to somebody
• 1:07:40
  Speaker 1: last week is this is my boss. And I took
• 1:07:44
  Speaker 1: him aside afterwards and I said, you know, I just
• 1:07:46
  Speaker 1: don't like that term. I don't like to be called that.
• 1:07:50
  Speaker 1: It has a negative implication. It feels weird. It's it's
• 1:07:54
  Speaker 1: not negative, but it feels like saying this is the man,
• 1:07:57
  Speaker 1: this is the man who can who can ruined my life,
• 1:08:01
  Speaker 1: throw me out on the street any time that he
• 1:08:03
  Speaker 1: chooses to. You know. So, so you mentioned Lowry's and
• 1:08:07
  Speaker 1: then in some of your writings you've mentioned gould Is
• 1:08:10
  Speaker 1: that I'm getting the name rights. It's in Goold was
• 1:08:15
  Speaker 1: an early, early technician, Um, who did fabulously well. Right,
• 1:08:22
  Speaker 1: he was incredibly successful if if memory serves, yes, he did.
• 1:08:27
  Speaker 1: He did do quite well. He was an interesting character
• 1:08:29
  Speaker 1: and I think he I think he drew a lot
• 1:08:33
  Speaker 1: of people to him because he because he was he
• 1:08:37
  Speaker 1: was a fabulous character as well as a as a
• 1:08:40
  Speaker 1: good analyst. But but uh, one of the areas that
• 1:08:46
  Speaker 1: Edson Coold did a lot of work in talking about
• 1:08:50
  Speaker 1: the nature of market bottoms. But it was all vague,
• 1:08:57
  Speaker 1: you know, as he'd say, there's there's there's dramatic Uh,
• 1:09:01
  Speaker 1: there's dramatic panic and volume tends to expand And you'd say, well,
• 1:09:09
  Speaker 1: it tends to expand. What what does that mean? What
• 1:09:11
  Speaker 1: does tend to expand mean? And um? When you when
• 1:09:16
  Speaker 1: you'd go back and and and try to figure out
• 1:09:22
  Speaker 1: exactly what he was talking about, what you realized was
• 1:09:26
  Speaker 1: that these early technicians were working in an area where
• 1:09:30
  Speaker 1: the the amount of information available to them was very,
• 1:09:34
  Speaker 1: very small. We're so spoiled. We have access to infinite
• 1:09:37
  Speaker 1: amounts of you can slice and dice the market a
• 1:09:40
  Speaker 1: million ways today. They I when I took the technical
• 1:09:46
  Speaker 1: analysis course way back when with Ralph Akimpora, the generation
• 1:09:51
  Speaker 1: that was just behind me, told stories about they would
• 1:09:56
  Speaker 1: do their charts by hands every day. I did charge
• 1:10:00
  Speaker 1: my hand for how long did you do that? Well?
• 1:10:03
  Speaker 1: This study on ninety percent days that we were talking
• 1:10:06
  Speaker 1: about earlier, that was all done with a slide rule.
• 1:10:08
  Speaker 1: A slide rule. Wow, yeah, I know I still got
• 1:10:12
  Speaker 1: it today. I wonder how much we lose by all
• 1:10:17
  Speaker 1: the computer power if you're not in the thick of it,
• 1:10:21
  Speaker 1: seeing it from that angle, you could crunch a lot
• 1:10:24
  Speaker 1: more numbers, but you might miss a little something. You
• 1:10:27
  Speaker 1: know what's happening if you if you look at the
• 1:10:31
  Speaker 1: medical profession and you go back a couple of hundred years,
• 1:10:36
  Speaker 1: you say, in the late seventeen hundreds, early eighteen hundreds,
• 1:10:40
  Speaker 1: the the place that medicine was at was that the
• 1:10:45
  Speaker 1: body was a single entity, and if it got sick,
• 1:10:50
  Speaker 1: if it was showing signs of sickness, you'd bleed it.
• 1:10:54
  Speaker 1: You cut a vein open and let's let some blood
• 1:10:57
  Speaker 1: out and get the bad blood out of the out
• 1:11:00
  Speaker 1: of the body. That was what you do for cancer,
• 1:11:04
  Speaker 1: what you do for a headache, for a cold, for
• 1:11:07
  Speaker 1: a broken foot, You bleed um. And then the medical
• 1:11:15
  Speaker 1: profession started saying, well, you know, it's it's not that simple.
• 1:11:21
  Speaker 1: There's a thing called a kidney that, or there's a
• 1:11:24
  Speaker 1: thing called a heart, or there's anything called uh, you
• 1:11:29
  Speaker 1: know whatever, pancreas, whatever else, and there's still there's these
• 1:11:33
  Speaker 1: individual organs. Well, then the next step was to say,
• 1:11:37
  Speaker 1: it isn't really the organs, it's the it's the excels
• 1:11:40
  Speaker 1: that make up the ris. Uh. And so now we're
• 1:11:44
  Speaker 1: at the point where we're saying if you if you
• 1:11:47
  Speaker 1: try to go back to a case of saying that
• 1:11:49
  Speaker 1: the body is a single entity, they laugh you out
• 1:11:52
  Speaker 1: of the room. It's it's a case the same. Getting
• 1:11:56
  Speaker 1: down to the cellular part of the body opened up
• 1:12:00
  Speaker 1: all kinds of things allowed us to see all kinds
• 1:12:04
  Speaker 1: of things that we never could have seen before. The
• 1:12:07
  Speaker 1: stock market is exactly the same thing. In the early days,
• 1:12:12
  Speaker 1: everyone considered the market to be a single entity, that
• 1:12:15
  Speaker 1: all stocks moved together. Uh. That that that all stocks
• 1:12:20
  Speaker 1: made a high at the same time, they made it
• 1:12:23
  Speaker 1: low at the same time, so on and so forth.
• 1:12:26
  Speaker 1: That big camp made camp and small capital all moved
• 1:12:29
  Speaker 1: in unison with each other. And now we know all
• 1:12:32
  Speaker 1: that's wrong. And what we've done in order to learn
• 1:12:37
  Speaker 1: that is that we're breaking down the market from a
• 1:12:40
  Speaker 1: single entity approach to almost a cellular approach where we
• 1:12:44
  Speaker 1: can see each an individual stock, and with that individual stock,
• 1:12:50
  Speaker 1: we can see upside volume, downside volume points, gain points,
• 1:12:53
  Speaker 1: loss advances, and declines for each individual stock. And in
• 1:12:59
  Speaker 1: addition to that, we see momentum, and we see a
• 1:13:01
  Speaker 1: whole bunch of other side issues. And so, uh, we're
• 1:13:06
  Speaker 1: learning new things about the stock market that we've never
• 1:13:08
  Speaker 1: seen before, and that is we're doing that right now.
• 1:13:12
  Speaker 1: This this study of that we completed in is precisely
• 1:13:19
  Speaker 1: that that people thought that the stock market in n
• 1:13:25
  Speaker 1: was was a single entity, and that couldn't been further
• 1:13:29
  Speaker 1: from the truth. So our knowledge of market trends and
• 1:13:35
  Speaker 1: how to deal with the stock market is is expanding
• 1:13:39
  Speaker 1: at a tremendous rate. And we are now in a
• 1:13:42
  Speaker 1: position where where I strongly believe um that it is
• 1:13:51
  Speaker 1: entirely possible likely that using the proper tools, bearer markets
• 1:14:00
  Speaker 1: are a thing of the past, that that they exist,
• 1:14:03
  Speaker 1: but our ability to sidestep those bear markets is a
• 1:14:07
  Speaker 1: very uh valid concept and and in fact we we
• 1:14:13
  Speaker 1: we have recently set up a new money management operation
• 1:14:15
  Speaker 1: to prove it. We're taking a position of saying we're
• 1:14:19
  Speaker 1: gonna put you and and you're gonna actually manage money
• 1:14:25
  Speaker 1: using your methodology to participate in markets to the upside,
• 1:14:30
  Speaker 1: get out of the way of the top, let the
• 1:14:32
  Speaker 1: bear market play out, and get back in near the bottom.
