Relationship Investing Read online

  This book is intended to offer only general information with respect to the subject matter covered. Please consult with your financial advisor, accountant, or other competent financial professional if specific expert assistance is required. This book is sold with the understanding that the publisher and author are not engaged in rendering legal, tax, or other professional services. While every attempt is made to provide accurate information, the author and publisher cannot be held accountable for errors or omissions and make no warranty, express or implied, regarding it and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness, timeliness or use. Past performance of any security discussed or mentioned in this document is not an indication of future performance. Under no circumstance is the information contained within this document to be used or considered as an offer to buy or sell or a solicitation of an offer to buy or sell any particular security.

  Copyright © 2017 by Jeffrey S. Weiss

  All rights reserved. No part of this book may be reproduced in any manner without the express written consent of the publisher, except in the case of brief excerpts in critical reviews or articles. All inquiries should be addressed to Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018.

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  Library of Congress Cataloging-in-Publication Data is available on file.

  Cover design by Rain Saukas

  Print ISBN: 978-1-5107-1013-9

  Ebook ISBN: 978-1-5107-1015-3

  Printed in the United States of America

  Contents

  Acknowledgments

  Introduction: Before We Begin

  Chapter 1 My Story—Lessons Learned

  Chapter 2 Relationship Investing

  Chapter 3 The Greatest Analyst of All

  Chapter 4 Why Technical Analysis?

  Chapter 5 Risk Management

  Chapter 6 Language Barrier

  Chapter 7 Financial Freud

  Chapter 8 Basic Training

  Chapter 9 It Lives!

  Chapter 10 Mirages

  Chapter 11 All in the Family

  Chapter 12 Back to School

  Chapter 13 News

  Chapter 14 Hopes and Dreams

  Chapter 15 Reality (and Ego) Check

  Chapter 16 Term Limits

  Chapter 17 I Don’t Need the Money

  Chapter 18 It’ll Come Back

  Chapter 19 Don’t Yield to Yield

  Chapter 20 Bob Barker

  Chapter 21 Crowd Control

  Chapter 22 The Macy’s Approach

  Chapter 23 Stop It

  Chapter 24 Ice Age

  Chapter 25 Selling

  Chapter 26 Asset Misallocation?

  Chapter 27 The Odds

  Chapter 28 Dollar Cost Averaging

  Chapter 29 College Bound

  Chapter 30 The Fallacy of Fees

  Chapter 31 One in a Million

  Chapter 32 Pursuing Perfection

  Chapter 33 Dangerous Phrases

  Chapter 34 Buy Low, Sell Lower

  Chapter 35 You Can’t Go Wrong Taking a Profit—Really?

  Chapter 36 Deal with It!

  Chapter 37 The Hard Way

  Chapter 38 Company Stock

  Chapter 39 It Was Grandpa’s

  Chapter 40 It’s Not Going Broke

  Chapter 41 It’s a “Blue Chip”

  Chapter 42 The Pick-Your-Price Stock

  Chapter 43 “Wax On, Wax Off” (or Rinse and Repeat)

  Chapter 44 The Final Chapter—For Now

  Acknowledgments

  I’d like to express my sincerest thanks and gratitude to the thousands of brokers across the country who have believed in and followed my market work (in some cases for decades) and supported me so vociferously over the years in my capacity as their technical analyst. I don’t know if I could have survived in this business so long without that support! My answers to your seemingly countless number of stock and market questions were always, and will continue to be for anyone seeking them, based on what I would do in that very same situation with my own money. I have never veered from that principle, nor will I ever.

  I’m also grateful for the opportunity to appear in the media, starting with the Financial News Network days where I met Ron Insana and Robert Metz. The opportunities I’ve had to bring my motivational brand of stock market analysis to a television and radio audience in the decades since has been more than I could have ever imagined. Thanks to the many media bookers, producers, camera folks, and anchors who helped make that possible. My hat’s also off to the makeup artists who had their work cut out for them trying to make my face television bearable. I don’t know how you did it. In fact, I think I’m responsible for the lion’s share of any of your overtime pay in that regard! I also want to thank Frank Fochetta for introducing me to the good folks at Skyhorse Publishing.

  I’d especially like to thank legendary technical analyst Newton Zinder for hiring me at E. F. Hutton & Company in June 1982, giving me the opportunity to pursue my professional dream of working as a technical analyst. He’s as market savvy and humble as they come, and I’ll never be able to thank him sufficiently.

  As for my dad, who passed away in 2003, I hope that all dads are as wise and supportive as he was in helping me pursue my passion—never leaning on me to go into his line of business and chatting with me regularly about my interests and encouraging me in their pursuit. Like so many of you who’ve lost your dads, we will sorely miss their guidance but can still follow their sage advice and pass it on. Special thanks and hugs to my mom Jean, who stayed up late many a night to type my stock market letter for bicycle delivery to my 17 clients at $3 per subscription back in the 1970s. And to my wife Carrie, the very best that humanity has to offer.

