A Conversation With Marc Chaikin: 60 Years of Wall Street Wisdom From a Market Legend

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Transcription

Note: This transcript was auto-generated, so there may be some imperfections.

Hey, everybody. JC Parets here, founder of TrendLabs. And boy, do we have a good one today. This is the lab session that we do every single Friday.

We cover different topics. And sometimes, we are incredibly fortunate to bring on one of our friends who is super well versed in a particular subject matter or several that can, you know, add a different voice to the conversation that we’re having every week. And this week, boy, do we have a special one, Mr. Marc Chaikin, the Wall Street legend, Marc Chaikin in the house today.

Marc, thank you so much on behalf of the whole community and everybody here at TrendLabs. Thank you so much for being here.

JC, I am really jazzed. We had dinner in New York City. We talked about the possibility of doing this, and here we are. I’m really excited.

I saw Marc present at a CMT conference many years ago.

Obviously, I’m intimately familiar with Marc’s work for many, many years. And so, but I had never actually met Marc one on one. And so we were going out to dinner. I met him for the first time.

He’s like, I don’t wanna talk about the market. I wanna know about wine. Tell me more about the wine. I’m like, oh, I’m gonna like this guy.

Yeah. That’s what attracted me to All Star Charts initially. They said, wait a minute. There’s a technician who also does wine. I gotta know this guy.

Yeah. Yeah. Yeah. Yeah. I moved out to Sonoma back in, twenty fifteen, caught the bug, became a certified sommelier, and now we’re in, our sixth vintage in Chateau Fibonacci is the name of my winery out in Calistoga.

And we, I mean, I got twelve thousand bottles of Cabernet and it’s Primo Primo juice. Let me tell you. But I’ll tell you something and we could start here on the technical analysis.

So obviously I’m a CMT, chartered market technician, formerly educated in the space of technical analysis and have been practicing for decades now. And so, you know, it’s just kind of second nature to me, right? Still learning obviously every day, but like I’ve been doing this for a long time. So I’m sitting there first day at sommelier school and they’re going over the deduct, you know, blind tasting wine. Like they give you a red wine.

How do you figure out what it is? Right? So there’s a lot of ways to do that. But what the sommelier use is a deductive method.

You’re essentially deducing what is not. Like if you if it’s a white wine, then it’s not a Syrah. It’s not a Pinot Noir. It’s a white wine.

So you can already eliminate all of those things. And then you smell it. You look at it. Like, you haven’t even tasted it yet.

You could already eliminate seventy, eighty percent of the possibilities of what the wine could possibly be. I’m like, oh my God.

That’s what we do. It’s a top down approach. Right? You know, stock markets making all time highs.

Probably not a downtrend. Probably not. Right? So, you know, the AD line on the New York Stock Exchange just at all time highs, right?

Probably not a Chardonnay. You know what I mean? So like, it hit me right away. These guys are doing the same thing as us.

And so that’s how I’ve approached the markets. And you know, that’s kind of how I look at wine. And then you are doing very similar things. You’re focused on what you know to be true, that the best trends show relative strength and momentum and their sector rotation.

And like, you know these things to be true. So from all of the work that I’ve seen from you over the years, like your work is really based on the things that you know, and I really appreciate that because I’m doing the same thing. So how am I doing, Marc?

Close am You’re doing okay. And you actually hit on a point that’s part of my mantra for investors and traders. It’s the stocks you don’t own that matter.

You’ve got to avoid the losers. I’m not a big fan of bottom fishing. I think it’s the most expensive sport in America. Bad idea. We’ve been bearish on Charter Communications based on our check and power gauge, which I know we’re gonna get into, because the fundamentals are just not there, cord cutting and analysts cutting their estimates. So it’s very similar to the process you just described in trying to figure out what a whine. And if you eliminate the bearish stocks, the stocks that are likely to put a big hurt on you, you’re way ahead of the game.

And how did you come to that conclusion, Marc? Because, you know, if you’re new to Marc Chakin, he didn’t just start in this business a couple years ago, right? Marc, been around, seen a thing or two, right? So when did you exactly did you come into the business? And then when did you finally start to understand these things that to you is now second nature?