• 1:14:35
  Speaker 1: Is that the So what is what is the name
• 1:14:37
  Speaker 1: of this money management entity going to be called called capital? Um?
• 1:14:44
  Speaker 1: But the big thing is that the biggest problem that
• 1:14:48
  Speaker 1: all investors have had, the very biggest problem, has always
• 1:14:52
  Speaker 1: been bear markets. And what we wanted to do is
• 1:14:56
  Speaker 1: demonstrate that that that uncertainty, that lack of knowledge about
• 1:15:04
  Speaker 1: bearer markets has been overcome and we are in a
• 1:15:08
  Speaker 1: position to sidestep versa of the entire bearer market. So so,
• 1:15:14
  Speaker 1: who are the consistently, who are the investors in Lowry's
• 1:15:18
  Speaker 1: capital going to be? Are these going to be institutions? Well,
• 1:15:21
  Speaker 1: I'm the first one, so literally putting your money with
• 1:15:25
  Speaker 1: putting my mouth money more mouth is And uh, I
• 1:15:29
  Speaker 1: believe in this. You know I've spent you know, I've
• 1:15:31
  Speaker 1: spent a good literally fifty years yeah, well plastically studying
• 1:15:36
  Speaker 1: major market tops. I've probably put twenty years into it.
• 1:15:39
  Speaker 1: And um, so we've we've we've attacked the major problem
• 1:15:46
  Speaker 1: that all investors are facing, and we've we've conquered that
• 1:15:50
  Speaker 1: issue and so everything else is small, small problems. Now,
• 1:15:55
  Speaker 1: so let's let's talk about that a little bit and
• 1:15:58
  Speaker 1: then we'll come back to any other analysts or mentors
• 1:16:02
  Speaker 1: you've had. So we really just hinted at this earlier.
• 1:16:06
  Speaker 1: So your studies that say we know how markets top,
• 1:16:10
  Speaker 1: it's small caps, it's main caps, it's big caps, we
• 1:16:13
  Speaker 1: actually run a tactical model that does something similar, and
• 1:16:17
  Speaker 1: in August it moved to an all bond position from
• 1:16:21
  Speaker 1: three different size caps. Positionings are in it and it generated.
• 1:16:26
  Speaker 1: It's all quantitative, there's no chin stroking, but it's some
• 1:16:30
  Speaker 1: of it is uses some of the theories and and
• 1:16:34
  Speaker 1: research that you've put together. And this went to cash
• 1:16:37
  Speaker 1: or bonds um in August, and we watched the market
• 1:16:42
  Speaker 1: in September, you know, have a rough first half and
• 1:16:46
  Speaker 1: started to recover in October. Where do you think we
• 1:16:50
  Speaker 1: are in the topping process um of the bullmarket that
• 1:16:56
  Speaker 1: began in March two thousand nine. Well, there's a P
• 1:17:00
  Speaker 1: five for all practical purposes made high in in in
• 1:17:05
  Speaker 1: like the late July, it was it was a little
• 1:17:10
  Speaker 1: bit of the previous high, but by by by nickels
• 1:17:13
  Speaker 1: and dimes, and previous high of a month or two
• 1:17:15
  Speaker 1: of previous down about a couple of percent. Yeah and yeah,
• 1:17:21
  Speaker 1: but what we're seeing in this small caps are dramatically
• 1:17:25
  Speaker 1: off their much us on. So I think we're probably
• 1:17:30
  Speaker 1: still in the relatively early stages. We're still at the
• 1:17:34
  Speaker 1: point where where most of the investors that I talked
• 1:17:38
  Speaker 1: to about bear markets are saying, oh, you know, there's
• 1:17:42
  Speaker 1: no bear market. They don't see any bear market. Um.
• 1:17:46
  Speaker 1: And part of that is because they're they're not looking.
• 1:17:50
  Speaker 1: They're they're concentrating on corporate earnings, and corporate earnings will
• 1:17:54
  Speaker 1: never never warn you of a bear market. Uh. That's
• 1:17:58
  Speaker 1: simply what the history of the of corporate earning shows. Um.
• 1:18:03
  Speaker 1: But to some extent, it's that investors are saying, well,
• 1:18:07
  Speaker 1: the the SMP, it's worse than here, has been off
• 1:18:12
  Speaker 1: twelve and a half percent from it's high. That's a
• 1:18:15
  Speaker 1: that's a short term correction. Uh, and and it's gonna
• 1:18:19
  Speaker 1: go back. I'm going to go back to new highs Now. Well,
• 1:18:23
  Speaker 1: my answer to that is, um, Uh, with all the
• 1:18:28
  Speaker 1: deterioration that has occurred behind the scenes, now there's if
• 1:18:31
  Speaker 1: you say small cap, who cares about small caps? Small
• 1:18:35
  Speaker 1: caps are about of all of the shares traded on
• 1:18:39
  Speaker 1: the New York Stock They're really the canary in the
• 1:18:42
  Speaker 1: coal mine. Yeah, that's right, and mid caps are in
• 1:18:45
  Speaker 1: the same general range. Big caps are are something between
• 1:18:50
  Speaker 1: twelve and so you really need to pay attention to
• 1:18:53
  Speaker 1: what the what the small caps are doing in the
• 1:18:55
  Speaker 1: mid caps are doing because they are the majority of
• 1:18:58
  Speaker 1: stocks traded on the New York's Doctor. Actually, the SMP
• 1:19:02
  Speaker 1: five hundred index is made up sixty five of mid
• 1:19:07
  Speaker 1: cap stocks. Uh, and so so what you're really looking
• 1:19:13
  Speaker 1: at when you look at the SMP is that is
• 1:19:15
  Speaker 1: maybe twenty five or thirty or forty stocks there that
• 1:19:20
  Speaker 1: that are capitalized the air heavy capitalis, but the bulk
• 1:19:24
  Speaker 1: of by by numbers or mid cap capitals. So you're
• 1:19:28
  Speaker 1: not looking at the full five hundred you're looking at
• 1:19:30
  Speaker 1: you're looking at or less. And then what's driving the
• 1:19:35
  Speaker 1: price of the index? Yeah, in at the top of
• 1:19:38
  Speaker 1: the seven excuse me, in the top in two thousand
• 1:19:41
  Speaker 1: and eight, two thousand and seven, they're in October of
• 1:19:44
  Speaker 1: two thousand seven, there were eighteen stocks of the SMP
• 1:19:48
  Speaker 1: five hundred making new highs that day? What's typical? What
• 1:19:53
  Speaker 1: do you usually see? So, in other words, that's three
• 1:19:57
  Speaker 1: and a half percent, is that right? Oh? Yeah? And
• 1:20:00
  Speaker 1: and in early stage of renewable market, uh stocks making
• 1:20:05
  Speaker 1: new highs on any single day would be in the range.
• 1:20:08
  Speaker 1: Really wow, that's a huge that's a huge number. Um.
• 1:20:13
  Speaker 1: So we mentioned Gould, we mentioned Lowry's. Any other um
• 1:20:17
  Speaker 1: analysts or technicians that were influential to your thinking? Oh boy,
• 1:20:21
  Speaker 1: um uh, you know there there there were other people
• 1:20:28
  Speaker 1: that were contemporaries in mine and I thought, I thought,
• 1:20:31
  Speaker 1: added to the edit to my knowledge, and well, Bob
• 1:20:35
  Speaker 1: Farrell of Merrill Lynch would be number one, And a
• 1:20:39
  Speaker 1: lot of people mentioned him. Dave Rosenberg of formerly of
• 1:20:43
  Speaker 1: Meryl has has brought his name up. Other people that
• 1:20:45
  Speaker 1: brought his name up repeatedly. He was a master and
• 1:20:49
  Speaker 1: he's still He was a master at He was a
• 1:20:52
  Speaker 1: master at training other people. He didn't keep it to himself.
