WEBVTT - Interview With Ned Davis: Masters in Business (Audio) 0:00:00.160 --> 0:00:02.440 The future may not be clear, but our commitment is 0:00:02.600 --> 0:00:04.440 so when you sit with an advisor at Merrill Lynch, 0:00:04.519 --> 0:00:07.160 we'll put your interests first. Visit mL dot com and 0:00:07.240 --> 0:00:09.640 learn more about Merrill Lynch, an affiliative Bank of America. 0:00:09.760 --> 0:00:12.240 Mery Lynch makes available products and services offered by Merrill Lynch. 0:00:12.280 --> 0:00:14.600 Pierce Veteran Smith Incorporated or Registered Broker Dealer. Remember s 0:00:14.640 --> 0:00:20.599 I p c V is Masters in Business with Very 0:00:20.680 --> 0:00:26.799 Riddholtz on Boomberg Radio. This week on the podcast, we 0:00:26.880 --> 0:00:29.680 have an extra special guest. His name is Ned Davis. 0:00:29.680 --> 0:00:33.000 He is the founder of the highly regarded Ned Davis 0:00:33.000 --> 0:00:36.680 Research and author of numerous books. Will talk about that later. 0:00:37.200 --> 0:00:42.240 Quick interesting story. Long before Masters in Business came along, 0:00:42.440 --> 0:00:46.000 I had been kicking an idea around about finding these 0:00:46.000 --> 0:00:51.080 really successful, articulate, intelligent people and sitting down and having 0:00:51.080 --> 0:00:54.480 a conversation with them, and I think Ned. I'll include 0:00:54.480 --> 0:00:57.960 the link to this on on the blog post. Ned 0:00:58.000 --> 0:01:01.320 may have been the very first person and I spoke 0:01:01.400 --> 0:01:04.160 to UM. We didn't on the radio. We did it 0:01:04.440 --> 0:01:08.360 uh unedited. It was pretty much straight through. It's very rough, 0:01:08.480 --> 0:01:11.920 but the concept for this show pretty much came from 0:01:11.920 --> 0:01:15.120 a conversation I had with him. Uh. He is one 0:01:15.160 --> 0:01:19.280 of the best regarded technicians around, a technicians technician. If 0:01:19.319 --> 0:01:24.000 you were at all interested in quantitative technical trading, UM, 0:01:24.080 --> 0:01:27.039 you're gonna love this. So, with no further ado, my 0:01:27.200 --> 0:01:36.240 conversation with Ned Davis. My special guest today is Ned Davis. 0:01:36.520 --> 0:01:41.080 He is the founder of renowned technical research firm ned 0:01:41.200 --> 0:01:45.680 Davis re Research. Ned was a regular on This Week 0:01:45.840 --> 0:01:49.800 with Lewis Rukeiser. He frequently graces the pages of Barons 0:01:49.880 --> 0:01:53.880 and other financial publications. He founded ned Davis Research in 0:01:54.800 --> 0:01:58.200 and now employees well over a hundred people. He is 0:01:58.240 --> 0:02:03.520 the author of the Triumph of Contrarian Investing, Markets in 0:02:03.600 --> 0:02:07.240 Motion and being Right or Making Money, and he's probably 0:02:07.360 --> 0:02:12.399 best known as a technicians technician. Ned Davis, Welcome to Bloomberg. 0:02:12.800 --> 0:02:16.440 Thank you for having me. Uh. You know, it's it's 0:02:16.440 --> 0:02:18.600 really interesting that we have you here because when I 0:02:18.720 --> 0:02:22.800 first started doing this, before we were broadcasting them on 0:02:22.840 --> 0:02:24.720 the radio, you were one of the first people I 0:02:24.800 --> 0:02:27.600 spoke with, uh, and we did a phone interview. I 0:02:27.600 --> 0:02:30.320 want to say that was like eight or ten years ago. 0:02:30.480 --> 0:02:33.840 A lot of stuff has happened since then. Let's let's 0:02:33.880 --> 0:02:37.280 talk a little bit about your background. You were studying 0:02:37.600 --> 0:02:42.120 French and I believe it was Paris when you decided, um, 0:02:42.160 --> 0:02:45.680 I'm gonna change my career direction. Tell us, tell us 0:02:45.680 --> 0:02:48.320 about that incident. Well, actually, I was at the University 0:02:48.360 --> 0:02:51.560 of North Carolina and I had decided I wanted to 0:02:51.600 --> 0:02:54.000 be a doctor, and so I was a chemistry major. 0:02:54.200 --> 0:02:57.880 And then I decided did not want to be a doctor. 