Business television’s major mistake? Little quality technical analysis & too many bad stock picks

Business television’s major mistake? Little quality technical analysis & too many poor stock picks.

A much respected “Wall Street Week” panelist telephoned me in the late nineties in New York. He had seen the performance of my on-air stock recommendations made on Business Television and was so impressed that he recommended me for consideration as the senior stock analyst at a rather expensive stock investment service. The performance of my stock recommendations was no great achievement as I believe that many people reading this are capable of performing just as well as I did and better. Later, I ran into another Wall Street Week panelist at a conference. I did not know him but he told me that he was really pleased with the performance I had put in for technical analysis, an underused but effective method of analysis. Just so I am completely understood, I would never make public recommendations again nor do I want to appear on American television.

Business Television is a primary provider of business and economic information to many people. I am writing this now since people have often told me that the primary reason that they rarely watch business television is due to poor advice and too many disastrous stock recommendations made by guest analysts in the past. However, I eagerly watch business television and many of us have greatly benefited from the information I have obtained from it. My point is that Business Television stations should focus on guests who can offer good advice and much better stock recommendations. Guests should not focus on popular stocks that have already had major moves up and are highly volatile; that is fine for trading desks but not for the average investor.  Make no mistake about it, disastrous recommendations made by some of the guests damaged business television. My Suggestion? To invest and sell in a timely basis, technical analysis and limit orders are essential.             

   Importantly, undervalued stocks at low prices should be the focus of business television.

After too many self-serving promotional buffoons imposing overvalued stock picks on television, viewers, (at least the ones I speak to from Quebec City to Florida) became cynical and contemptuous of much of business television due to too many stock recommendations that were disastrous. I believe that they can be brought back again. But above all, they are looking for good stock ideas.

Where have you gone John Murphy, Top Technical Analyst & Author?

People ask me why widely respected technical analyst and author John Murphy is no longer on television. He was a favorite of many fund managers and floor traders I worked with. John recently said to me that business television has put on guest technical analysts who have rather poor track records; he feels that they have shaped a poor representation of technical analysis. A New York fund manager remarked that he could not believe that two particular guest technical analysts are treated as dazzling market experts when in fact they have been pathetically inaccurate forecasting the markets for years. Yet, there are first-rate technical analysts and strategists; getting them to appear may prove difficult. For years, I asked several of them if they wanted to appear-they all said “No!” From time to time, I see John Murphy and he has no interest in appearing on television. He told me that it was once of value to him but no longer is.

Sharing Good Information?  Don’t!

John also related a conversation he had with a fund manager friend he worked with. He told me that the gentleman was a superb stock picker so John asked him if he wanted to appear on television. His response was no surprise. He told John that after doing extensive research searching for stocks that are undervalued, the last thing he wanted to do is share it with the public. Why? If you are considering an overlooked stock with limited liquidity and are trying to accumulate it, you may not want other investors bidding for it at the same time you are. Whether “buying or selling” other investors can get in your way. One rather unpleasant money manager I worked with said that “every other investor is your enemy.” Unfortunately, he was 100% right.

On TV, I had assumed that viewers would overlook my stock recommendations as I was not with a major brokerage house, but the Wall Street Week panelist obviously did not overlook my stock selections. However, I was working for a firm owned by one of the wealthiest and most successful investors in America. He did not discuss his investments and described most major brokerage research as “worthless garbage.” The fact is that sharing investment information in the media and particularly stock picks severely diminishes its value. In the company’s office, we did our own research, had access to independent stock services and were not required to invest in a limited universe of stocks.

In general, small firms, private investment services and market newsletters usually offer far better advice than the large major brokerage houses. By the way, small firms newsletters and private investment services do not have the luxury of being “bailed out” as do the major brokerages and banks by the Fed. Today, in many brokerage houses, brokers are restricted to investing only in their brokerages’ universe of stocks covered by their research departments. It forces experienced and talented brokers and funds to invest in many stocks that at times are wildly overvalued which can leads to painful declines as it has in the past.

     Technical analysis can warn of dangerous overvaluations, not paying attention to technical analysis contributed to disasters.