• 1:20:57
  Speaker 1: And what you find is dozens and dozens of people
• 1:21:03
  Speaker 1: say I learned technical analysis at the at the knee
• 1:21:07
  Speaker 1: of Bob Ferrell. Yes, he is still around. He's still
• 1:21:11
  Speaker 1: serving a small group of of of institutional investors and
• 1:21:17
  Speaker 1: very active, very very active in the market. Um. Anyone
• 1:21:21
  Speaker 1: else Worth mentioned Allen Shaw, I knew you're gonna go there.
• 1:21:25
  Speaker 1: Um well, Allen Allen was in charge of technical analysis
• 1:21:31
  Speaker 1: for Smith Barney and um a legend amongst technicians. Yeah.
• 1:21:36
  Speaker 1: He added to the He added a lot to the field,
• 1:21:42
  Speaker 1: and he trained a lot of people. Luigia Mata is
• 1:21:47
  Speaker 1: still active. Louise worked with with Allen for oh, probably
• 1:21:53
  Speaker 1: twenty years or so. Um. You know those those are
• 1:21:58
  Speaker 1: kind of people that really added to the added to
• 1:22:01
  Speaker 1: the overall knowledge of technical analysis and and brought the
• 1:22:05
  Speaker 1: brought the industry forward and brought some professionalism into it.
• 1:22:11
  Speaker 1: But quite fasting. Anyone else, uh sticks out? Or is
• 1:22:15
  Speaker 1: that is that a good enough list to Uh? Oh?
• 1:22:17
  Speaker 1: Those are those are the people that you know, I think,
• 1:22:20
  Speaker 1: I think I'm really important to my learning process. Um
• 1:22:26
  Speaker 1: anyone you you you mentioned Luis Humana, anybody else who
• 1:22:31
  Speaker 1: who is from the current generation of technicians stands out? Um?
• 1:22:36
  Speaker 1: Well have you felt Phil Roth used to be with
• 1:22:40
  Speaker 1: Morgan Stanley Fell. Roth is an incredible analyst. He is
• 1:22:46
  Speaker 1: a is an incredible uh uh knowledge of the investor
• 1:22:54
  Speaker 1: psychology and the application of that information. Um. You know
• 1:23:01
  Speaker 1: there's there's a there's a dozen people that would be
• 1:23:04
  Speaker 1: on the list that we have. We haven't got that much.
• 1:23:07
  Speaker 1: So let's let's hold off with the list right there,
• 1:23:10
  Speaker 1: and let me keep plowing through some of um, some
• 1:23:13
  Speaker 1: of my favorite questions. I don't want to forget any
• 1:23:15
  Speaker 1: of these. So we already talked about what you did
• 1:23:18
  Speaker 1: before you worked on Wall Street, you were in the army,
• 1:23:20
  Speaker 1: and we discussed your early mentors. Any other investors influence
• 1:23:25
  Speaker 1: your your approach, anybody who was running a fund or
• 1:23:28
  Speaker 1: managing money, or anyone along those lines. What are you
• 1:23:31
  Speaker 1: really looking at the research and analysis side, For the
• 1:23:37
  Speaker 1: most part, our relationships with our clients tends to be
• 1:23:40
  Speaker 1: kind of one sided. UM. So it was that we
• 1:23:44
  Speaker 1: don't we don't see we don't see the clients side
• 1:23:48
  Speaker 1: of it very much. UM. In fact, many of our
• 1:23:52
  Speaker 1: clients do not like anyone to know that they subscribe
• 1:23:56
  Speaker 1: to lowry analysis. That's interesting. There's a very famous there's
• 1:24:00
  Speaker 1: a very famous author who lives in New York. He's
• 1:24:04
  Speaker 1: I don't know how many books he's written, but a
• 1:24:06
  Speaker 1: lot of books, very well recognized, and he in every
• 1:24:11
  Speaker 1: book that he writes, he has a chapter in there
• 1:24:14
  Speaker 1: that says, whatever you do, do not ever use technical analysis.
• 1:24:20
  Speaker 1: And I was sitting with him several years ago and
• 1:24:24
  Speaker 1: I said to him, you know, I don't understand this. Uh.
• 1:24:28
  Speaker 1: You in every one of your books you say, don't ever,
• 1:24:32
  Speaker 1: don't ever use technical analysis. But he's a subscriber. He's
• 1:24:36
  Speaker 1: been a subscriber to ours for before I got to Lowries,
• 1:24:39
  Speaker 1: he was a subscriber. And I said, you know, why
• 1:24:47
  Speaker 1: why you take this position when when you use our
• 1:24:50
  Speaker 1: work regularly? He said, you don't do technical I mean
• 1:24:54
  Speaker 1: you do. You don't do technical analysis. That's not technical analysis.
• 1:24:57
  Speaker 1: You you know, you know that's what I'm talking about.
• 1:25:00
  Speaker 1: So then he in his books he names three technicians. Uh,
• 1:25:08
  Speaker 1: and uh, I can tell you now because uh one
• 1:25:13
  Speaker 1: of the it's recently gone Joe Granville, of course. And
• 1:25:20
  Speaker 1: what he's what he what he said was told the
• 1:25:25
  Speaker 1: story about some of the mistakes that Joe Granville has
• 1:25:29
  Speaker 1: made in calling market turns. So for people who don't
• 1:25:32
  Speaker 1: know Joe Brandville, he was a guy who in the
• 1:25:35
  Speaker 1: seventies was essentially about as good a market time or
• 1:25:40
  Speaker 1: as there was. He caught every seemingly caught every twist
• 1:25:45
  Speaker 1: and turn of that market that had huge moves up
• 1:25:48
  Speaker 1: and huge moved down. And then in nineteen it was
• 1:25:51
  Speaker 1: either eighty or eighty two the market made its final turn,
• 1:25:55
  Speaker 1: and he never made that turn, and he could never
• 1:25:58
  Speaker 1: get on the right side of the market after that. Yeah,
• 1:26:01
  Speaker 1: and then there were there were at least two other
• 1:26:05
  Speaker 1: technicians that are still still with us that i'll i'll,
• 1:26:10
  Speaker 1: I'll not name, but he in those three cases, he
• 1:26:16
  Speaker 1: went through a litany of all the mistakes that they
• 1:26:19
  Speaker 1: that these three guys had made, and how you just
• 1:26:22
  Speaker 1: don't want ever, you know, want ever give them a
• 1:26:25
  Speaker 1: chance to to take your money away from you. And um,
• 1:26:30
  Speaker 1: I said, do you know those three people? He said, no,
• 1:26:34
  Speaker 1: I've never met any of them. And I said, well,
• 1:26:37
  Speaker 1: I know all three of them, and they are the
• 1:26:41
  Speaker 1: most egotistical human beings I've ever met in my life.
• 1:26:45
  Speaker 1: Really well, Brandville used to be just larger than life
• 1:26:50
  Speaker 1: guy who's supposed to be you know, moved markets and
• 1:26:54
  Speaker 1: was proud of the fact that he moved mark when
• 1:26:56
  Speaker 1: he would say sell and the market went down, and
• 1:26:59
  Speaker 1: the Wall Street General would call he proud as a peacock. Right. Yeah, Well,
• 1:27:03
  Speaker 1: when he was a child, there was an evangelist that
• 1:27:07
  Speaker 1: traveled around the Midwest and um, every once in a
• 1:27:13
  Speaker 1: while at the gatherings he is this evangelists would draw
• 1:27:17
  Speaker 1: huge crowds, and every once in a while, I think
• 1:27:21
  Speaker 1: maybe twelve or fourteen times during his career he would
• 1:27:25
  Speaker 1: see a face in the in the crowd and he
• 1:27:28
  Speaker 1: would call them up and he would put his hand
• 1:27:31
  Speaker 1: on their head and he would say, this is a
• 1:27:35
  Speaker 1: special person. This person is going to do incredible things
• 1:27:40
  Speaker 1: in the World's going to have an incredible impact on life,
• 1:27:45
  Speaker 1: as as it isn't. Joe Granville was one of those people.
