Hello LG,
Regarding the discussion of FA and TA, here's how some major hitters recently responded to combining the two:
DAVID RYAN
In the CBS MarketWatch "Best of Wall Street" series, David Ryan, president of Ryan Capital Management, Llc, was recognized as one of the best market analysts on Wall Street. Ryan is a superlative stock picker. He won the U.S. Investing Championship in 1985, 1986, and 1987, finishing runner-up in 1988.
David, what percent of emphasis do you place on technical analysis as opposed to fundamental analysis?
David Ryan: In terms of a percentage, it depends on if it's the buyside or the sellside. If it's the buyside, I place 50 percent of the weight on the technical and 50 percent on the fundamental. You'll never get a real big consistent move without the fundamentals. Yes, you can have a stock that makes a real nice move very quickly, but then it'll blow up also very quickly, and so you have to come out of it fast. So, you have to keep in mind when you're buying the stock what kind of fundamentals it has behind it. If it has a very nice, consistent growth record and accelerating earnings, you can get a long and sustained move out of the stock. If it has no earnings, then, yes, you can get a real fast move but then your timing has to be right. And that's where you have to put more weight on the technicals of the stock. Then on the sellside, I put a lot more weight on the technical, the way the stock is acting. This is because there are so many cases where the stock actually blows up long before the fundamentals are known, or at least before they announce it. Maybe if you do some real deep digging and know the industry and company extremely well, then you can analyze the fundamental cycles. But technically the stock is telling you long before the fundamentals are that the stock should be sold.
Moving away from specific stocks for a second, in your general market analysis, do you place much more emphasis on the technicals than the fundamentals?
David Ryan: Yes.
How did you initially stumble onto technical analysis?
David Ryan: I guess it was watching Gene Morgan's program on KWHY-TV, Los Angeles, when I was probably 11 or 12 years old. During the summers, we'd be swimming in the pool. And the market would close and we'd come out and actually watch Gene Morgan's program. He was always very good at calling the market after the fact. That's where I started looking at the Daily Graphs because he had them on the show. I started looking at the trendlines he would draw and things like that. That's where I first started picking it up. And then when I started working at William O'Neil + Co. I got even more of it.
Do you have a couple of favorite indicators that you use when you look at the general market's direction?
David Ryan: Bill O'Neil analyzes the daily Dow when he's looking at the market. That would be one way, by just looking at the market averages and looking at the pickup in volume on updays and decline in volume on downdays when the market is starting to turn. And just the opposite would apply when the market is starting to come down.
Then I also like to look at, from a general sense, the McClellan Oscillator and Summation Index.
Is there one quick way that you use the McClellan to figure out if we're at an oversold or overbought point?
David Ryan: The Summation Index is a much more longer-trending tool. I don't think there's a quick explanation of exactly how you use it. I've been looking at it for years and there's still some things I've got to learn about it.
Do you have three books that you've found to be your favorites over the years?
David Ryan: Probably the best one is Nicholas Darvas' book "How I Made $2 Million in the Stock Market." That's one. "How to Trade Stocks" by Jesse Livermore is another. And you can include William O'Neil's book "How to Make Money in Stocks."
Is there one call that you've made over the years that you think was the best one you've come up with?
David Ryan: From an individual stock standpoint, on the day Iomega topped I was quoted in the San Francisco Chronicle as saying this was probably the top in Iomega. And that was the top.
GREGORY KUHN
In the CBS MarketWatch "Best of Wall Street" series, Gregory Kuhn, head of Kuhn Asset Management Co. was recognized as one of the best market analysts on Wall Street. Kuhn, a relative unknown on Wall Street, manages money and also provides research to a select group of institutional clients. He purposely limits the number of institutions that he sells research to, since he uses the same ideas to manage money.
When assessing an individual stock, how much emphasis do you place on technical analysis vs. fundamental analysis? Can you give me a percentage breakdown?
Gregory Kuhn: It's probably about a 70-30 split, with 70 percent on the technical side.
When you look at the general market, do you mainly look at technical indicators, or do you look at fundamentals as well?
Gregory Kuhn: Mainly technical indicators.
How did you stumble on technical analysis in the beginning?
Gregory Kuhn: I actually came across technical analysis by reading William O'Neil's "How to Make Money in Stocks." That was 10 years ago, when the book first came out.
Can you list a couple of other books that you think most influenced you?
Gregory Kuhn: I'd have to say Stan Weinstein's book "How to Profit in Bull and Bear Markets." A very good technical book is by Trader Vic [Sperandeo], "Methods of a Wall Street Master." It wasn't as complete in terms of its giving me a good grasp of technical analysis as O'Neil's book or Weinstein's. But there were two or three things in Trader Vic's book that cleared things up for me. Two or three simple techniques. Like how to identify a change in trend. Very simple. There's usually a three-step process. Basically, what he said was that this is where fortunes are made or lost, by identifying these trend changes. And he's absolutely right. That made a very big impact on my outlook.