Well, out of college, I had one course short of a degree from Brown University. So I took a job with my friend’s brother-in-law and they were what were back then known as factors, commercial lenders. They would give garment center manufacturers advances against their shipments or receivables. And so, it sort of suited my math skills and it turned out everybody in the company was trading the stock market.

This is back in nineteen sixty five was a bull market and Not for long.

No. Well, you’re talking, but they a lot of the companies that we lent money to were public companies. So I got a little bit of a whiff of what inside information was all about.

So, you know, the guys at the company said, Marc, you know, we appreciate what you’re doing, and you’re faster on an adding machine than anybody we’ve ever seen. But I think Wall Street is where your heart lies. So I said, thank you. And there was an ad in the New York Times.

It was almost like one of those ads, you know, show up on Pier forty six at nine o’clock tomorrow morning and you’re in for a big surprise. Well, what this was, was do you want to be a stockbroker? You know, answer this ad. And it turned out that you had to take a psychological test.

I didn’t know what it was for, and so I took the test in a big room in New York, and there were maybe fifty, one hundred people there. So the stock market was hot and everybody loved it. And apparently I scored very well, and they called me aside and they said, You passed with flying colors. The firm that’s ordered this testing and put the evidence called Shearson Hammel.

It was one of the best research houses on Wall Street, fourteen wall right across from the stock exchange. They said, But would you mind staying and doing some more testing? You scored higher on one of our tests than anybody has ever scored. I said, sure, what’s that?

They said, well, in the test, there were two pages from a New York phone book, and there was one character different on the right hand page from the left hand page, exactly the same except for one letter. And I found it.

And that basically tipped me off to something that I could see patterns in data better than almost anybody on Wall Street. And so I got the job, started out in the training program, got licensed the day the bear market of nineteen sixty six ended, October seventh, nineteen sixty six. Bear market had lasted for about nine months.

And of course, the manager of that office, because it was the main office of a big research firm, said, Now you’re not going to be one of those guys who thinks he’s smarter than the analysts that we pay a lot of money to, and try and pick winners. Oh no, I’m just gonna sell what the company tells me to sell. Well, I was totally full of it at that point because I knew just what I wanted to do. But having gotten my brokerage license the day a bear market ended, JC, the first two and a half years of my career, every day was an uptick. It was unbelievable. And I did recommend what the firm’s analysts were recommending.

And so I built my book and really became very successful as a stockbroker. And whoops, then nineteen sixty nine came along. Right. And joyride ended.

And so what was that first? Did you learn a lot during the ‘sixty six decline that helped you in the next decline, or was this your first kind of true experience, you think?

It was the first true experience. You know, I was sixty six. I was head down because she had to take an extensive test to become a stockbroker back then. And I was pretty much heads down. I didn’t want to, you know, mess around with I had been trading the market prior to that, with a little bit of encouragement from these people I work with.

And that was fun. It was going well. There were high flying stocks back then. A company called National Video, interesting, Nvidia, National Video.

They made Oh, yeah, is interesting.

They made TV picture tubes, and it was a high flying stock. So sixty nine was really an eye opener.

It was an awakening for me because I had a lot of clients at that time and I had to depend on the tourist But there were so many bear markets early in your career, Marc, because then you had, right.

So then you had that correction, and then you had the rally into nineteen seventy two. The Miami Dolphins go undefeated. They win the Super Bowl. They beat Washington, and then the market collapses literally gets cut in half.

Yeah. You know? So that was correct me if I’m wrong. The nineteen seventy two, seventy three down to the seventy four low, that was the scariest moment of your career up to that point.

Right?

But Because I was ready for it. Pretty much three months into the sixty nine.

Yeah, three months into the sixty nine bear market, I figured out what the game was. Analysts at Sheerson would recommend a stock at one hundred.

At eighty, they reiterated their buy. At sixty, they said, you know, back up the truck, buy all you can. And at forty, they put out a sell recommendation. So I realized the fundamental analysis was a death trap in a bear market. And so that’s when I started doing technical analysis research.

So by ‘seventy three, ‘four, I was ready.

Got it. That’s amazing. That’s great.

