My father was a chemist and a head painter at a wool mill. He was a good supplier to his family and was very modest. He had been a prisoner of war in Germany in World War II and had traveled the death march through Germany for six months. He knew what it was like to starve. After working for about 20 years, he had enough savings to invest in stocks. Unfortunately, for him, other investors seemed to accumulate investable funds at the same time, and the stock market was raised. This happened between 1967 and 1968. His broker recommended shares such as Westinghouse and other companies that the brokerage firm subscribed to. My father lost everyone’s money.
My dad read a book called “How to Make a Scholarship to Make Money for You,” by Ted Warren. Ted had never made more than $ 200 a week, but he had made a lot of money in the stock market. The book was essentially a textbook for long-term technical analysis. My father did much better after reading this book and teaching me the directors.
In 1969, I graduated from college and became a scholarship agent at Bache & Co. Bache & Co sent me to New York for a six-month training program at NYU. I tried to share with my friends the research that was given to me and I had disastrous results. The stock market peaked in 1968 and did not decline until 1974, to about 570 in the Dow Jones industrial average. Fortunately for me, I used Ted Warren’s basic methodology and managed to buy shares at value prices, which worked very well over time. Other brokers who worked with me did very poorly during this period.
In 1973, Burton Makriel wrote “A Random Walk Down Wall Street.” The basic message was that stock prices are moving randomly and that analysts and fund managers have offered little value to investors. It wasn’t until 1976, after I continued to do very well for my clients, that I decided to research the logic of my approach. We work with Ray Hanson Jr. at Barclay Douglas & Co in Providence RI. I convinced him to work with me on this project.
At that time, there was no database in stock history that could be collected by a computer that was accessible to us. We found a chart book publisher with an uninterrupted history of chart books since 1936. The chart book publisher had a few books on hand, but we had to go to Putnam, Fidelity Funds and other management companies to get missing books. I knew that the basic concept was to find good stocks that were missing and that were traded for an extended period in a base, without making a new minimum. We had to look at thousands of these diagrams to determine the two basic rules. I had two concerns. Number one, if we bought these stocks too early, our gains would be inhibited by the time period in which the stock remained stagnant in the base. Number two, some of these companies failed at the beginning of the base period. After many hundreds of hours of examining thousands of stocks I established empirically or two basic rules.
Our study, published in 1978, showed that stocks follow a distinctive pattern that can be recognized and exploited. You can view the results through Googling, “Eleven Quarter Stocks”, an independent website. The recommendations at the end of the book also had average gains of over 466%. Thus, from a data point of view, the evidence is certainly enough to disprove the classic “A Random Walk Down Wall Street”. Also, data from 1978 to the present show that the patterns still work.
HOW CAN THIS KNOW HOW TO MANAGE YOUR MONEY BETTER?
I would warn you not to be fooled by the simplicity of the rules of this concept. Although they may seem obvious once they have been reported to you, this does not change their value in any way. It is easy to understand and difficult to execute. Why? Because the rules are consistent and human emotions are not. People need to act on the knowledge of these rules, and people are influenced by strong waves of fear, greed and impatience.
I have used this logic in working with thousands of people. Most will give up because a long-term perspective of the patient is needed. Often, when the indices rise, these stocks are not. After waiting two years without profit, your stock increases by 50% just to retreat to where it was before. Some stocks have very high increases and entice you to buy more just to decrease substantially. My way of dealing with these problems is to invest only about 10% in a group of these stocks, especially after a cyclical market decline. It is much easier to keep if you do not invest too much. Knowing the cycles will also help you in investing in mutual funds. Take a very small risk after markets have grown for three years without major corrections and buy more aggressive assets after a four-year cycle. I used this knowledge to my advantage, unless I make a lot of money, I lost a few times by investing too much in biotech stocks at too high prices. Unfortunately, I also have human fragility.
I intend to sell the “Random Profits” study as an e-book with the rest of the story.