• 1:27:49
  Speaker 1: But meanwhile, this guy is doing this in every town
• 1:27:51
  Speaker 1: he goes and every year, well, wow, the world is
• 1:27:54
  Speaker 1: filled with special people. Well, actually, some somebody kept track
• 1:27:59
  Speaker 1: of theirs. There several books ought about this evangelist call
• 1:28:03
  Speaker 1: his name, no, I don't at the moment, but then
• 1:28:06
  Speaker 1: a list of all the people he had put his
• 1:28:09
  Speaker 1: put his hand on. He was also curing sickness and
• 1:28:13
  Speaker 1: all that had those folks. Joe always felt as though
• 1:28:18
  Speaker 1: he was this very special human being that had a
• 1:28:24
  Speaker 1: special purpose on being on the face of the earth.
• 1:28:27
  Speaker 1: So his ego, uh was, was at a completely different
• 1:28:32
  Speaker 1: level than the rest of us. You know, that's the
• 1:28:34
  Speaker 1: problem with getting a couple of big calls right, if
• 1:28:37
  Speaker 1: you don't realize how rare and occasionally lucky those calls are.
• 1:28:42
  Speaker 1: And by luck I mean somewhat random, even if if
• 1:28:47
  Speaker 1: you have a methodology behind it, that could go to
• 1:28:50
  Speaker 1: your head very easily and suddenly you're you think I
• 1:28:55
  Speaker 1: love the line. Was a Peter Drucker who used to say,
• 1:28:58
  Speaker 1: we use the word guru because the word Charlottean is
• 1:29:01
  Speaker 1: too long to fit in the headline. Is Was it
• 1:29:05
  Speaker 1: that sort of thing? I don't know if Granville was
• 1:29:09
  Speaker 1: a Charlottean, because for a decade at least, going by
• 1:29:13
  Speaker 1: the histories that I've read, he was I don't want
• 1:29:16
  Speaker 1: to say infallible, but a whole lot more right than wrong. Well, Charlottan.
• 1:29:21
  Speaker 1: The word Charlottan to me says, I know I'm a crook.
• 1:29:26
  Speaker 1: So he ate his own cooking. He believed in himself.
• 1:29:31
  Speaker 1: Uh I was in at a conference I think it was.
• 1:29:35
  Speaker 1: It was in Miami Beach, and there used to be
• 1:29:39
  Speaker 1: conferences back in this seventies and eighties. Uh I used
• 1:29:44
  Speaker 1: to refer to him as a thousand experts from out
• 1:29:46
  Speaker 1: of town, and and so the the people that were
• 1:29:51
  Speaker 1: running this conference had a cocktail party for all the speakers,
• 1:29:56
  Speaker 1: and so I made I I was sitting in the
• 1:30:01
  Speaker 1: in the in the cocktail area, and this young man,
• 1:30:06
  Speaker 1: this is just an example of the ego. Young man,
• 1:30:09
  Speaker 1: all dressed up in a very nice suit, came over
• 1:30:12
  Speaker 1: to my table where I was sitting and he said,
• 1:30:16
  Speaker 1: excuse me, Mr Joseph P. Grenville, would like to join
• 1:30:23
  Speaker 1: your grouping. Who would that be acceptable to you? And
• 1:30:29
  Speaker 1: I turned around him and I said, if Joe wants
• 1:30:32
  Speaker 1: to come and sit out over here, tell him to
• 1:30:33
  Speaker 1: come on over. And then he walked out from behind
• 1:30:37
  Speaker 1: a curtain like a grand entrance and grand entrance, and
• 1:30:42
  Speaker 1: he was dressed in a white linen suit with a
• 1:30:46
  Speaker 1: red um silk shirt and a red tie and the
• 1:30:53
  Speaker 1: excuse me, a red kerchief in in his pocket and
• 1:30:58
  Speaker 1: bright red shiny shoes and um, you know, just I mean, really, really,
• 1:31:07
  Speaker 1: really an outfit. And he came over to the table
• 1:31:10
  Speaker 1: and he sat down and I said to him, you
• 1:31:15
  Speaker 1: you did a fantastic job up there on the podium today,
• 1:31:20
  Speaker 1: and he well, of course, he said, well you realize,
• 1:31:25
  Speaker 1: of course that last year I received the award in
• 1:31:29
  Speaker 1: Las Vegas for the greatest entertainer of the year, and
• 1:31:35
  Speaker 1: that that was the way he was. So a crowd
• 1:31:39
  Speaker 1: gathered around the table while I was sitting there, no
• 1:31:42
  Speaker 1: crowd move when Joe came. All of a sudden, it
• 1:31:45
  Speaker 1: was a big crowd. What what year is This has
• 1:31:49
  Speaker 1: to be pre eight too, right, yeah, I think it was.
• 1:31:52
  Speaker 1: I think it was in the I think it was
• 1:31:54
  Speaker 1: in the late seventies. And he has to have a
• 1:31:56
  Speaker 1: couple of years on you, oh quite sure years. So yeah.
• 1:32:02
  Speaker 1: So anyway, uh, somebody, somebody, somebody that was in the
• 1:32:09
  Speaker 1: crowd said to him, Joe, you've missed every major market
• 1:32:13
  Speaker 1: top in the last twenty years. And Joe started telling
• 1:32:18
  Speaker 1: the story. He said, well, yeah, I there's no reason
• 1:32:23
  Speaker 1: for that. In fifty seven, Um, I got involved in
• 1:32:31
  Speaker 1: playing bridge, and I became one of the greatest bridge
• 1:32:36
  Speaker 1: players in the history of the world. And the kings
• 1:32:39
  Speaker 1: and queens around the world were inviting me to come
• 1:32:42
  Speaker 1: to their countries to play bridge with them, and so
• 1:32:48
  Speaker 1: I was. I was completely involved in meeting with all
• 1:32:52
  Speaker 1: of these heads of state around the world, and I
• 1:32:56
  Speaker 1: wasn't paying any attention to my numbers. And that's my
• 1:33:00
  Speaker 1: fifty seven decline. Missed the fifty seven decline. In sixty two,
• 1:33:06
  Speaker 1: I got involved in um sailing lightning sailboats, and he
• 1:33:12
  Speaker 1: I quickly became one of the greatest lightning sailboat captains
• 1:33:17
  Speaker 1: in history. And people were inviting me to come to
• 1:33:22
  Speaker 1: participate in regatta's all across the world to sail my
• 1:33:27
  Speaker 1: lightning boats. And he said, in sixty two, I wasn't
• 1:33:32
  Speaker 1: paying attention to my numbers because I was I was
• 1:33:35
  Speaker 1: winning sailboat races. And so I missed the sixty two decline.
• 1:33:40
  Speaker 1: And he went on and on like this, every top
• 1:33:42
  Speaker 1: and decline. It was he had become the greatest expert
• 1:33:47
  Speaker 1: in the world and gemology or whatever it was. And
• 1:33:53
  Speaker 1: and somebody in the crowd said, oh my god, I'm
• 1:33:56
  Speaker 1: gonna sell all the time. I gotta get to a
• 1:33:57
  Speaker 1: phone right now. I've got to sell all my stock
• 1:34:00
  Speaker 1: and he and he said, why why would you do that?
• 1:34:03
  Speaker 1: And he said, because Joe Granville just married a twenty
• 1:34:06
  Speaker 1: two year old woman. He's gonna be He's going to
• 1:34:09
  Speaker 1: be involved. Otherwise, I'm surprised. No one said, imagine, if
• 1:34:17
  Speaker 1: you the greatest expert in all these things, only applied
• 1:34:20
  Speaker 1: that to the stock market, how much money you can
• 1:34:22
  Speaker 1: make for you and your subscribers. Yeah, that's uh so
• 1:34:26
  Speaker 1: if that was the case, if he missed all these
• 1:34:28
  Speaker 1: great tops, how did he have that reputation in the
• 1:34:33
  Speaker 1: seventies for beings he fled? He developed a concept called
• 1:34:37
  Speaker 1: on Bailan's volume. Sure, of course that still exists today. Yeah.