And you got a few of them. And then so your first experiences were very choppy. I mean, you had the first, you know, decade and a half, two decades of your career was like the chop fest of, you know, one of the greatest chop fest in stock market history. How hard was it for you to go from, hey, the first fifteen, twenty years of my career is a choppy mass to the greatest phase of economic expansion in American history and like, you know, some corrections along the way, like eighty seven and ninety and those are the but really twenty years.

Was it difficult to become more of a trend follower? Were you ready for that? How was that transition in that new secular phase of markets?

I was ready for it because, in nineteen sixty seven, there was a Doubleday bookstore downstairs from our, office at fourteen Wall Street, which was also Bankers Trust. Bankers Trust was at sixteen Wall headquarters. But there was a Doubleday bookstore, and I said to the manager, any books that you get in about technical analysis? Because I was already sort of attracted to that. Just put them aside. I’ll buy them.

You told them that in nineteen sixty six?

Sixty seven. Wow.

There was a book sixty seven.

I want folks to understand it. In in nineteen sixty seven, Marc Chaikin is telling the owner of the bookstore on Wall Street to tell him whatever a book about technical analysis came in. That’s do I have that right?

Yeah. You know why? Because my economics I took one economics course at Brown. It was so boring, so dry. I said, I don’t wanna get involved with this federal reserve fundamentals.

I don’t know how it was half a century ago when you went to college, but when I went to college, you had to take microeconomics and macroeconomics Not for me.

Terrible. So JC, one day a book comes in and I look at it, and it’s all numbers.

And I thought, why do I really want this? Prentiss Hall publishes a thesis from a guy named Robert Levy called The Relative Strength Concept of Investing.

And I read the book. He had done his research based on about eight years of data, and his thesis, which he backed up with one thousand hours computer time was that a stock that’s outperformed the market over the previous twenty six weeks is likely to continue to outperform over the next twenty six weeks. So I got really excited about that. And I said, well, I gotta prove this because I want to start a hedge fund.

Hedge funds were pretty rare back then. A. W. Jones and a few guys were early proponents of long short investing. So I got books from Standard and Poor’s with all the prices going back for eight years. And we hand coded them weekly prices and punch cards and took them over the Newark College of Engineering. I validated Robert Levy’s thesis.

And of course, along the way, there have been a lot of people who have been big proponents of relative strength, momentum, very similar concept. I actually got introduced to a guy named George Chestnut even before then who was running mutual funds, using relative strength of industry groups and then picking the best stocks in those industry groups for his mutual funds.

Guess what?

That’s what I do today for a subscriber Exactly at shaken analytics, but the bottom line is I started with relative strength and Then in the early 80s when I realized or in the late 70s, realized that relative strength was not enough because there was something called a top, and relative strength will never get you out at the top. And so I started looking at volume.

And I looked at what a guy named Joe Granville was doing on balance volume. It exists today on computer programs, don’t think anybody looks at it. Looked at a guy named David Bostian who had an institutional service with an intraday intensity index, and that piqued my interest. And then I saw the work of a guy named Larry Williams, who’s still cutting it today, and the Williams oscillator.

And I actually did the research by hand, computed the Larry Williams oscillator by hand on like forty stocks every night. Problem was, if you went on vacation, there was a lot of catch up to do when you came back. And I said, Woah, this is really tough. And then they stopped publishing the opening price in the paper.

And Larry Williams’ vision was you compare the close to the opening and the range and the volume, and that’s how he created his oscillator. No more opening. What do you do? So I built my own formula using the mean price for the day.

So Chaikin Money Flow, which was introduced in nineteen eighty two. We’re Really?

Is that true? Nineteen eighty two?

Yep. I used the first PC based stock market software from a company called CompuTrack in New Orleans, which is, by the way, where I first got introduced to New Orleans. Not a bad place to party.

No, it’s a great place.

They’re not into wine up down there. At least maybe they are now.

Marc, are you kidding?

They’re down they’re they’ll drink wine.

They’re into anything. Yeah. But they’ll mix it with, you know, tequila or, or rum.

They’re great town, New Orleans.

Oh, man.

Yeah. Good people. In fact, Tim’s Tim Slater, who founded CompuTrek with some programmers, was just interviewed in Technical Analysis Magazine last month, all these years Yep.

I love how you read that. So technical analysis of what? Stocks and commodities?