0:02:58.080 --> 0:03:01.880 And I had was spinning part of a year in France, 0:03:02.000 --> 0:03:05.160 and uh, so I had to graduate with something else. 0:03:05.160 --> 0:03:08.720 And I really liked French literature, so uh that's the 0:03:08.760 --> 0:03:13.000 way I graduated as a French major. Um, I wasn't 0:03:13.040 --> 0:03:15.560 really sure what I wanted to do. So they have these, 0:03:15.720 --> 0:03:20.160 uh I guess psychological tests that test your aptitude and 0:03:20.320 --> 0:03:24.440 your interests, and they said my aptitude was in math, 0:03:25.000 --> 0:03:27.680 but I didn't wasn't interested in math. And what I 0:03:27.720 --> 0:03:29.799 was interested in it was verbal, but I wasn't any 0:03:29.800 --> 0:03:32.960 good at verbal. So I's thinking. I had had two 0:03:33.080 --> 0:03:34.960 jobs in the summer at a company called J. C. 0:03:35.080 --> 0:03:38.200 Bradford Company as an intern, and I really liked that 0:03:38.240 --> 0:03:40.520 you're able to write and read and write, and uh, 0:03:40.640 --> 0:03:42.880 you be able to use your math skills. I said, well, 0:03:42.920 --> 0:03:45.360 this is this is a perfect for me. So then 0:03:45.400 --> 0:03:47.520 I ended up going to Harvard Business School, which I 0:03:47.560 --> 0:03:49.720 thought I was going to learn business, but it's actually 0:03:49.720 --> 0:03:52.400 a management school, which is not what I wanted. So 0:03:53.120 --> 0:03:55.840 then I worked went to work full time Bradford Company. 0:03:55.920 --> 0:03:58.040 So somewhere in the middle of that, I recall you 0:03:58.160 --> 0:04:02.880 telling a story about study French and France. Someone made 0:04:02.880 --> 0:04:06.240 a reference about your southern accent and you were kind 0:04:06.240 --> 0:04:09.000 of thinking, really, I'm not sure if this is for me, 0:04:09.080 --> 0:04:13.680 am I misremembering, Well, it was. I really did not 0:04:13.840 --> 0:04:16.080 know much French one. And when I went to France 0:04:16.120 --> 0:04:18.719 and uh, you know, I was trying to learn the 0:04:18.800 --> 0:04:21.760 language is best I could. And uh we had a 0:04:21.800 --> 0:04:25.040 class and the teacher said, oh, thank you for saying that. 0:04:25.480 --> 0:04:27.960 Uh this was in French, of course, and she said, 0:04:27.960 --> 0:04:31.560 I always wondered what Lyndon Johnson would sound like speaking French, 0:04:31.600 --> 0:04:34.040 and now I know, and I'm thinking, Lyndon Johnson can 0:04:34.080 --> 0:04:39.240 barely speak English. So I decided that, uh, speaking French 0:04:39.360 --> 0:04:41.560 was not going to be my skill set. So you 0:04:41.640 --> 0:04:44.799 go to j C. Bradford, you start penning a daily 0:04:45.279 --> 0:04:50.279 technical report. What will your go to indicators or charts 0:04:50.320 --> 0:04:52.880 back at that time. I think I was pretty much 0:04:52.880 --> 0:04:56.680 a traditional chartist at that time and just looking at 0:04:56.760 --> 0:05:00.359 chart patterns and uh trying to pick out stocks and 0:05:00.440 --> 0:05:02.680 up trends and stay away from stocks and down trends. 0:05:02.720 --> 0:05:05.119 But of course I was studying a lot of other 0:05:06.080 --> 0:05:09.200 uh i'd say, independent research at the time, so I 0:05:09.240 --> 0:05:11.520 was trying to learn from that. So I pretty much 0:05:12.200 --> 0:05:15.880 I selt self taught myself my field. What was it like, 0:05:16.360 --> 0:05:20.239 really beginning your education in the field in what turned 0:05:20.279 --> 0:05:22.839 out to be a pretty long bear market in the 0:05:22.880 --> 0:05:28.240 sixties and seventies. Yeah, I actually I think that makes 0:05:28.240 --> 0:05:30.760 a big difference when you ask people what your outlook 0:05:30.800 --> 0:05:32.920 is on the market, and I said, when when did 0:05:32.920 --> 0:05:35.279 you start in the business, And if you started in 0:05:35.360 --> 0:05:38.640 sixty eight like I did, you were going to live 0:05:38.680 --> 0:05:42.280 the first fourteen years and a really grueling bear market. 0:05:42.440 --> 0:05:45.479 So a quote of yours goes something like this, We 0:05:45.560 --> 0:05:48.960 are on the We are in the business of making mistakes. 