In 2000 to 2002, you may recall that the brokerage industry’s buy recommendations created a catastrophe for investors and pension funds et al.  The brokerage industry has never recovered from that debacle. The 2006 to 2007 market top was a crushing body blow and only added to investor distrust.  At very near those tops, I told some media type people that we were in topping areas. In 2000, two investment services objected to me issuing sell signals for the overall market despite the fact that they were both quite accurate market calls. I was asked to write a letter to an editor explaining my bearishness.

At both tops, officers and directors (insiders) of many major publicly traded companies were “unloading” their personally held shares at an alarmingly high rate. These enormous “insider selling” numbers should have been presented to viewers constantly by business television-it was rarely mentioned. Some people suggest that citing insider activities creates enemies and interferes with brokerage business but that is just another ugly rumor. At the two market tops, I told former business radio host and former NYSE floor trader Bill Bresnan my forecast. Both times he told me that he agreed with me wholeheartedly. Unlike most people in the business media, the Columbia University graduate had worked on the NYSE floor and knows quite well what is going on. He has seen too much.

That stock investment service position that the Wall Street Week panelist suggested to me had one function and that was to provide specific stock recommendations. It had done well in the past but had gone downhill. Retaining their long time subscribers would be essential and an almost impossible performance from new stock choices would be required. It was in desperate need of a miracle and was too much for me. At the time, I was about to return to Quebec so I was not very interested in a job but I still went in for the interview. During our conversation, the interviewer seemed dismissive regarding the use of technical analysis; he also had a requirement of only large capitalization stocks.

When I suggested that for new stock recommendations, technical analysis would have to be an essential ingredient coupled with fundamental analysis, his attitude was unacceptable, I faxed him later that day that I was not interested. That expensive service became inexpensive, dropping in price by almost over 80%. People will not pay for poor advice.

But understand that there was another candidate!

At the time of the interview, I was working with a brilliant analyst and stock picker so I informed him of the job opening. He would have been outstanding and would have salvaged the high price of the service. However, when I told him that the interviewer was not very receptive to the importance of technical analysis, he said that that he had no interest. Moreover, he could have even salvaged the subscription price for the expensive service.

Could I have saved it?  Maybe, but only if I would have been permitted to recommend mid-cap companies and used technical analysis, but my analyst friend could have definitely saved it. He had made the best television stock recommendations that I have ever seen. While my own on television recommended stocks were small cap to large cap “turnaround” situations” which can be problematic, he would recommend only large capitalization stocks that not long after his television recommendations would have astounding upsides. His clients include some of the major investment institutions in the world. Eventually, they requested that he not appear on television offering free advice to in essence the competition. That is understandable. Effective stock pickers normally don’t want to appear on television.

History

In 1989, I met Maxwell Newton, an excellent economist (Cambridge) and widely read business columnist in London and New York. Max had little use for brokerage house research and even less use for most analysts. He liked my technical analysis and that of Stuart Shinbein and asked us to create a technical analysis report for his investment service. I knew many private and institutional investors and Max wanted my input as to what they wanted in ideas and guidance for his advisory services. Despite my pleas to not have to appear on television, he was insistent that I would appear; I reluctantly agreed. I appeared on television in the US and Canada over ninety times, I did not like it after the first five or six times. However, I did get to meet outstanding investors with valuable and informative insights.

For several years and  during the time I appeared on television and radio, I would collect feedback, comments, outlooks and opinions from people who called me as well as market professionals. For years, I had worked with fund managers and institutional investors in Quebec City and Montreal, floor traders from the New York Stock Exchange and commodities traders. I found out first-hand what investors wanted and found useful.  Max died suddenly and I tried to help those who were attempting to keep his service running. They couldn’t. But I did demonstrate that investors could research and find undervalued stocks and outperform the major brokerage analysts themselves. 

                                             Peter Lynch?… Regarding the average “Wall Street expert”       

Remember the 1988 best seller “One Up on Wall Street” authored by Peter Lynch? It explains his type of analysis and encourages his belief that the average person can easily outperform the Wall Street professional. Peter’s “kickoff” type advice appears on page thirteen:  Quote: “Stop listening to professionals! Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better than the average Wall Street expert.”  He was undeniably correct but business television still put too many inaccurate analysts on the air. Yes, there have been accurate and informative guest analysts on business television; the problem is that viewers have a habit of remembering the worst advice and blame business television.