• 1:34:40
  Speaker 1: And and as he says, O b V, if you'd
• 1:34:43
  Speaker 1: paid attention to on Bailance volume, you would have caught
• 1:34:47
  Speaker 1: those tops. Is that true? Sort of kinda not really?
• 1:34:52
  Speaker 1: More often than not? Yes, Okay, it's a good tool.
• 1:34:55
  Speaker 1: So then why did he miss the turn when the
• 1:34:58
  Speaker 1: bullmarket of eighty two to two thousand began? You know,
• 1:35:04
  Speaker 1: two year old life? Yeah, that's that's hilarious. Um, let's
• 1:35:10
  Speaker 1: talk a little bit about books. I only have you
• 1:35:12
  Speaker 1: for another twenty minutes or so, but any any books,
• 1:35:16
  Speaker 1: fiction or nonfiction stand out as as significant or informative
• 1:35:22
  Speaker 1: or worthwhile to you. Um there's a book that I
• 1:35:29
  Speaker 1: recommend every everybody. Anybody ever asked me about what's a
• 1:35:33
  Speaker 1: what's a good book to read? There's a book called
• 1:35:35
  Speaker 1: The Richest Man in Babel. Oh. Sure, I've read that
• 1:35:38
  Speaker 1: years ago. It was fabulous. It's a true story. Is
• 1:35:44
  Speaker 1: that the case. I always thought of it as a parable. No,
• 1:35:47
  Speaker 1: that's a real true story. It's a by the way
• 1:35:50
  Speaker 1: for people listening. It's a very thin, short book. You
• 1:35:55
  Speaker 1: could sit down and bang it out in an out
• 1:35:57
  Speaker 1: in an afternoon anyway. And I reminded me of another book.
• 1:36:02
  Speaker 1: There's a similar book to it, that same sort of concept,
• 1:36:05
  Speaker 1: but a true story dating back to the thousands. Yeah,
• 1:36:11
  Speaker 1: there's a there's a small little I think it's probably
• 1:36:15
  Speaker 1: maybe a one page explanation at the back of the book.
• 1:36:19
  Speaker 1: The book itself is about a number of people who
• 1:36:23
  Speaker 1: grew up together and one of them becomes extremely rich
• 1:36:27
  Speaker 1: and powerful. Yeah, and the rest of them are camel
• 1:36:32
  Speaker 1: drivers and things of that sort. And he he he
• 1:36:36
  Speaker 1: brings his old friends in and they asked him how
• 1:36:41
  Speaker 1: in the world did you get so rich and so successful?
• 1:36:44
  Speaker 1: And he reveals to them the secrets of how he became,
• 1:36:51
  Speaker 1: the secrets of how anybody can become successful. In the
• 1:36:56
  Speaker 1: back of the book, there's this a very short thing
• 1:36:59
  Speaker 1: that says, uh, the story of this man was, uh
• 1:37:04
  Speaker 1: was he was identified on clay tablets that were found
• 1:37:08
  Speaker 1: at the site of the original Babylon. And so it's
• 1:37:11
  Speaker 1: a it's an actual true story. Uh, and that that
• 1:37:16
  Speaker 1: simply adds to the whole thing to say, this isn't
• 1:37:19
  Speaker 1: just something that some writer sat down and dreamed up.
• 1:37:23
  Speaker 1: This is this is true concepts. Uh. Along those same lines, well,
• 1:37:30
  Speaker 1: you know it was as far as influences, there used
• 1:37:33
  Speaker 1: to be a fellow on the radio named Earl Nightingale. Okay,
• 1:37:38
  Speaker 1: and this goes back into this into probably the fifties
• 1:37:42
  Speaker 1: and sixties and seventies. I think he died in the
• 1:37:44
  Speaker 1: mid eighties, but he would he had a radio show
• 1:37:49
  Speaker 1: every day, and he kind of dwell on how to
• 1:37:52
  Speaker 1: get ahead in the world. And I thought, how to
• 1:37:54
  Speaker 1: how to conduct yourself in life and and everything else.
• 1:37:58
  Speaker 1: And he told us he told us story one night
• 1:38:00
  Speaker 1: that had a huge impact on me. Uh, he said,
• 1:38:04
  Speaker 1: he said, you know, when I was preparing for the
• 1:38:06
  Speaker 1: show today, a young man called me on the phone
• 1:38:09
  Speaker 1: and said to me, Mr Knightonale. Um, I've I'm just
• 1:38:14
  Speaker 1: a few years out of college. I've I've been trying
• 1:38:17
  Speaker 1: a career and uh, it's not working out for me.
• 1:38:21
  Speaker 1: And um, I was wondering if you could tell me
• 1:38:25
  Speaker 1: some some area of enterprise that I could that I'd
• 1:38:31
  Speaker 1: have a better chance to success. And so Mr Nightingale
• 1:38:35
  Speaker 1: said to him, uh uh, well, what what area are
• 1:38:40
  Speaker 1: you in And the Fellows said, well, I'm in life insurance.
• 1:38:45
  Speaker 1: And Mr Nightingale said, well, I've always believed that there's
• 1:38:48
  Speaker 1: one answer to success. It all comes down to the
• 1:38:56
  Speaker 1: same thing, no matter no matter how it plays out,
• 1:38:59
  Speaker 1: and always them back to the same thing. If you
• 1:39:02
  Speaker 1: want to be successful, look around the world and identify
• 1:39:07
  Speaker 1: a big problem something, That something is a lot of people,
• 1:39:13
  Speaker 1: a large number of people are are trying to deal
• 1:39:18
  Speaker 1: with and can't deal with. Then find a solution to
• 1:39:23
  Speaker 1: that problem. So just solve the world's biggest problems and
• 1:39:27
  Speaker 1: solve a problem a problem. It doesn't have to really
• 1:39:31
  Speaker 1: be the world shaking problem, but it could be a
• 1:39:35
  Speaker 1: case they're saying, you know, kids have kids have always
• 1:39:39
  Speaker 1: had trouble time shoes. So if you can make a
• 1:39:43
  Speaker 1: velcrow strap that goes across that solves a problem you
• 1:39:46
  Speaker 1: can make, you can be successful. So, so you identify
• 1:39:51
  Speaker 1: a problem, come up with a solution, and then go
• 1:39:54
  Speaker 1: to the people who have the problem and tell them
• 1:39:55
  Speaker 1: you've got a solution. And he said, you know, I
• 1:39:59
  Speaker 1: can't imagine a big your problem existing anywhere else in life,
• 1:40:02
  Speaker 1: but death, that death is a big problem. So he said,
• 1:40:07
  Speaker 1: you're already in an area that has is dealing with
• 1:40:10
  Speaker 1: a huge problem and you have a solution. You have
• 1:40:13
  Speaker 1: a solution. But he said, you're you're the way you're
• 1:40:15
  Speaker 1: going about it is all wrong. He said, you're calling
• 1:40:18
  Speaker 1: your people up, and what you should be saying to
• 1:40:21
  Speaker 1: him is, Mr Jones, death is a real problem for you,
• 1:40:24
  Speaker 1: and I've got a solution. No, you're not doing it
• 1:40:28
  Speaker 1: that way. You're calling Mr Jones up. You say, Mr Jones,
• 1:40:31
  Speaker 1: I got a problem. I need to feed my family,
• 1:40:34
  Speaker 1: I need to buy a car, I want to have
• 1:40:36
  Speaker 1: a new nice house, and I don't have enough money.
• 1:40:39
  Speaker 1: So I've picked you out as a solution to my problem.
• 1:40:43
  Speaker 1: He said, you're going about it all wrong. Well, uh,
• 1:40:48
  Speaker 1: as far as the stock market goes, that same story
• 1:40:53
  Speaker 1: is coming back to me again and again and again
• 1:40:56
  Speaker 1: and say, the biggest problem that all investors have, cancer
• 1:41:01
  Speaker 1: is something else. And you know, but in the stock market,
• 1:41:06
  Speaker 1: the biggest problem that every investors faced with is bear markets.