  Lastly and sadly, I also want to dedicate this book to my friends, former coworkers, neighbors, and all the other fine folks who perished in the September 11, 2001 attack on our nation. I will do my best to serve as a good and moral reflection on our business in your collective memories. May you be blessed.

  Introduction

  Before We Begin

  The only guarantees in the business of investing in the stock market are hard work and losses. The unforgiving nature of the stock market requires both flexibility and the realization that, while many investors have indeed benefited handsomely from investing in this arena, ruinous market declines have upended the lives of others, and not just in the financial sense. Therefore, capital preservation considerations should always precede capital appreciation considerations when it comes to investing your hard-earned capital. Concentrate on what you stand to lose if you’re wrong, not on your potential gain if you’re correct. After all, it’s not the latter outcome that will hurt you. I’m also reminded of a favorite saying of a market mentor of mine back in the 1970s, who remarked that “the stock market teaches you humility.” Carry these essential thoughts with you into the investment arena each and every day. And remember that not everyone is suited to invest in the stock market. With this in mind, I’d like to present a uniquely different way in which to relate to the market’s mannerisms and movements—a nontechnical look at technical analysis (the
discipline I use), you might say. I hope you like it. Maybe you’ll even be motivated to read some books on technical analysis or take a class or two for starters. Ultimately, however, the choice of how and whether to invest your hard-earned capital is yours.

  Chapter 1

  My Story—Lessons Learned

  At times I think I must have been born on the floor of the New York Stock Exchange. Having been introduced to the stock market at the ripe old age of twelve, I never imagined being involved in any other business. I guess I was destined to pursue a path toward the stock market arena. My friend of fifty-four years, Ken, still reminds me of the time I questioned our sixth-grade math teacher, Mr. Toth, in front of the entire class concerning a statement he made while lecturing to us about the stock market. While he doesn’t recall the specific point I took issue with, Ken remembers me being correct. Time does fly. Mr. Toth, a young man back then, is now retired.

  I can still remember my dad taking me into the local Shearson, Hammill & Co. brokerage office in Paramus, New Jersey, during the late 1960s. I was numbed by the sight of the ever-changing green stock quotes emblazoned on the black background of the tickers in the brokerage office. The top ticker was confined to listings on the New York Stock Exchange (otherwise known as the “Big-Board”), while the bottom tape housed American Stock Exchange (also known as the “AMEX”) listings. I loved watching the different numbers appearing on the quote machine as my dad punched in his stock symbols. The device used at the time was a Bunker Ramo machine, on which you could retrieve a stock’s current quote, bid and asked prices, and volume on a single screen measuring around four inches square. Who could have imagined the giant multiscreen and brightly colored displays now in common use, with monitors stacked two and three high and simultaneously housing hundreds upon hundreds of constantly flashing financial quotes with charts galore? Believe it or not, back when I started you could only request one quote at a time. It seems primitive now but looked totally high-tech back then.

  You could sometimes see the grimaces or smiles on the faces of those punching in the quotes as they reacted to the numbers appearing on the screen. The market’s verdict was evident in their expressions. On a typical afternoon you could see the entire spectrum of emotions, from winning and losing to disappointment, frustration, and acknowledgement. It was all there—the same emotions and feelings we express in our everyday lives translated into the monetary realm on a tiny screen.

  Occasionally, my dad and I journeyed into Manhattan to visit his broker at Gruntal & Co., while back in New Jersey Edwards & Hanley, Merrill Lynch & Co., and Janney Montgomery Scott, Inc. (among others) were the recipients of my visits. I’d frequent as many as three on the same day during summer break, speaking with anyone who would listen (and when they didn’t listen I spoke to them anyway). My thirst for information was never quenched; nor should it ever be, since when you stop searching for ways to improve your performance in either the stock market or in life, you surrender to contentment.

  I later saved my dad the trouble of driving me to the local brokerage branch every afternoon by purchasing a three-speed bicycle (a hot item for a kid back then; kind of like a Tesla in today’s terms) with the profit from my very first stock trade. I credit my dad with igniting my interest in the stock market. No, he wasn’t in the business; he worked for a trucking company. My mom was a secretary. I became seriously hooked on the stock market when my dad let me invest some of my Bar Mitzvah gift proceeds in five shares of Mattel (the toy company) in the late 1960s. Upon selling the shares for a tidy profit, I proclaimed my desire to drop out of school in search of my great stock market fortune. My mother quickly extinguished that fire!

  However, as I later learned, everyone must pay a price for their entry into the stock market arena—everyone. I didn’t know it at the time because I was making money in my investment endeavors. From Mattel it was on to Ideal Toy, and then on to other winning trades like General Mills. I accumulated more and more money with these profitable transactions, mistakenly believing it was my stock picking skills that were generating my profits as opposed to the favorable overall market climate (otherwise known as “confusing brains with a bull market”). All the while I never bothered to consider the downside part of the investment equation. But time caught up with me. Did it ever!