0:05:49.000 --> 0:05:52.279 The only difference between the winners and the losers is 0:05:52.320 --> 0:05:55.640 that the winners make small mistakes while the losers make 0:05:55.680 --> 0:06:00.680 big mistakes. Discuss that a bit the whole. One Buffet's 0:06:00.720 --> 0:06:03.719 got a quote and he says his rules. Two rules 0:06:03.760 --> 0:06:06.880 for making money. And he said rule number one, don't 0:06:06.920 --> 0:06:10.040 lose money. And he said rule number two, don't never 0:06:10.080 --> 0:06:14.800 forget rule number one. So, uh, it's all about compounding 0:06:14.880 --> 0:06:17.320 interest and compounding your returns. And if you take a 0:06:17.400 --> 0:06:21.000 horrible loss, uh, you know, if you lose fifty on 0:06:21.040 --> 0:06:24.039 a stock, u's not a fifty percent rise, it gets 0:06:24.080 --> 0:06:26.480 you back to even it's a it's a hundred percent rise. 0:06:27.040 --> 0:06:29.440 So if you have a big loss, it it's really 0:06:29.480 --> 0:06:33.279 hard to compound your returns. So I knew there was 0:06:33.279 --> 0:06:36.040 gonna be mistakes in the business. I'm just trying to, 0:06:36.640 --> 0:06:38.719 you know, is find out a mistake and cut it 0:06:38.760 --> 0:06:42.160 as quickly as possible. I think that's the key. And 0:06:42.440 --> 0:06:45.760 early in your career you had made a number of calls, 0:06:45.760 --> 0:06:48.640 some of which were very big calls. But I have 0:06:48.960 --> 0:06:51.880 been following your career and reading you for so long. 0:06:52.360 --> 0:06:56.920 I know you're thinking on predictions and forecasting has evolved 0:06:56.920 --> 0:07:00.800 a lot. Tell us a little bit about that. Yes, 0:07:01.160 --> 0:07:04.080 you know, it's a business of forecasting. That's what clients 0:07:04.120 --> 0:07:06.279 want to want you to do. So that's what I 0:07:06.320 --> 0:07:09.560 tried to do. And I studied forecasts, and I saw 0:07:09.600 --> 0:07:15.000 a lot of forecasters make some dramatically correct forecasts, but generally, 0:07:15.520 --> 0:07:18.120 uh they would make a great forecast and a couple 0:07:18.120 --> 0:07:20.320 of years later make a terrible forecast. And it was 0:07:20.360 --> 0:07:22.160 just like a flame out in the night. And I 0:07:22.200 --> 0:07:24.680 didn't want my career to be that way. And I 0:07:25.680 --> 0:07:29.160 was lucky enough to have some some some really good forecasts, 0:07:29.200 --> 0:07:31.600 but I still was suspicious. And when you go back 0:07:31.640 --> 0:07:35.960 and study the forecasting record, For example, the Federal Reserve 0:07:36.040 --> 0:07:40.680 Board of Philadelphia has been studying for fifty years consensus 0:07:40.680 --> 0:07:44.960 a professional economists and they look at their forecast for 0:07:45.000 --> 0:07:49.840 the following year. There's been seven recessions since nine seventy 0:07:50.000 --> 0:07:54.520 and the economists as a group, obviously individual economists have 0:07:54.600 --> 0:07:57.720 done better, but as a group they called none, not 0:07:57.960 --> 0:08:01.680 a single one of the seven recessions. And interestingly enough, 0:08:01.840 --> 0:08:05.320 in the last since two thousand and one, they've been 0:08:05.840 --> 0:08:09.640 eighty I think eighty six percent of the time they've 0:08:09.680 --> 0:08:13.440 been too low on their forecast. Excuse me, the forecasts 0:08:13.440 --> 0:08:15.920 have been too high for what the economy has actually done. 0:08:16.160 --> 0:08:19.800 So it's a very tough field forecasting. You launched your 0:08:19.840 --> 0:08:25.000 firm in really a couple of recessions, A long bear market. 