My approach                          

  I would use long term charts to select stocks that were in longer term “bottoming formations” which I would then confirm as undervalued with fundamental analysis.  By the way, none of my recommendations were being “promoted” or as I far I knew were recommendations of major brokerages. At times my analysis included company visits. I wanted stocks offering exceptional capital gains potential with limited downside risk. First of all, every stock had to be near its yearly low in price. Most importantly, fundamental analysis had to confirm undervaluation. I would also carefully monitor the officers and directors buying and selling and ownership of their own companies’ shares. It worked well.

The majority of my stock recommendations were superb performers. I wanted to demonstrate the effectiveness of technical analysis when coupled with fundamental analysis. Still today, technical analysis does not get the respect and usage it warrants. Yet, no successful major fund, hedge fund, investor or investment organization can maximize its performance without utilizing technical analysis.                                                                                                

                                       There is an ugly rumor….just an ugly rumor!

There is an ugly rumor that some of the major brokerage houses disregard forecasts and opinions of technical analysis and give little credence to the conclusions of their technical analysis departments. The rumor is that the fear of the major brokerage houses is that by using technical analysis, it will limit buying volume and often may suggest waiting for better buying opportunities. And of course there is another ugly rumor that fundamental research departments and fundamental analysts do not want to have their recommendations described as “overbought” and “overpriced” and/or “sells.” That could inhibit their performance. But of course, they are all just ‘’ugly rumors.” Both ugly rumors bring tears to my eyes.

                                                      Television stock recommendations       

My on air stock recommendations had superb percentage performances; very few did not do well. I believe that few other guests came close. Yet, some people actually believed and still believe that the best advice of Wall Street came from major brokerage house analysts. Yeah sure!

Those major brokerage house guests? Some were good, but too many offered continuously inaccurate and untimely advice and stock picks which in our opinion has cost business television a large number of viewers. Some seemed to promote their firms’ own recommended list.   Again, I will say that many people could have done it if they followed the principles of strict technical analysis. Most people will not! Too many investors using technical analysis only accept its conclusions if they are totally in agreement with what they want to see-not what the technical analysis may really suggest.

                           My Television Stock Recommendations and calls -How they did!           

It was September in 1990 and I got a call to reappear on a major business television station. I was working in New York. I went to the studio and surprised the interviewer by suggesting that my analysis indicated that we were seeing a stock market “bottom’’ based upon my technical analysis. She was surprised as so few of the Wall Street so called experts thought it was a bottom. As I left the building to go home, a booker asked me if I could come back in two days. I did and repeated that it was a bottom. It turned out to be the absolute bottom for the stock market which never looked back. For years, I would meet people who reminded me of that timely market call. It was funny that the people at the station did not notice. There were two great technical indicators that told me that it was a major bottom which it was!  I did not make that call, it was technical analysis that did.  Technical analysis works well, but you must accept its conclusions, many investors will not do so.

My Stock Recommendations, picking what is undervalued-not what is popular.

I would look for overlooked and undervalued companies. I recommended stocks that my analysis suggested offered opportunities for exceptional capital gains within 18 months. For the long term I cannot make a forecast as things change, but I wanted to see results within 18 months. Listed below are all the stock recommendations that I made on television and how they did within 18 months. After having made television recommendations for about a year or so I decided not do it any longer and would refuse to do it. I was getting calls from people at trading desks, total strangers and people that I did not wish to speak to. One of my clients called me and said that I was supposed to be working for him not television viewers. You know, he was right.

I would also get calls from PR firm promoters that wanted me to look at their stocks which I could not do.  Worse yet, I found my name in an investment newsletter recommending a stock that I knew nothing about.  At the time, my friend and desk partner Jack, (ne Jacob) who had been on Wall Street since 1928 told me that “I never want to see you on TV again, you have nothing to gain by appearing. Keep your mouth shut and keep your stock picks to yourself;” Jack was right, silence is golden.

                                                    Here Goes! How they did:                                                                                                                                                                                                                                           “International Power Machines” on the AMEX I recommended it at $1.62, it hit $4.25 and was taken over; up 162%                                                                                                                                                                                                                                                                                                       “Petromet” on Toronto Stock Exchange recommended at .75 moved up to $4.37 within 8 months (up 482%) came back and was later taken over at $12 by Talisman

  “Lamson and Sessions” on the NYSE recommended at $3.75 went to $7.00 within 18 months,   Up 86%  

 “Central Pacific Minerals” on Nasdaq/London recommended at $1.12 to $2.25 within 18 months, up 98% later much higher

   “Freewest” on Toronto Stock Exchange recommended at  $2.02 moved up to $3.15 up 57% and was taken over, (not the next Freewest which was a stub extra spin-off which shareholders received as well.)   