Stocks and commodities. Yeah. Used to write articles.

You read And I’ve gotten some new ideas from it.

Amazing.

I don’t think you read that. I don’t know anybody who reads that. The fact that you do, that is so good. Good on you, Marc. You guys out there, you listening? Marc Chacon out there reading, you know, seeing what people are building. Good for you, Marc.

Well, thank you, JC. And here’s the thing for all the people watching.

In life, you always have to be learning because, like Patrick Page was, never looked behind you. The old pitcher pitched until his seventies or sixties.

Never look behind you because someone might be gaining on you. So, you know, there’s always something new. The core concepts never change. Yeah.

Top down. What’s the market trend? What are the strongest sectors in industries? What are the best stocks in those sectors?

But the way you define those can be fine tuned with oscillators. So for instance, just five days ago, I found the best smooth oscillator I’ve ever found. And it was sitting there in front of me. I just didn’t know how to program it.

So guess what?

I gave Claude the formula, and I got it programmed in TradeStation so I could do some research. So you never stop learning in this business. If you do, you’re toast.

And that’s another interesting one. So you use Trace Station.

I’ve used Trace Station from day one when the two crews when the Cruz brothers started the company. Why? Because I could do research.

No. No. No. I know why. I’m saying, wow. That’s I you know, just fun fact.

It’s hilarious that you’re using Claude to write because it’s still the easy language. Is that what it’s called?

It’s still easy language. No. Easy language. You know? That was it ain’t easy.

More uninformed.

There is nothing easy about easy I was good at copying.

I I told myself. I went to Fort Lauderdale to take the damn course to learn the easy language.

I built the JCI, the JC indicator in two thousand and eight using the easy language.

Not easy.

Not easy. News. I use it for intraday futures trading. Not you know, I monitor our stocks in TradeStation because there are some indicators that we don’t have in Shaken Analytics because we try and keep it simple. But I’ve built automated trading systems for the E mini futures day trading systems for the last twenty years.

Haven’t made a lot of money doing that because intraday trading is wild and, know but you had to automate it because I didn’t wanna sit in front of a screen all day long.

Yeah. No. I get that. Marc shaking. And more and more I talk to you, the more I learn about you, the more I love this.

I hope you guys out there are listening. You know, Marc started in the business sixty six, sixty seven. Here we are two thousand and six twenty twenty six and still learning, still, you know, adjusting, twerking. Love it.

Love it.

Let me ask you, so as the cycles have evolved, right? So you had a choppy start to your career, then you had a secular run, then you had the last decade, then a new secular run.

Have you removed, things from your arsenal, things that you used to focus more on and and now, you know, you kind of ignore in favor of the things that we’re discussing here today? Like, were there some moments along the way that you said, you know, I just don’t need that anymore, or that’s not as valuable as it used to, or I just, it doesn’t even help me, like any of those along the way?

Absolutely. The first revelation I had was that almost all oscillators tell you the same thing. So, I used to lecture for CompuTrak around the world. And, you know, people would say, well, what if we do an RSI and a CCI and an MACD?

And I said, they’re all telling you the exact same thing. They’re just oscillators. And by the way, in a strong market, they’re going to cost you a lot of money because you’re going see an overbought and say, Oh, I got to get out of that. And if you’re in a big trend, you know, that’s the last thing you want to do unless you’re a swing trader.

But even swing traders in a strong trend avoid that first top, you know, say you bought really well on an oversold and then you hit an upper volatility band. I use Keltner channels. A lot of people use Bollinger bands. In a strong trend, that first peak is just a stopping point along the way.

So yeah, the first thing I did was to realize that you needed a trending You needed three things in life: a way to define the trend, and I’ll give you the easiest way, I know you know this, a series of higher highs and higher lows. You don’t need that in a two hundred day average, and you’ll know the trend. I use something a little more sophisticated than the two hundred day within Chaikin, but two hundred day by the way, seventy day simple moving average, powerful. Nobody talks about seventy days.

Instead of fifty.

So seventy days, about a quarter and change.

Yeah, because fifty, you’ll penetrate the seventy to me and seventy above the two hundred, very powerful.

And then a series of higher highs and higher lows. So it starts with price action.