0:08:25.560 --> 0:08:28.400 That must have been a really challenging time to launch 0:08:28.440 --> 0:08:33.880 a new uh services fun Well, actually, you know, we 0:08:33.880 --> 0:08:37.559 were we sell ourselves as risk managers, and it had 0:08:37.640 --> 0:08:40.800 been such a long period of high risk that uh 0:08:41.200 --> 0:08:46.200 people were looking around for risk managers. And uh also 0:08:46.480 --> 0:08:49.160 it just so happened after that period long period of 0:08:49.160 --> 0:08:52.319 time six haiti. Most of the time I was with J. C. Bradford, 0:08:52.320 --> 0:08:56.520 And of course retail brokerage firms are historically bullish and 0:08:56.920 --> 0:09:00.640 should be. But uh So, anyway, us to the time 0:09:00.720 --> 0:09:03.200 that I was there, I was negative and it was 0:09:03.280 --> 0:09:07.319 just about the early period that I was turning more 0:09:07.360 --> 0:09:10.040 bulish on the long term out look. So that that 0:09:10.200 --> 0:09:14.400 was a very fortunate thing. And um so I left there. 0:09:14.520 --> 0:09:19.000 I was a partner Bradford's, but I wanted to, I 0:09:19.000 --> 0:09:24.240 guess my contribution to the businesses that uh this was 0:09:24.320 --> 0:09:27.360 really before computers had taken over. In fact, they had 0:09:27.400 --> 0:09:31.040 just started over, taking over the back offices, and uh 0:09:31.280 --> 0:09:33.440 so I wanted to make the research that I do 0:09:33.600 --> 0:09:36.280 computerized so that I could test some of these things 0:09:36.320 --> 0:09:39.840 that that people saw on charts and see if any 0:09:39.880 --> 0:09:43.360 of them worked. So you've got a lot of pushback 0:09:43.400 --> 0:09:46.200 from Bradford saying, hey, I really think we should adapt 0:09:46.200 --> 0:09:49.199 the new technology to our practice. They weren't very keen 0:09:49.280 --> 0:09:52.920 on that. Well that the answer basically was if if 0:09:52.920 --> 0:09:55.319 it ain't broke, don't fix it, which is which is 0:09:55.360 --> 0:09:57.840 a good answer. But this is something I wanted to do. 0:09:58.040 --> 0:10:00.600 And there were a couple of Bradford broker ed Mendel 0:10:00.679 --> 0:10:03.200 and Kent Reagan Stein that they wanted to go out 0:10:03.200 --> 0:10:05.920 and try this, and uh, we already had a pretty 0:10:05.920 --> 0:10:09.880 good following, so uh, we were were We were nervous 0:10:09.920 --> 0:10:14.280 about it obviously, but we um, we didn't use any 0:10:14.360 --> 0:10:16.760 debt and we put up our own money and uh, 0:10:16.920 --> 0:10:18.920 you know, we had enough customers and we made a 0:10:18.960 --> 0:10:21.319 go of it from the beginning, launching with a handful 0:10:21.360 --> 0:10:23.400 of customers or a decent number of customers. How to 0:10:23.440 --> 0:10:28.640 make that transition fairly even? What were the first fairly easy? 0:10:28.760 --> 0:10:31.720 What were the first couple of years like, um, when 0:10:31.720 --> 0:10:35.600 you were building the business? Well, you know it was 0:10:36.640 --> 0:10:39.840 I'm not a manager, I I'm a research nerd and 0:10:39.880 --> 0:10:42.960 that's what I like to do. So uh, Eddie and 0:10:43.040 --> 0:10:46.400 Kent were in Atlanta, Georgia, which Eddie Mendel and Kent 0:10:46.600 --> 0:10:49.120 Reagan Stein, and they were. They were in Atlanta, which 0:10:49.160 --> 0:10:52.679 is where the sales were, and I was in, uh, 0:10:52.720 --> 0:10:57.240 just outside of Sarasota, Florida, where I lived, and so anyway, 0:10:57.280 --> 0:11:00.680 I had to put together some people and was uh 0:11:00.840 --> 0:11:03.600 it was it was fun being a Being a starting 0:11:03.600 --> 0:11:05.600 manager is not something that I liked doing, but it 0:11:05.679 --> 0:11:08.800 was fun. So after a few years you developed quite 0:11:08.800 --> 0:11:11.720 a reputation. And one of the things that Davis Research 0:11:12.640 --> 0:11:18.120 was known for was these specific research projects requested by clients. 