  “Inspiration Resources” on NYSE recommended at  $3.05 taken over at $6.00 up 98% (when I recommended it on television that morning, it became the  largest percentage mover on the NYSE that day and the station announced that I had recommended it that day,  Big deal! )

 “Maytag” on NYSE recommended at  $21 went $15, I failed here,

“Helmerich & Payne” on NYSE recommended at  $23 went to $37 in 6 months up 60% 

  “Iatco” (now Airboss of America) recommended at  $1 Canadian on Toronto, flat drifted for several years recently hit $20

   “Del Webb” on NYSE recommended at  $4.88 went to $23 up 360%

   “Wendy’s” on NYSE recommended at  $4.75 went  to $10.90 up 126%  

  “Michigan National” on Nasdaq recommended at  $15.25 went to $52 up 238% later taken over  

  “Royal Oak” on Toronto Stock Exchange and AMEX (was Giant Yellowknife) recommended at  .92 cents went to $6.75 up 530%                                                                 

*%#@+** on Nasdaq recommended at $1.06 went to $3.25 up 200% collapsed years later, managed by an incompetent president.                                                                                                                                

“Anchor Bank” on Nasdaq recommended at  $5.25 went to $10.75 up 130%                                                                                                                                                                 

“Pegusas” on AMEX recommended at  $10.25 went to $23 up 125%                                                                                                                                                                                  

“OMI Corp” on NYSE recommended at  $4.10 up 120% went to $9 

 “Rollins” on NYSE recommended at $10 went to $13 then dropped to $7

Because of the success of some of my on-air stock recommendations, my phone would ring often, usually it was strangers. One morning my phone rang and I answered it in my normal rude tone. The caller said to me that his son was right, “I cannot believe it, you are the rudest person on the phone he had ever heard and he told me to call just to hear you.” Recognizing him, I laughingly answered that “you will not believe some of the obnoxious overbearing people that call me.” He calmly said “Oh yeah, I can tell you first hand that some of the people that call me have the nerve to call me collect.” I only became more rude……except maybe in Montreal.

 I will also mention that I made overall market calls as well using technical analysis, which as a method of analysis does not get the credit it deserves. Technical Analysis is timing and timing can be 90% of investing.

                                                   Afterthoughts and aftermath

When I left New York, the business television channel in Los Angeles asked me if they could continue interviewing me by phone directly from Montreal. The lady who interviewed me also complained that people called to complain that I would no longer make on-air recommendations.

A New York based lawyer phoned me in a rather rude manner and told me that he represented a company that I had recommended on the air and he wanted to know why. I respectfully asked him what company was he was talking about. He told me that he was not at liberty to tell me. I told him that I was at liberty to tell him what he could do in no uncertain terms. Suddenly he became polite and told me the name of the company. I told him that my research found the stock as undervalued with recent heavy insider buying and I hung up.

After a run of some incredibly successful stock recommendations, I returned to my office in New York after doing a television interview. I counted 47 calls from that segment’s viewers; our receptionist could not stop laughing.  The fact is that people are always looking for undervalued stocks and perhaps are sick and tired of hearing the same brokerage promotion that often feeds their trading desks’ positions or happen to be corporate finance clients of the brokerage house.

Companies called me from time to time to tell me that they were undervalued and that I should take a look at them. Many really were quite undervalued but I did not have the time. The sad fact is that less than 20% of all publicly traded stocks have comprehensive buy or sell recommendation type coverage. Now it may be even less-far less. I will be writing an article on that soon.

One day on a popular call in television segment, I mentioned that the caller’s stock had seen insider selling and it was too high in price in my view. Two days later I received a letter from that company’s lawyer threatening to sue me for “defamation” and “violation of securities laws.” I had to call three lawyers. My father had died perhaps six months prior to that incident. He was an attorney in New York and had the highest rating given attorneys by Martindale-Hubbell. He would have hung them out to dry for free. That stock from near $20 at the time of the call-in, moved to a “hat size” to out of business. For that company, I had no regrets.