• 1:41:11
  Speaker 1: Bear markets seem to sneak up on people, don't. They
• 1:41:14
  Speaker 1: don't seem coming, they don't seem to be able to emotionally,
• 1:41:18
  Speaker 1: they don't seem to be able to do what is
• 1:41:20
  Speaker 1: necessary to do to avoid them, and um, and they
• 1:41:25
  Speaker 1: usually end up uh selling near the low of they.
• 1:41:29
  Speaker 1: I mean, that's a real problem for investors. And so
• 1:41:33
  Speaker 1: I've spent probably oh at least twenty five years fixated
• 1:41:40
  Speaker 1: on looking at major market tops, how bear markets develop,
• 1:41:45
  Speaker 1: how they occur, and what you can do to avoid them.
• 1:41:49
  Speaker 1: And so that was a huge influence on my life. Nightingale,
• 1:41:54
  Speaker 1: the gentleman's name is is Nightingale? Night and Gale? Any
• 1:41:58
  Speaker 1: other books you want to mention besides it's just man
• 1:42:00
  Speaker 1: in Babylon before we move on to the next question
• 1:42:04
  Speaker 1: in our last few minutes, No, I think that's that's
• 1:42:08
  Speaker 1: a that's a good one. That's a good place to stop.
• 1:42:10
  Speaker 1: And I read that so long ago. I have to go.
• 1:42:14
  Speaker 1: I know I have a copy of it somewhere. I'm
• 1:42:16
  Speaker 1: gonna have to pull that and reread it. Um. So
• 1:42:20
  Speaker 1: the last four questions are should go back to one
• 1:42:26
  Speaker 1: more one more book Reminiscences of a Stock market Trader,
• 1:42:31
  Speaker 1: uh talking about um the boy Plunger, right, which, UM,
• 1:42:40
  Speaker 1: I don't know anybody who hasn't read that. That's that's
• 1:42:43
  Speaker 1: a standards it's a standard book, but it's timeless, tells
• 1:42:48
  Speaker 1: you everything. It tells you a lot of the lessons
• 1:42:51
  Speaker 1: you need to learn in order to be a successful investor.
• 1:42:54
  Speaker 1: There there are things in that book that if you
• 1:42:58
  Speaker 1: just changed the name of the stock, you wouldn't know.
• 1:43:02
  Speaker 1: It wasn't written a week ago. It's the same thing. Um, okay,
• 1:43:07
  Speaker 1: so you joined Lowry's over fifty years ago. What are
• 1:43:11
  Speaker 1: the most significant things that you've seen change in the market,
• 1:43:15
  Speaker 1: Perhaps that people don't really pay attention. What do you
• 1:43:18
  Speaker 1: think is the most important changes we've seen since you've
• 1:43:22
  Speaker 1: entered this field? Well, uh gee, something's uh would would
• 1:43:27
  Speaker 1: be the creation of ETFs. It's so funny you said
• 1:43:30
  Speaker 1: that because Jeremy Siegel said the exact same thing a
• 1:43:35
  Speaker 1: few days ago, same exact answer. What why why are
• 1:43:39
  Speaker 1: e t F so important? Sorry I don't disagree with you,
• 1:43:42
  Speaker 1: but but why why do you think it's so important? Well,
• 1:43:46
  Speaker 1: it's it's it's been fascinating that the the mutual fund industry,
• 1:43:53
  Speaker 1: uh has persisted this for as long as it has
• 1:43:58
  Speaker 1: more mutual funds than actual stocks. Well, and yeah, that's right.
• 1:44:02
  Speaker 1: And and what what we have is saying you know,
• 1:44:07
  Speaker 1: when mutual funds were originally created, people were recording all
• 1:44:13
  Speaker 1: of the information about prices and who owns it and
• 1:44:17
  Speaker 1: everything else with a pencil and paper. Uh. And so
• 1:44:22
  Speaker 1: to get out of a mutual fund, you had to
• 1:44:27
  Speaker 1: sell on one day and get your money on the
• 1:44:30
  Speaker 1: next day. We would sell after the close because they
• 1:44:33
  Speaker 1: had a wait for closing prices. Even if you called
• 1:44:35
  Speaker 1: during the day, they wouldn't sell. Yeah. Sorry, And in
• 1:44:39
  Speaker 1: most cases you had to call before two o'clock in
• 1:44:41
  Speaker 1: the afternoon in order to get that day's price. Um
• 1:44:45
  Speaker 1: in some cases they wanted to even earlier, and it
• 1:44:49
  Speaker 1: was simply a case of saying they didn't have the
• 1:44:52
  Speaker 1: mechanical equipment necessary to be able to arrive at a
• 1:44:56
  Speaker 1: price in a short period of time. But the eighties,
• 1:45:01
  Speaker 1: you know, computerization has coming now and now we can
• 1:45:04
  Speaker 1: solve anything in a millisecond, and the mutual fund industry
• 1:45:09
  Speaker 1: is still sitting there saying, well, you gotta put in
• 1:45:11
  Speaker 1: your trade before four o'clock or or you don't get
• 1:45:14
  Speaker 1: today's trade. How is that possible? Is that just inertia
• 1:45:17
  Speaker 1: that these guys have managed, because if you look at
• 1:45:20
  Speaker 1: the long term charts, it's clear that ETFs are rising,
• 1:45:24
  Speaker 1: attracting more and more assets, and many of the mutual
• 1:45:27
  Speaker 1: fund companies are running into increasing their plateaued at best
• 1:45:33
  Speaker 1: only a handful of Vanguard is an exception, continues to
• 1:45:36
  Speaker 1: gain assets. You look at Fidelity not not as much. Well.
• 1:45:41
  Speaker 1: I think part of this because Vangard Vanguard picked up
• 1:45:44
  Speaker 1: the idea of a fixed portfolio of the index in
• 1:45:50
  Speaker 1: the s and UH there are two for their two
• 1:45:55
  Speaker 1: thirds um indexes and one third active manner um. And
• 1:46:01
  Speaker 1: I think the reason has persisted that way is because
• 1:46:03
  Speaker 1: it's it's convenient for the owners of of the mutual
• 1:46:09
  Speaker 1: funds to say, well, you can't get out of our
• 1:46:12
  Speaker 1: funds fast, so you have a chance to rethink, rethink
• 1:46:18
  Speaker 1: your your idea of trying to sell our mutual funds.
• 1:46:21
  Speaker 1: And Vanguard has been a leader in that approach of
• 1:46:24
  Speaker 1: saying they essentially say, listen, give us your money, we'll
• 1:46:30
  Speaker 1: go away and we'll see you in forty years. It's
• 1:46:32
  Speaker 1: it's worth that for them, and and to a large
• 1:46:35
  Speaker 1: degree it's worked out for their clients. But the Vanguard
• 1:46:40
  Speaker 1: client is a different client. They tend not to be
• 1:46:43
  Speaker 1: They're a set and forget and we'll see in thirty
• 1:46:46
  Speaker 1: years sort of client. The average investor is very different
• 1:46:50
  Speaker 1: than the average vanguard investor. They're looking at the news,
• 1:46:53
  Speaker 1: they're getting there, but they're panicking at the bottom. It's
• 1:46:56
  Speaker 1: a very different philosophy than we see with UH with
• 1:47:01
  Speaker 1: Van Guard so so E t fs a real big innovation. Well,
• 1:47:06
  Speaker 1: E t F have simply come along and said said,
• 1:47:08
  Speaker 1: we're moving into the modern world. Instead of being priced
• 1:47:11
  Speaker 1: once a day, we're going to be priced day long,
• 1:47:14
  Speaker 1: TI tick all day long, and that that makes it
• 1:47:17
  Speaker 1: a very very acceptable tool, not only the small investors,
• 1:47:22
  Speaker 1: but also the institutions. We've seen a huge growth on
• 1:47:26
  Speaker 1: the institutional side. At the same time it's growing for
• 1:47:30
  Speaker 1: small individual investors. So lowry capital not gonna issue an
• 1:47:35
  Speaker 1: E t F on your Yeah, we're we're going to
• 1:47:39
  Speaker 1: be creating interest in very near future. Because I think
• 1:47:44
  Speaker 1: in a lot of ways it's the perfect investment for
• 1:47:46
  Speaker 1: all types of investors. It works, works for small investors,
• 1:47:51
  Speaker 1: work for big investors. Sufficient, it's it's inexpensive, it's easy
• 1:47:55
  Speaker 1: to it's easy, it's it's hard to find a downside.