  In early 1973, as the Dow Jones Industrial Average reached new all-time highs amid some bullish market headlines, I never imagined what would happen next. But the trap was set. I’d come home from school each and every day, huddle near my dad’s Clairtone stereo, and hear a lady at the stock exchange rattle off loads of closing stock price quotations. I didn’t like what I heard as the numbers blared from the dual speakers. I was losing money—and in stereo! The market was trying to tell me something, but I didn’t listen. That’s the trouble; people listen to the news, the analysts, the economists, the strategists, the statisticians, and so-called experts, but they don’t listen to the stock market—the greatest analyst of all! At any rate, my money dwindled under the weight of one of the worst bear markets (at the time) since the Great Depression, when the Dow Jones Industrial Average experienced a staggering decline of approximately 88 percent before bottoming in the summer of 1932. After topping the 1050 mark in January 1973, the Dow Jones Industrial Average sank below the 600 level in the fourth quarter of 1974. I watched on television as President Nixon resigned from office in August 1974, but that didn’t stop the market from continuing to slide. In fact, on August 8, the day the president announced that he would resign the presidency effective at noon the following day, the Dow Jones Industrial Average traded in the 800 area. It was downhill from there, with the average sinking to a daily closing low of 577.60 on December 6 of that year. Ouch!

  You see, as I also found out back then, key events that you think will produce a significant and sustained market-moving impact often don’t, especially when a majority of folks are thinking similarly. One should never take comfort in the fact that many other voices are supportive of your investment view. To quote legendary technical analyst Newton Zinder, to whom I referred earlier, “On Wall Street, to know what everyone else knows is to know nothing.” The market often has other plans in mind, and that’s why it’s important to listen to its message and not be swayed by the crowd. And let’s face it—I couldn’t have another Bar Mitzvah reception to replenish my capital and compensate me for my market losses.

  Etched in my memory during that vicious bear market period was seeing the vacant branch office of a well-known former brokerage firm, DuPont Walston, Inc., while I was waiting for a bus in front of the Public Service Electric and Gas Company building in Newark, New Jersey. It was a humbling experience indeed, opening my eyes to the risks in the brokerage business. I was attending Rutgers University in Newark at the time, pursuing an economics degree. What a period 1973–1974 was—one of the worst on record, but one that helped lay the foundation for my most serious stock market education yet. Luckily, at the time I was learning these lessons I was just beginning in this business and hadn’t amassed any serious capital (even though what I had invested seemed like a lot of money at the time). That’s the best way to learn big market lessons—with small amounts of money.

  You see, a college education, however helpful and in many cases essential these days, is no substitute for a stock market education. What one learns in the college classroom and what one learns in the stock market classroom are two very different things. All the degrees in the world, however advanced and costly (sorry Moms and Dads), cannot adequately prepare you for what you’ll face when entering the arena of financial gladiators. The stock market has a language all its own and you need to learn it. It does not come from a textbook. It must be studied—from scratch. You must be willing to discard any and all preconceived notions you have about investing. This isn’t easy. You’ll probably have to think long and hard on this one, but you must succeed in doing so to have a chance of getting in sync with the market. Learning the market’s language from scratch is th
e single most important lesson this book contains. That’s what I did in 1974.

  While attending a neighbor’s Eagle Scout graduation one evening, I met a stockbroker from Herzfeld & Stern. His name was Norman. I was telling him about my stock market experiences, in particular a holding of mine that was going down in the face of good news. I didn’t understand the disconnect between a favorable news report on the company and the resulting selloff in its underlying shares. Norman mentioned that bad corporate news, which wasn’t as bad as the analyst consensus was expecting, could actually be better for the underlying shares than good news that fell short of the bullish consensus forecasts. Degrees of bullishness and bearishness? I thought. Confusing, to say the least. Norman also told me that news was not treated the same way in a bull market as it was in a bear market, and that in addition my stock had a “double top” and a general bear market climate was in force. “What’s a double top?” I asked. He informed me that it was a term used in an investment discipline called technical analysis and invited me to visit his New York City office—an offer I immediately (to put it mildly) accepted.

  As well as I can recall, I spent the better part of an afternoon there. As I departed his office after that visit, Norman offered me the option of taking home either a bunch of annual (company) reports stacked against his wall or a chart book containing price graphs of several hundred stocks barely half an inch thick. Fearing imminent hernia surgery if I tried to carry those heavy annual reports to the bus terminal for my journey home, I opted for the chart book. It was my entry into the world of technical analysis, an investment discipline from which I have since never veered.

  As a technical analyst, I gauge the price movements of a stock (or market or index) with charts and a variety of other supply-demand research tools to try to obtain clues as to their future course, as opposed to analyzing the condition of the underlying company (or industry or economy). The latter are known as fundamental considerations and include information like earnings per share, revenues, dividend analysis, balance sheet data, management personnel, product lines, research and development plans, and other related corporate information. As part of their analytical duties, fundamental analysts visit the company, speak with management, and analyze an array of financial material prior to issuing their often lengthy research reports, complete with earnings and revenue estimates and frequently an investment conclusion.