You’re the only person I know. I talk to a lot of technical analysts, as you can only imagine, and I talk to a lot of traders. You are the first person in my entire career to tell me that they’re looking at the seventy day moving average.

Simple moving average.

Not exponential. And the geometric, which I can’t seem to understand. But the, does anybody use the geometric?

No, weighted. Some people use weighted moving averages, but that’s about it.

All right, so it says seventy day moving average.

All right. Yep, as long as you hold that or you buy at that point, you break that and the trend is pretty much over.

So it starts with that, and then relative strength, very important.

But seventy is about Sorry, I’m still harping on this. Sorry, a nerd alert.

No, no, You’re looking at basically on seventy days, you’re looking at what?

Thirteen, fourteen weeks?

Yes.

Fourteen weeks?

Yeah. It’s a quarter. A little more than a quarter.

A little more than a quarter. Yeah.

Alright. But think about it. Everybody’s looking at the fifty and the two hundred.

Why seventy and not sixty three though, Marc?

Oh, I don’t find two things. I like even more.

It’s about the same.

You’re gonna get about the same data, sixty three and Yeah, but And that’s another thing I learned.

There’d always be a guy in the front row when I lectured. He was typically an engineer. How did you know that? Because he had one of those plastic pen holders in his shirt pocket.

And typically don’t want to diss anybody. He had a foreign accent, cause there were a lot of smart people.

Are you picking on the guy with the pocket protector, Marc?

Is the broker coming out of you?

Bust the chops?

Is this the But the guy would say, Now, Mr. Chaikin, why are you using a twenty one period average? Maybe it should be twenty three. And I’d say, It doesn’t matter.

Because Chaikin Money Flow was based on a twenty one day average of this thing or thing.

Said doesn’t matter.

It’s twenty one days is a month for those.

It’s a month. Yeah, it’s a four week look back window. So but they all the engineers always wanted to refine it.

And a lot of them do write for Technical Analysis Magazine. Some of them are pretty smart. Some are you know, they’re optimizing. So relative strength, very important.

Money flow, I use Chaikin Money Flow religiously. There are some patterns that I’d love to share with your viewers that have worked for forty years and are still working today. And then the last is an oscillator, a short term oscillator.

So really just four things.

And the short term oscillator is measuring what?

Just overbought, oversold. And I’m looking for entries on the long side when you get oversold with positive Chaikin Money Flow.

It’s a pattern that’s worked endlessly, but not just Basically, pullbacks within long term Within a trend.

Yeah. But here’s a gem for your viewers.

I came up with the concept in the early ’90s when we had an institutional brokerage firm of persistency of money flow. I actually wrote a paper on it, delivered it at a quant conference in a company called Columbine in Colorado held.

It’s not just where today’s reading is, it’s whether it’s had a pattern of consistent accumulation. We call that smart money buying. You don’t know who’s buying it. It could be insiders, could be analysts, but typically, if you and it happens a lot. You get a pullback to a lower volatility band or to the twenty one day average more likely in an uptrend.

And smart money is buying the dips. So how do you know that? Because Chaikin Money Flow is based on where a stock closes in its range. Typically when smart money is buying, when there’s general agreement at the fundamentals and the technicals, which is pretty much what defines an uptrend.

There’s residual stock to buy at the end of the day, and that’s got even more validity with these leveraged ETFs, where they’re rebalancing at the close. So the bottom line is, I discovered this in the mid eighties.

We were looking at Coca Cola, was a sleepy stock back then.

For almost a year, taking money’s low didn’t go in the red. Now that’s a twenty one day oscillator. Think about that. Oscillators are meant to do what? Fluctuate around Yeah, oscillate.

It turned out Warren Buffett was accumulating his core position in Coca Cola. This was in the mid eighties.

And I thought, now I’m onto something because if I can track someone like Warren Buffett with my humble little oscillator, maybe I’ve got something here. And to this day, I look for persistency of money flow. You can see it on stock charts, you can see it in Chaikin, you can see it on, the Schwab or TD Ameritrade platform.

Persistency of money flow is when Chaikin Money Flow stays above zero for at least three months.

And that tells you smart money is buying the stock. You don’t have to know who or why. You just have to identify that, and that’s when the oversold oscillators really work.