• 1:47:58
  Speaker 1: John Bogel not a big fan out of him because
• 1:48:00
  Speaker 1: he says it encourages over trading. But your sort of
• 1:48:04
  Speaker 1: et F is not designed to be actively traded. I'm
• 1:48:09
  Speaker 1: assuming that internally you guys are handling the trading or
• 1:48:12
  Speaker 1: any value slash timing related decisions. Yeah. We we think
• 1:48:18
  Speaker 1: that we think that our ETF will eventions will will
• 1:48:20
  Speaker 1: essentially be buy and hold, buy and whole type of investments. Um,
• 1:48:25
  Speaker 1: that we take care of the changing the portfolio internally.
• 1:48:31
  Speaker 1: We we moved from bowl market to bear market and
• 1:48:34
  Speaker 1: make make all the changes that need to be made
• 1:48:36
  Speaker 1: for an investor. That that's fascinating This next question. So
• 1:48:41
  Speaker 1: I was gonna ask you what did you see as
• 1:48:43
  Speaker 1: the next major shifts? Um. Well, uh, you know, there's
• 1:48:49
  Speaker 1: bring some One of the things that affected us a
• 1:48:53
  Speaker 1: great deal was was the change in the uptick rule.
• 1:48:56
  Speaker 1: Took place in two thousands around June two thousand seven.
• 1:49:01
  Speaker 1: There used to be a rule that you could not
• 1:49:04
  Speaker 1: sell short until there was an uptick in the in
• 1:49:08
  Speaker 1: the price. And for reasons that are just absolutely beyond me,
• 1:49:14
  Speaker 1: they the SEC chose to remove that remove that control.
• 1:49:19
  Speaker 1: Good timing to it was put into place. Yeah, it
• 1:49:24
  Speaker 1: was put into place as a result of the crash.
• 1:49:29
  Speaker 1: Another word, JUNO one sellers piling on and it's one
• 1:49:32
  Speaker 1: thing if you own a stock and you want to
• 1:49:33
  Speaker 1: sell it, but we don't want people short selling and
• 1:49:37
  Speaker 1: driving it lower. You at least need a little bit
• 1:49:39
  Speaker 1: of up trading in order to get a short loss, right.
• 1:49:43
  Speaker 1: And that makes sense, doesn't Yeah, And so why they
• 1:49:46
  Speaker 1: why they removed the rule that was that was created
• 1:49:49
  Speaker 1: to avoid another ninety nine and they they made the
• 1:49:55
  Speaker 1: change just in time for the for the two thousand
• 1:49:58
  Speaker 1: seven two thousand nine market. And then they went the
• 1:50:01
  Speaker 1: other way and said, Okay, nobody can short bank or
• 1:50:03
  Speaker 1: related stocks. So they messed up one direction, and then
• 1:50:07
  Speaker 1: they went too far in the other direction. Uh. The
• 1:50:11
  Speaker 1: the the biggest thing in my mind that's occurred in
• 1:50:18
  Speaker 1: in in my career is that the New York Stock
• 1:50:21
  Speaker 1: Exchange used to be an institution and it went from
• 1:50:26
  Speaker 1: being an institution to being a profit making corporation. That's
• 1:50:29
  Speaker 1: a huge, huge change, which with major, major ramifications. Yeah,
• 1:50:36
  Speaker 1: and I think that was absolutely wrong. That that's what
• 1:50:39
  Speaker 1: led us to the world of high frequency trading and
• 1:50:42
  Speaker 1: and all these other things that are h the loss
• 1:50:45
  Speaker 1: of the specialist, and and now we end up with
• 1:50:49
  Speaker 1: a bunch of computers standing making markets, which isn't the
• 1:50:52
  Speaker 1: same as having a person responsible for creating an orderly market,
• 1:50:57
  Speaker 1: and and and some rules that have been in place
• 1:51:01
  Speaker 1: for decades um the ability to the ability to jump
• 1:51:10
  Speaker 1: jump in front of another investor by by and so
• 1:51:14
  Speaker 1: uh right, front running. Front running used to be a
• 1:51:19
  Speaker 1: thing that was a really serious problem, and now it's
• 1:51:24
  Speaker 1: just ignored. Well, it's not even ignored. It's that the
• 1:51:28
  Speaker 1: exchanges sell co location servers and data feeds and they
• 1:51:34
  Speaker 1: let the h f T sniff out incoming orders and
• 1:51:37
  Speaker 1: let them run ahead. And you know that that's an
• 1:51:40
  Speaker 1: issue because that basically the profits of the h f
• 1:51:44
  Speaker 1: T s are coming out of someone somewhere. It's a
• 1:51:47
  Speaker 1: zero sum game. And if they're sliced, the pie is
• 1:51:50
  Speaker 1: getting bigger. That means the investors the pie is getting smaller.
• 1:51:54
  Speaker 1: That said, a number of big shops, including Vanguard, has
• 1:51:58
  Speaker 1: said it adds liquidly, it allows us to execute orders
• 1:52:02
  Speaker 1: more more easily. I'm not fully convinced. Uh well, I
• 1:52:06
  Speaker 1: think it's an interesting thing that people are saying that
• 1:52:09
  Speaker 1: because of what they're saying is we're allowing people to
• 1:52:14
  Speaker 1: front run because it's to our particular advantage to have
• 1:52:20
  Speaker 1: them able to front run. And the new York Stcuchans
• 1:52:23
  Speaker 1: used to be about ethics. Ethics was paramount paramount. Yeah,
• 1:52:30
  Speaker 1: I couldn't agree today we say, well profit mode at
• 1:52:34
  Speaker 1: this paramount. They should have stayed as a utility, as
• 1:52:38
  Speaker 1: a public they should have been in square and not
• 1:52:41
  Speaker 1: a for profit construct and people that people that represented
• 1:52:45
  Speaker 1: the New York Stocuchian should have been appointed by a
• 1:52:50
  Speaker 1: committee and too important in should it should have been
• 1:52:55
  Speaker 1: conducted on the most ethical levels that could possibly be
• 1:52:57
  Speaker 1: done on. So last two questions you your story of
• 1:53:02
  Speaker 1: how you started a Lowry is Lowry's is certainly unique.
• 1:53:07
  Speaker 1: What sort of advice would you give to a millennial
• 1:53:10
  Speaker 1: or someone just graduating college today starting out in a
• 1:53:13
  Speaker 1: career in finance study the law supply demand number one
• 1:53:21
  Speaker 1: um UH and I think I think I would have
• 1:53:26
  Speaker 1: to say, search out a mentor. I know I know
• 1:53:34
  Speaker 1: of a lot of extremely capable UH supply demand type
• 1:53:43
  Speaker 1: UH analysts that that have that they have taken great
• 1:53:47
  Speaker 1: pride in serving as a mentor to other people. You
• 1:53:51
  Speaker 1: mentioned Alan Shaw, you mentioned Bob Farrell that that sort
• 1:53:56
  Speaker 1: of thing of of teeing up the next generation of
• 1:54:00
  Speaker 1: and and there are a lot of people that enjoy it.
• 1:54:03
  Speaker 1: I mean it's not it's not as though you have
• 1:54:05
  Speaker 1: to go to them and and cajole them in the
• 1:54:08
  Speaker 1: in the giving you a job. It's a case of saying, uh.