0:11:18.120 --> 0:11:22.160 In fact, uh recently they were doing more than two 0:11:22.240 --> 0:11:27.720 thousand UH client generated research projects a year. How did 0:11:27.760 --> 0:11:32.840 that approach develop and how how how do people approach 0:11:32.920 --> 0:11:35.000 you with, Hey, I has an idea I want to 0:11:35.000 --> 0:11:38.440 test out. Well, once we built our own software and 0:11:38.520 --> 0:11:43.280 had the computers around, you know, my idea actually was 0:11:43.360 --> 0:11:46.760 building a company similar to what Value Line had built 0:11:46.760 --> 0:11:51.120 in the fundamental research area. UH. And I remember specifically 0:11:51.160 --> 0:11:54.600 the date, the date that Arnold Bernhard died because Value 0:11:54.640 --> 0:11:58.079 Line stock went up big that day, and I thought, this, 0:11:58.080 --> 0:11:59.880 this is the kind of firm you want to be 0:12:00.000 --> 0:12:03.120 old that people want your data, they want your charts, 0:12:03.160 --> 0:12:07.160 they want your studies. They aren't necessarily looking for you know, 0:12:07.559 --> 0:12:11.280 a guru that walks on water. They so I decided 0:12:11.320 --> 0:12:13.480 to try to build a company like that. So yes, 0:12:13.520 --> 0:12:17.720 we set up a client services department where we would say, 0:12:18.120 --> 0:12:21.360 you have research questions, you bring them here and we'll 0:12:21.400 --> 0:12:24.199 do the research for you. And we actually we won't 0:12:24.240 --> 0:12:27.000 share the research with our own research team. It's it's 0:12:27.000 --> 0:12:30.560 your proprietary product, and uh it's it's been a good 0:12:30.559 --> 0:12:34.240 product for us. And we've come up. Actually, you know, 0:12:34.360 --> 0:12:36.560 I don't know come we've come up. I've come up 0:12:36.600 --> 0:12:38.120 with a lot of ideas on my own, but we 0:12:38.400 --> 0:12:42.000 probably we say we're client driven, and uh, some of 0:12:42.000 --> 0:12:45.560 the best ideas I've had, we're client ideas. Give us 0:12:45.760 --> 0:12:49.640 an example of some typical client client requests or some 0:12:49.720 --> 0:12:53.280 unusual client requests. Well, you know a lot of times 0:12:53.320 --> 0:12:55.080 that we'll have a chart and they'll want to see 0:12:55.120 --> 0:12:57.040 it back further or they'll want to see a different 0:12:57.160 --> 0:13:01.719 version of it. Uh um. But you know, we had 0:13:01.720 --> 0:13:05.000 a lot of crisis events when I got into the business, 0:13:05.040 --> 0:13:08.840 and people said, what did the market do after there's 0:13:09.040 --> 0:13:12.040 a major crisis event? So we went back and you know, 0:13:12.040 --> 0:13:14.800 we tried to study history, and you know, there was 0:13:14.840 --> 0:13:18.720 Pearl Harbor and there was JFK's assassination. I got in 0:13:18.720 --> 0:13:21.160 the business. You know, Martin Luther King and Robert Kennedy 0:13:21.200 --> 0:13:24.480 died the first assassinated the first year, and then you 0:13:24.520 --> 0:13:27.640 had Penn Central and and and on and on. So 0:13:27.679 --> 0:13:30.040 we put all this together and I saw what the 0:13:30.080 --> 0:13:34.040 market did, and and uh, it was fascinating. Generally there 0:13:34.240 --> 0:13:37.480 was a a sell off, as you would expect on 0:13:37.559 --> 0:13:41.679 the news, but very short term and almost you know, 0:13:41.960 --> 0:13:44.280 six months to a year later, the market was almost 0:13:44.320 --> 0:13:47.199 always higher. So we had we had put this study together, 0:13:47.440 --> 0:13:49.640 and uh we had shown it a couple of times 0:13:49.640 --> 0:13:53.600 in publications, and then uh, on nine eleven, um, we 0:13:53.679 --> 0:13:56.040 got a call from We put it out again and 0:13:56.280 --> 0:13:58.600 we got a call from Barns and they wanted to 0:13:58.720 --> 0:14:02.520 use it. And uh, you know it as terrible as 0:14:02.559 --> 0:14:06.600 that tragedy was, the study was very timely and that 0:14:06.760 --> 0:14:08.520 you know, there was a week cell often it was 0:14:08.559 --> 0:14:11.920 a very scary time. But uh, the market did recover 0:14:12.000 --> 0:14:16.440 after that pretty well. So in response to unexpected geopolitical events, 0:14:17.080 --> 0:14:20.880 markets wobble and then go about resuming the prior trends exactly. 