A lot of times you’ll never know. Sometimes you’ll find Yeah.

And it doesn’t matter. You know, sometimes it’ll be insiders with a new drug application, and sometimes it’ll be a merger, less likely nowadays with the SEC, you know, pretty having sophisticated tools to spot that. It didn’t matter. But to this day, persistency of money flow is my secret weapon. And this is even more important, money flow sell alert.

Very often you’ll have a stock that makes a new high or makes a double top, and smart money is selling the news or selling the rally.

And I’ll give you an example of a stock in that category right now, MetLife, M E T.

Yep.

Made a new high, Chaikin Money Flow has been red on this last leg for a month.

What does that tell me? It’s just smart money is getting out of some of the insurance stocks on strength. Maybe it’s an interest rate bet. Maybe it’s who knows who’s selling?

As you say, it doesn’t matter. I call that a Chaikin Money Flow seller. Nobody else has picked up on this pattern. And the reason I know it works is because we built our institutional business on this.

We were able to take value oriented money managers and say, You ought to consider lightening up here. Oh, no, the PE is still low. And we’d show them the Chaikin Money Flow, and that’s the company that we sold to Insanet, which was the first electronic trading firm on Wall Street, part of Reuters. But that pattern is a million dollar pattern.

And you can spot it on stock charts for free, and I think stock charts now has some sort of screening capability. But bottom line is persistency of money flow works on the buy side. Money flow sell alerts work on the sell side.

No. That’s fantastic. Let me ask you something, Marc. You know, you are a true, true market nerd.

You know, takes one to know one. You know? I trust me. And was it always like this for you?

When did you catch the bug? Was it in sixty six, sixty seven, or when you were younger?

It was in college.

I was in a very boring classics lecture. The professor was fabulous, but I didn’t care about Euclidides or Lucidides or Alexander the Great. I did later on in life. There was a guy four rows in front of me to the right.

I was doing the New York Times crossword puzzle. He was reading the Wall Street Journal.

Got it.

And I met him. He was a couple of years ahead of me.

Sadly, he died. His name was Billy Layden from Houston, Texas. He started more companies after Brown. He started the first regional brokerage firm. It was called First of Texas when he graduated from Brown in nineteen sixty three.

So we got to know each other. Later on in life, nineteen eighty nine, we became best friends.

And he was using software that I was using back then before we wrote our own. But bottom line is, I said, What are you doing here? He said, Well, I trade stocks. I said, You’re in college. He said, Yeah, but I got a good broker down in Houston and at Merrill Lynch, and he really got me excited about the stock market. And so I guess when I went to this factor in nineteen sixty four, when I graduated, my head was in the stock market back then. I love the volatility, the swings.

So was it, because you grew up in Brooklyn?

Yeah.

And so, you know, did you have any exposure to that at all growing up?

No, but what I realized later on is there a lot of the clerks on the New York Stock Exchange lived in either Brooklyn or Staten Island where I eventually moved.

And a lot of the brokerage firms, there’s one today, Angelo Gordon, which is like a distressed debt company, and he went to my high school. But, you know, they sort of kept to themselves.

They were high powered traders, I was middle class. So I didn’t have a I had my bar mitzvah money. That was it. And that’s the first money I ever invested.

I mean, there’s some great stories I’ve heard over the years about. So I took my bar mitzvah money, and just a lot of great stories here like that. You know, I’m Cuban. I didn’t have a bar mitzvah.

No, I lost my bar mitzvah money in poker games.

Well, there you go.

That’s when I learned about how to play poker, which was probably You know, lot of the options traders in Chicago, when they first started trading options in seventy three, and then seventy seven puts came on, a lot of those guys were poker players.

Interesting.

In fact, to get a job with Susquehanna, Jeff Yaz’s company, you had to be a poker player.

Wow.

To be a market maker on the options floor, you had to be a poker player.

Do you find a lot of similarities between the two?

Annie Duke writes about it a lot. She won the World Series of Poker and she talks a lot about the psychology. I ran into her at the airport recently actually.

Oh, cool. Love that.

Yeah. Random. I was like, Hey, Annie. Hey, Juicy.

What sort of similarities do you see there? And then I’m really curious to hear about options and when that was first introduced and sort of the sentiment behind it. I want to hear about the poker. Lot of similarities or no?

