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