0:14:20.960 --> 0:14:24.600 Sometimes sometimes you know, they do better. Uh, it's it's 0:14:24.720 --> 0:14:28.000 it's the logic's a little difficult to understand. But if 0:14:28.080 --> 0:14:31.840 you're a nervous holder of stock and some bad news comes, uh, 0:14:32.240 --> 0:14:36.040 you panic out, and uh, then who's left or are 0:14:36.120 --> 0:14:39.400 strongholders of stock? So you know, it's at that point 0:14:39.400 --> 0:14:42.040 it's it's hard to get people to sell. After you've 0:14:42.040 --> 0:14:46.560 gotten the nervous people out, you've got good strongholders of stock. Counterintuitive, 0:14:46.640 --> 0:14:49.040 but you get a wash out and then you're only 0:14:49.120 --> 0:14:52.960 left with with people who are not likely to to 0:14:53.120 --> 0:14:56.800 jump out at any given moment. When the exception to this, 0:14:57.000 --> 0:15:00.680 of course really and they're not many, but the exception 0:15:00.760 --> 0:15:04.840 was Lehman, which was a panic event that uh there 0:15:04.920 --> 0:15:08.000 was systemic and I think that that is a key 0:15:08.080 --> 0:15:11.080 when you're looking at crisis events. If if if it's 0:15:11.120 --> 0:15:14.160 going to uh take down the financial system, then and 0:15:14.400 --> 0:15:19.280 the study is not gonna work. But pretty much anything else, wars, bombings, 0:15:19.880 --> 0:15:22.520 terror attacks, uh you know, the worst things you can 0:15:22.560 --> 0:15:26.960 think of, assassination of a president. Uh, these things pretty 0:15:27.000 --> 0:15:29.760 much all fit the same pattern. Even Lehman Brothers was 0:15:29.800 --> 0:15:34.840 September eight. Markets had peaked October oh seven, so it 0:15:34.880 --> 0:15:38.880 had been practically a year of downtrend that wouldn't the 0:15:38.920 --> 0:15:42.600 only real difference between the trend is Lehman just precipitated 0:15:42.600 --> 0:15:46.120 in an acceleration. That's partly true, but I think the 0:15:46.840 --> 0:15:51.560 systemic part to the banking systems critical. Let's talk a 0:15:51.640 --> 0:15:56.640 little bit about um technical analysis. So you were an 0:15:56.640 --> 0:16:01.080 early adopter not only of technical analysis, it of technology 0:16:01.160 --> 0:16:04.640 as well. Tell us how that changed the way you 0:16:04.720 --> 0:16:08.720 looked at markets. Well, you know, you start off you 0:16:08.800 --> 0:16:12.200 read Edwards and McGee, a technical analysis book or a 0:16:12.200 --> 0:16:16.359 lot of other really well written books on chart patterns, 0:16:16.520 --> 0:16:20.840 and uh, then you start applying that and you, uh 0:16:21.880 --> 0:16:24.320 you see a head and shoulders bottom, and you say, oh, 0:16:24.360 --> 0:16:27.720 my goodness, is stuck is turning up? And then you're 0:16:27.720 --> 0:16:30.720 reading another report and somebody's looking at the same chart 0:16:30.800 --> 0:16:32.480 and they say, oh, no, that's that's a head and 0:16:32.480 --> 0:16:37.400 shoulders top, and uh it was almost like, uh, you 0:16:37.520 --> 0:16:39.960 made your own reality. You looked at a chart and 0:16:40.040 --> 0:16:43.680 you saw what you wanted to see. So uh, I 0:16:43.720 --> 0:16:46.920 said that I can't do this. I have to uh 0:16:47.120 --> 0:16:50.600 have it more quantitative. I've got to test these things 0:16:50.680 --> 0:16:52.680 and see whether they work or not. So that that 0:16:52.760 --> 0:16:56.400 was the idea really of going to technology. I also 0:16:56.440 --> 0:17:01.120 at that point had gotten interested in other people that 0:17:01.200 --> 0:17:04.639 seemed very successful in the business. One of my mentors 0:17:04.680 --> 0:17:08.040 was a guy named Edson Gould and Uh. He was 0:17:08.080 --> 0:17:13.240 a technician, UM, but he also really believed that the 0:17:13.240 --> 0:17:16.640 stock market and the economy were driven by crowd psychology, 0:17:17.119 --> 0:17:19.240 and he was also a study or of the Federal 0:17:19.240 --> 0:17:24.000 Reserve Board. Also became good friends with Marty's why. He 0:17:24.080 --> 0:17:27.200 started out as a sentiment guy too, and he ended 0:17:27.280 --> 0:17:30.240 up like me, don't fight the Fed, don't fight the tape. 0:17:30.320 --> 0:17:33.879 So so Marty's wage is always my answer to the 0:17:34.000 --> 0:17:37.520 question how come there