• 1:54:14
  Speaker 1: In any company that's trying to grow, you're looking for
• 1:54:17
  Speaker 1: those those exceptional people who are really willing to to
• 1:54:24
  Speaker 1: have another education. And and that means that you've got
• 1:54:29
  Speaker 1: to be willing to work along hours. You've got to
• 1:54:32
  Speaker 1: be willing to sit and listen to uh somebody like
• 1:54:37
  Speaker 1: me pontificate uh and and tell you the information. And
• 1:54:41
  Speaker 1: then you've got to be and you've got to go
• 1:54:42
  Speaker 1: and apply it. And you've gotta there's a lot of
• 1:54:44
  Speaker 1: hard work that you need to do to to take information,
• 1:54:49
  Speaker 1: to take advice, and then and then create actual experience
• 1:54:55
  Speaker 1: of seeing that advice payoff. And um, I think finding
• 1:55:01
  Speaker 1: a mentor is is we'll put you, We'll put you
• 1:55:05
  Speaker 1: miles and miles ahead of the competition. So people pulling
• 1:55:09
  Speaker 1: up on a Saturday afternoon while you're in the dirt
• 1:55:12
  Speaker 1: playing in the garden, is that is that how people
• 1:55:15
  Speaker 1: find you? Yeah, the same location, You're still in the
• 1:55:18
  Speaker 1: same building. Have we have we have we have several
• 1:55:21
  Speaker 1: people in our office that came to us, came to
• 1:55:25
  Speaker 1: us and pretty much set the same fashion. Really, one
• 1:55:28
  Speaker 1: of the people's been with me for twenty five years now,
• 1:55:32
  Speaker 1: fascinating And our last question, and I suspect I know
• 1:55:36
  Speaker 1: the answer to this one. What do you know about
• 1:55:38
  Speaker 1: investing today that you wish you knew when you started
• 1:55:42
  Speaker 1: fifty years ago? Oh? Um? Well, uh, some of this
• 1:55:52
  Speaker 1: recent work that we've done is is uh has been
• 1:55:57
  Speaker 1: about tops and bottom incredibly revealed. Yeah, it would have
• 1:56:02
  Speaker 1: absolutely fifty years ago people You know, people were dramatically
• 1:56:08
  Speaker 1: suffering with with bear markets. Um um. They had no
• 1:56:14
  Speaker 1: idea as to as to how to how to avoid them.
• 1:56:19
  Speaker 1: They didn't know what was going on the market was
• 1:56:22
  Speaker 1: a single entity. They didn't have they didn't have any
• 1:56:24
  Speaker 1: way of looking inside. I often I often use the
• 1:56:29
  Speaker 1: example of saying if you went to a doctor, uh,
• 1:56:32
  Speaker 1: and you said, doctor, you know, hurting all over. I
• 1:56:35
  Speaker 1: don't know what it is, I just hurt all over.
• 1:56:39
  Speaker 1: And the doctor says, I'm looking at your face. Your
• 1:56:43
  Speaker 1: face looks good, your skin good color, and your skin,
• 1:56:47
  Speaker 1: your eyes are bright. I think you're healthy. Here's here's
• 1:56:50
  Speaker 1: my bill for two hundred dollars. And you'd say, you'd
• 1:56:53
  Speaker 1: say to him. Doctor, there's no way to do an
• 1:56:56
  Speaker 1: analysis of a patient. I want you to take me
• 1:56:58
  Speaker 1: in the laboratory and the okay, I want you to
• 1:57:00
  Speaker 1: put me through sixteen different kinds of machines and see
• 1:57:04
  Speaker 1: what's going on inside. It's not the outside, it's the
• 1:57:08
  Speaker 1: inside that's really important. In stock market analysis, the same thing.
• 1:57:13
  Speaker 1: The outside is the S and P five hundred INDEXS,
• 1:57:15
  Speaker 1: the Dow Jones Industrial Average, all of that stuff. The
• 1:57:19
  Speaker 1: inside is supplying demand. It's the forces of buyers and sellers.
• 1:57:25
  Speaker 1: It's the volume and the price changes and momentum and
• 1:57:30
  Speaker 1: breath and all of these other factors that determine whether
• 1:57:33
  Speaker 1: the market is in an uptrend or in the entrant.
• 1:57:37
  Speaker 1: And um uh you know, now, all of a sudden,
• 1:57:44
  Speaker 1: we know these things, and I should I should say
• 1:57:47
  Speaker 1: these are not commonly known situations. For example, we're doing
• 1:57:52
  Speaker 1: the segmentation of of of the market. Uh, segmentation of
• 1:57:57
  Speaker 1: not only the advanced declines, but upside and downside volume
• 1:58:01
  Speaker 1: and points gaining points, austin all kinds of other factors.
• 1:58:05
  Speaker 1: I don't think that anybody else in the industry. I
• 1:58:08
  Speaker 1: don't know of anybody else in the industry that's doing
• 1:58:10
  Speaker 1: that kind of work and what you've learned over these
• 1:58:12
  Speaker 1: years would have been really helpful back in Oh. You
• 1:58:17
  Speaker 1: know what you have to think about is this if
• 1:58:21
  Speaker 1: it right now? Right now? Of all the money managers
• 1:58:28
  Speaker 1: in the world have a have a philosophy that you
• 1:58:33
  Speaker 1: cannot see a bearer market coming. There are no warning
• 1:58:37
  Speaker 1: signs of a bearer market. They just appear out of nowhere,
• 1:58:42
  Speaker 1: and the only thing you can do is endure them.
• 1:58:45
  Speaker 1: There's anything that you try to do to avoid a
• 1:58:48
  Speaker 1: bearer market, you'll just you'll just follow it up and
• 1:58:51
  Speaker 1: it will make things even worse. Um. So, of all
• 1:58:59
  Speaker 1: the money managers leave that, what we've done is we've
• 1:59:03
  Speaker 1: found in the last few years that they're absolutely wrong.
• 1:59:09
  Speaker 1: Number One, there are warning signs. There are There are
• 1:59:13
  Speaker 1: numerous warning signs that occur over a long period of time,
• 1:59:19
  Speaker 1: and that an investor can easily use those warning signs
• 1:59:23
  Speaker 1: to to move to the sidelines in advance of the
• 1:59:28
  Speaker 1: dramatical losses. What do you think is going to happen
• 1:59:32
  Speaker 1: to a money manager who has that information available to
• 1:59:38
  Speaker 1: them compared to a money manager that doesn't. That's a
• 1:59:42
  Speaker 1: huge advantage to say the least ss are going to
• 1:59:47
  Speaker 1: move around I'm looking forward to seeing what happens with
• 1:59:50
  Speaker 1: this new ETF that you're going to be putting out. UM,
• 1:59:54
  Speaker 1: and thank you so much for being so generous with
• 1:59:56
  Speaker 1: your time and spending UH all these hours with us.
• 1:59:59
  Speaker 1: We really appreciated. I've been chasing you to do this
• 2:00:03
  Speaker 1: for hours. I actually asked you at a conference not
• 2:00:06
  Speaker 1: too long ago in New York. Hey, let's let's let's
• 2:00:09
  Speaker 1: do this, and I'm glad you took me up on
• 2:00:11
  Speaker 1: my offer. We've been speaking with Paul Desmond. He is
• 2:00:15
  Speaker 1: the president of Lowry's Research Service, the oldest continuously operated
• 2:00:20
  Speaker 1: UH technical and analytical service UH in the United States,
• 2:00:26
  Speaker 1: if not in the world. If you enjoy these conversations,
• 2:00:29
  Speaker 1: be sure and check out all of our other chats UM.
• 2:00:32
  Speaker 1: You can find them on iTunes. Just look up an
• 2:00:34
  Speaker 1: inch or down an inch and you'll see the whole run.
• 2:00:37
  Speaker 1: Check out my daily column on Bloomberg View dot com.
• 2:00:41
  Speaker 1: Follow me on Twitter at rid halts Um. I want
• 2:00:45
  Speaker 1: to thank my recording engineered today has been Genie. Charlie
• 2:00:49
  Speaker 1: Volmer is our producer, and my head of research is
• 2:00:52
  Speaker 1: Michael bat Nick. I'm Barry Ridhults. You've been listening to
• 2:00:55
  Speaker 1: masters in Business on Bloomberg Radio