Do you have a couple of favorite indicators that you use in assessing the general market's direction?
Gregory Kuhn: I like to watch the price and volume action very closely. Preferably, of course, you like to see updays on heavier volume and downdays on lighter volume.
Now I'm talking about the general market, so are you referring to--
Gregory Kuhn: Even just looking at the Nasdaq Composite or the Dow. I'm really trying to stay in tune with the action because I generally don't follow indicators like the RSI. The problems with those, as you know, Kevin, is that they throw you off too much. I always say the divergences are there until they're not. As you know, everything O'Neil laid down works. You just watch that price and volume action, watch the movement. I try to watch the form of price since I'm heavy into pattern recognition.
So you think that analyzing past patterns can--
Gregory Kuhn: Exactly, analyzing past patterns can help you out with picking out the future direction of stocks and the market.
I just don't follow indicators. I won't use any indicators on stock charts. None. I've been thrown off. I've used put-to-call ratios and sometimes they're off, sometimes you just don't know. Sentiment indicators can sometimes seem like the holy grail, but they can throw you off, too. You can have markets going up in the face of a lot of optimism. Sometimes they won't go up when there's too much pessimism. It can throw you off, looking at some of that external stuff, though I do look at it. But my favorite thing I look at every day, and the thing I have the most confidence in is just watching that price and volume action and pattern recognition.
Do you mean of the Dow and Nasdaq?
Gregory Kuhn: Yes.
What was your best market call?
Gregory Kuhn: The one that was very rewarding was picking off the top early last year because we made a lot of money on the short side. That was when the market topped out in the first quarter.
And I think you have something similar going on here now
ROY B. BLUMBERG
In the CBS MarketWatch "Best of Wall Street" series, Roy M. Blumberg, chief market strategist at Josephthal Inc., was recognized as one of the best market analysts on Wall Street.
Roy, do you place more emphasis on technical analysis or fundamental analysis?
Roy M. Blumberg: In the long term, I place more emphasis on fundamental analysis and in the short term I place more on technical analysis.
Do you have a couple of favorite indicators that you use in looking at the general market's direction?
Roy M. Blumberg: I do have a few favorite indicators that I follow. The advance-decline line is a good one, and probably my favorite. The TRIN, or Arms index, I find is a good indicator of market direction. And the new highs/new lows numbers. Those are probably my three favorites. It's obviously the way you interpret them, because they're not indicators that other people don't use.
Do you smooth the Arms figures?
Roy M. Blumberg: I do smooth the Arms figures about 17 different ways, starting with a five-day moving average and going up in various degrees. I use 10-, 21-, 33-, and 55-day moving averages.
What two or three books have you read on investments or the stock market over the years that have most influenced your approach?
Roy M. Blumberg: Stock Market Logic by Norman Fosback. Obviously, Technical Analysis of Stock Market Trends by Edwards & Magee. And Extraordinary Popular Delusions and the Madness of the Crowd.
What would you say was your best market call over the years?
Roy M. Blumberg: Caution in the summer of 1987. I was pretty cautious in June and July. We do it a little bit differently here. We're a risk-reward manager, meaning we try to do more buying when they're down and it looks like they're stabilizing. And we tend to sell early on the way up because we're trying to avoid risk vs. a sell-all, buy-all kind of strategy. I don't believe in a sell-all, buy-all. I believe in the adjusting-of-risk kinds of strategies. Try to be aggressively invested when they're down and the values are there. Try to have some reserves when they're up and the risks are there even at the risk of being a little early on both sides. Actually, believe it or not, you take more heat from your customers when you're early on the sell side than on anything else.
How did you stumble on technical analysis?
Roy M. Blumberg: My father was a money manager. I learned the skill from him. I was the son of a technical analyst.
What was your background? Did you start off on Wall Street at a sellside firm?
Roy M. Blumberg: I started out as a portfolio manager at a bank. That was my first area of training and I became an analyst afterwards. But all money managers do analytical work. They can't avoid it.
So, you went from the buyside over to the sellside?
Roy M. Blumberg: I went from the buyside over to the sellside. I went from being a portfolio manager at a bank, which at this point is part of Fleet Financial, but that's about 30 mergers ago. And then I went from there to being a technical analyst. And from there I went on to being a strategist.
So, your first job on Wall Street was as a technical analyst?
Roy M. Blumberg: A technical analyst at A.G. Becker, which is a name that no longer exists, but is pretty widely known.
Take care,
Eric
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