are no rich technicians? And the 0:17:37.600 --> 0:17:41.160 answer is there are a ton of very successful people 0:17:41.160 --> 0:17:45.800 who use technicals as a fundamental basis of their trading 0:17:45.840 --> 0:17:48.520 and their investment strategy. Did you get a lot of 0:17:48.560 --> 0:17:55.160 pushback from your work from the fundamental community? I think originally, uh, 0:17:56.000 --> 0:18:00.840 there were only a handful Alan Shaw Feral. They were 0:18:00.840 --> 0:18:05.120 really only a handful of technicians that that were UH 0:18:05.160 --> 0:18:08.280 in high regard, and so it was difficult at first. 0:18:08.320 --> 0:18:11.000 But you know, again, once you go through a bear market, 0:18:11.119 --> 0:18:13.800 people look around and say, you know, I need to Uh, 0:18:14.160 --> 0:18:16.399 I can't just buy and hold all the time without 0:18:16.520 --> 0:18:19.720 concern over anything. I have to, you know, manage my risks, 0:18:19.760 --> 0:18:24.360 and so it's gotten obviously a lot more popular. How 0:18:24.400 --> 0:18:31.400 did technicals differ at the institutional level and the retail level. Well, 0:18:31.520 --> 0:18:34.560 I think retail was, you know, more interested in just 0:18:35.000 --> 0:18:40.359 you know, short term movements and stocks, and uh, institutionals 0:18:40.359 --> 0:18:44.439 are more interested in a big picture, uh, maybe tying 0:18:44.480 --> 0:18:47.000 it in with the macro and and and the FED 0:18:47.760 --> 0:18:51.080 and sentiment and a lot longer term things. And I 0:18:51.119 --> 0:18:55.440 had also gotten interested uh you know in the in 0:18:55.520 --> 0:18:59.879 the FED, Federal Reserve boards. Uh, you know, emphasis on 0:19:00.040 --> 0:19:02.800 in the stock market, and so trying to put things 0:19:02.840 --> 0:19:06.560 in perspective. Guy named Hamilton's Bolton with the bike credit 0:19:06.560 --> 0:19:09.560 analysts had put together a monetary thermometer which was really 0:19:10.040 --> 0:19:13.720 one of the first models that they had timing model 0:19:14.160 --> 0:19:17.880 using a Federal Reserve statistics and I was really fascinated 0:19:17.920 --> 0:19:23.240 by that. So these days there's a near infinite amount 0:19:23.320 --> 0:19:27.520 of charting software. You could pretty much access a ton 0:19:27.600 --> 0:19:33.520 of really highly detailed um technical studies, some of which 0:19:33.560 --> 0:19:37.240 are are free, some of which are fairly modest modestly priced. 0:19:37.840 --> 0:19:41.000 What has the ubiquity of computing power and all the 0:19:41.080 --> 0:19:45.639 software done to the world of trading and investing. Well, 0:19:45.880 --> 0:19:48.240 it's a it's a it's a good question, and the 0:19:48.359 --> 0:19:52.280 answers complicated. Uh, there's a lot of good ideas. You know, 0:19:52.359 --> 0:19:55.080 this happens to be one that fits my psyche on 0:19:55.160 --> 0:19:57.120 how to invest. But there's a lot of good ideas 0:19:57.840 --> 0:20:00.159 about how to invest and how to make money. The 0:20:00.240 --> 0:20:04.240 one key problem is if something gets too popular, it's 0:20:04.280 --> 0:20:08.080 gonna hurt its effectiveness. So um, but this is true 0:20:08.119 --> 0:20:11.359 of anything. I remember in the nineteen eighties, which was 0:20:12.440 --> 0:20:14.720 a big period because it was the start of my company, 0:20:14.720 --> 0:20:17.400 and uh it was it was a bullmarket period and 0:20:18.000 --> 0:20:20.879 people didn't need risk advisors for a while, and and 0:20:21.080 --> 0:20:25.760 uh we got into seven and uh I got really, 0:20:26.080 --> 0:20:29.320 uh really worried about derivatives and what they could do 0:20:29.440 --> 0:20:32.800 to the market. But anyway, that are your friends of 0:20:32.880 --> 0:20:37.240 portfolio insurance or something broad portfolio insurance, which was part 0:20:37.280 --> 0:20:40.240 of part of using derivatives to do portfolio insurance. And 0:20:40.320 --> 0:20:43.560 actually I thought portfolio insurance is one of the coolest 0:20:43.600 --> 0:20:47.480 ideas I've ever