Well, think Kenny Rogers. You gotta know when to hold him and know when to fold him. That’s right.

And and you you realize And don’t count your money when you’re sitting on a table.

That’s not good either. Yeah. And you don’t have to play every hand. Yeah.

You know, actually used an expression on a tape we did for our premium subscribers, and I said something that’s actually not true. I said, You can’t win if you don’t play, which is another poker truism, but you will lose if you play every hand to the to the max. So and and it’s the discipline. I reading people, you don’t have to do that in the stock market. You know, you need to read the charts, not people.

But I think Annie Duke is just fantastic.

She really is.

That’s the similarity. You’ve got to be very selective in the stock market. Always say, let stocks come to you. Don’t chase them.

And it’s the same thing, chasing an inside straight. How often do you draw to that? Not very. And bottom fishing.

Bottom fishing to me is the equivalent of chasing a bad ham, hoping that you’re smarter than the odds.

And you’re gonna get lucky on the river or something like that.

Yeah, doesn’t work.

Doesn’t work.

I’ll reiterate it. Bottom fishing is the most expensive sport in America.

That’s right. Smelly finger. Right? Yeah. You know? Really bottoms.

They used to call it catching the javelin, but I I call it bottom fishing.

What what’s that old what’s that old saying? There’s a technical analyst and a fundamental analyst sitting in the kitchen, and one of them drops a knife and it lands on the, on the on the on his foot. And the and the fundamental analyst is like, oh, why why didn’t you know why didn’t you catch the knife? He’s like, oh, you know, technicians never catch a falling knife. Why didn’t you catch a falling knife? He’s like, oh, I didn’t think it could go that low.

That is fabulous.

Yeah, I mean, Wall Street can be easy, although Warren Buffett’s partner, Charlie Munger, said anybody who thinks Wall Street’s easy is an idiot.

But it can be easier if you just avoid some simple mistakes. And, you know, bottom fishing is one, thinking you’re smarter than the market is the other.

You know, Marty’s wife later in life was a good friend of mine. Really? Yeah, out at the beach, you know, and he and I actually very similar paths in terms of the fact that he built his put call ratio, which he got famous for. I had already done it, but it wasn’t published in Barron’s. So, you know, the put call volume is amazing. I still use it today on the index options, not on individual stocks anymore.

But yeah, options are amazing. And guess what? You asked about starting the options business in seventy three and then in seventy seven. Options drive the market today. I’m sure you’ve talked about that for your subscribers.

Dealer trading in index options drives the levels in the stock market on an intraday basis. It’s amazing. They call them the gamma levels, but you’ve got a lot of people using options to make quick bets on the stock market, hedge their portfolios, or make massive buy in bets before they can buy the stocks they want, and the dealers are on the other side of those trades. A lot of people are making a lot of money knowing where those gamma levels are, not just for the market, but for individual stocks like Nvidia and Tesla.

It works in stocks. I don’t get into the weeds like that because I would rather do what you described, the top down picture. To me, all this algo trading is just noise. And, you know, if it creates volatility and that gives you a buying opportunity, great.

But so I always say, let volatility be your friend.

Don’t get caught up in Yeah.

At the very least, if it provides liquidity, it’s great. Right? Just because, you know, these guys are sloshing money around all day for their own reasons. And then for us, who don’t necessarily care about those reasons, it just provides better liquidity, tighter spreads, and that’s not gonna change.

That’s gonna continue moving forward. You’re gonna get more and more options volume. Oh. The trend there is up.

What about the the tokens? What about the tokenization? Three sixty five, twenty four seven trading for stocks. How do you feel about that?

Well, I’m not a big fan of two things. Three sixty five trading for the futures is fine. But even there, they take a break, as you know.

And I’m not in favor of eliminating quarterly reporting for earnings. Woah.

But how many think about, I’ve thought about this, right? So none of the companies that matter are going to change anything.

Maybe less than ten percent of companies are going to actually not report because they’re not even saving any money. Because just because they have to report twice a year instead of four times a year, they still have to do all the accounting. Still gotta pay all the auditors for that. So they’re not saving that much money. So I think this is a big to do about nothing personally.