heard of it and actually fit exactly 0:20:47.520 --> 0:20:51.280 what I want to do with my heads work. I want, 0:20:51.359 --> 0:20:53.440 you know, I want to protect my portfolio and a 0:20:53.520 --> 0:20:56.320 downtrend and so it was a great idea and it 0:20:56.400 --> 0:20:59.520 was widely sold on Wall Street and then uh, you know, 0:20:59.600 --> 0:21:02.560 the mark it started down and unfortunately I was able 0:21:02.600 --> 0:21:05.840 to to sort to sort of see this one. So 0:21:06.200 --> 0:21:08.520 anyway that we had, we had a crash that I 0:21:08.560 --> 0:21:11.560 think was calls really by a great idea that got 0:21:11.600 --> 0:21:15.600 too popular. So, um, this is the thing when technical 0:21:15.640 --> 0:21:19.200 analysis gets so popular. Everybody's looking at the same patterns 0:21:19.240 --> 0:21:21.960 and the same breakouts and acting on them. It's not 0:21:22.000 --> 0:21:24.200 going to act as well as if you could find 0:21:24.280 --> 0:21:27.439 something that nobody's looking at. Let's talk a little bit 0:21:27.480 --> 0:21:32.639 about the stock market and what separates good investors from 0:21:32.640 --> 0:21:36.560 not so good investors. Uh, you wrote something not too 0:21:36.560 --> 0:21:38.720 long ago in one of your books, or maybe it 0:21:38.760 --> 0:21:42.639 was a little while ago. Good investors, successful investors have 0:21:42.720 --> 0:21:48.199 four basic traits. Their objective, their disciplines, they're flexible, and 0:21:48.240 --> 0:21:51.280 their risk averse. Is it that simple, It's just those 0:21:51.280 --> 0:21:53.560 four things. You do that and you're good to be 0:21:53.600 --> 0:21:57.480 a good investor. Yes, it's complicated when you say those 0:21:57.520 --> 0:22:01.600 things together because people think, well, discipline is the opposite 0:22:01.600 --> 0:22:04.840 of flexible. But when we use the term flexible really 0:22:04.840 --> 0:22:07.920 really thinking about open mindedness and and This is one 0:22:07.960 --> 0:22:10.119 of the curses in my life, or one of the 0:22:10.160 --> 0:22:13.520 gifts in my life, is that if there's a debate, 0:22:13.560 --> 0:22:16.720 I could pretty well take both sides, uh and do 0:22:16.760 --> 0:22:19.520 a pretty good job. That means you're objective. I have 0:22:19.640 --> 0:22:21.959 a gift of being able to see both sides. The 0:22:21.960 --> 0:22:24.639 negative is it's it's hard to be a hundred percent 0:22:25.119 --> 0:22:29.600 black or white when you can see the world's actually gray. 0:22:30.280 --> 0:22:33.480 What about what about risk of verse because we're taught 0:22:33.520 --> 0:22:36.400 that risk aversion often leads people to be too quick 0:22:36.440 --> 0:22:38.879 to jump out of equities when they should be a 0:22:38.920 --> 0:22:42.879 little more risk embracing. Yes, well, that's a good question 0:22:42.960 --> 0:22:46.439 because it happens to be the one piece of my 0:22:46.560 --> 0:22:50.160 philosophy that it has changed over the years because there's 0:22:50.240 --> 0:22:52.040 a lot of risk takers that have made a lot 0:22:52.119 --> 0:22:55.719 of money. But what they do is they manage their risks. 0:22:55.760 --> 0:22:59.240 So they'll they'll take a big position, but if it 0:22:59.320 --> 0:23:01.920 if it goes hour or the news changes that they 0:23:01.960 --> 0:23:05.000 get out. So it's still a matter. It's still a 0:23:05.000 --> 0:23:07.600 matter of risk management. But I think the term risk 0:23:07.640 --> 0:23:13.840 averse was came from being in the market from two 0:23:13.920 --> 0:23:18.199 frankly so, speaking of which those who study history are 0:23:18.200 --> 0:23:22.320 contemned to repeat its mistakes. How difficult is it for 0:23:22.400 --> 0:23:28.040 investors to learn the lessons that history presents to us? Well, 0:23:28.200 --> 0:23:31.520 it's tricky because you want to learn the correct lessons 0:23:31.520 --> 0:23:33.359 and you don't want to learn the bad lessons, and 0:23:33.400 --> 0:23:36.520 it's a little hard to know, uh, which it is. 0:23:36.520 --> 0:23:38.879