Well, but think about the flip side of what you just said. The guys who don’t report are probably doing something shady.

Yeah.

I wouldn’t you If you’re a small company and you can just focus on doing what you gotta do and you have the freedom to do that, so be it.

But I don’t think it’s gonna matter. I don’t think many are gonna do this.

No.

Well, hope not because earnings estimate revisions is one of my favorite indicators and it’s one of the twenty factors that power This is good.

I’m glad you brought that up. Tell me more and pay attention guys out there.

This is Yeah.

This is important. I was at Drexel Burnham in the mid eighties. I I joined them from the floor of the the futures exchange. I traded the knife stock index futures, which were companion to the, S and P futures in New York. That didn’t last beyond ‘eighty seven.

And then after I lost all my money day trading on the floor, I literally did, I joined Drexel Burnham as a stockbroker.

And Drexel had one of the two quant databases on Wall Street’s, a guy named George Douglas. He’s still running quant money today in Santa Monica, and his proprietary indicator was earnings estimate revisions and earnings surprise.

And so to this day, forty years later, that still drives Wall Street. In spite of price discovery and everything being available online, analyst estimate revisions drive stock prices in the short term. Company and analysts, and there’s usually a lead dog, an alpha analyst, and a lot of analysts are lazy because they’re covering a lot of stocks and, you know, it’s hard. So let’s say the lead analyst on a stock is Goldman and Goldman raises their estimate on a company is not that widely this doesn’t necessarily work with the mag seven obviously, but for the other four ninety three stocks in the S and P, analyst raises his estimate.

Some salesman pounds it used to be called pounding the table. He’ll call his best clients and say, Gee, our analyst just got super bullish on, you name it, Robinhood. Well, guess what? Other analysts see that at other brokerage firms.

They start raising their estimates. It creates like a waterfall effect. And then when companies report, in spite of the fact that everybody knows everything, guess what? You’ve seen this.

They beat estimates like Intel.

Typically the stock responds and there’s another four week period. But the biggest thing that I learned from George Douglas is that earning surprises are like cockroaches. There’s never just one of them.

I was living in New York City back then, and cockroaches were an ever present problem in New York Where in the city were you living?

I was living at seventy seventh Street and Fairway Avenue.

Upper East Side. Was Brother Jimmy’s there back then? No.

No.

When I was in college, I interned for Merrill Lynch.

I was twenty one years old. On Mondays and I was I was living down in Soho area. And on Mondays, in the on seventy second and second, brother Jimmy’s is eleven bucks. All you can eat wings and ribs and all you could drink Coors Light for eleven bucks. You had two hours to eat as many wings and ribs and Coors Lights as you possibly could. And for a twenty one year old broken in New York City, we slap up in the subway for that deal every Monday.

I was hanging out at, J. G. Mellon’s just a couple of blocks north of that.

Still there.

What a great place.

Great hamburger is great everything.

Yeah. Totally.

Yeah, so I learned this from George Douglas, but even more importantly, he gave me as a retail broker at Drexel the access to his database.

And that’s the first time that I put together earning surprise, technicals, fundamentals and tested them.

Hold on, Marc. Flip that on its head.

Because in my experience, in the bear markets, when prices are falling, you’re seeing that same effect where In reverse.

The analysts in reverse, where the analysts are chasing and and lowering their revisions and the waterfall is going the opposite way. Can you speak to that?

It’s human nature. You know? They they, nobody wants to leave the party early, but once they ring the fire alarm, everybody wants to get out.

My partner at Jake and Pete Carmacino, who you may have met along the way, was an RIA, and he’s been with us for, I think, nine years now. And he has a phrase that I’d never heard before.

You know, I’d say to him, Pete, you know, it’s a little late in the game. He said, Oh, yeah, Marc, you want to stay at the party, but you wanna be positioned near the door.

Nice.

You wanna be first out when you know the game is over. But, yeah, it works in reverse.

That’s why we’ve been bearish on CHTR, Charter Communications Yeah.

In the power gauge for two years.

Now yesterday, they reported on better earnings, but, you know, they missed on revenue. But the bottom line is, for two years now, analysts have been cutting their estimates in Charter.

And it’s a self fulfilling prophecy after a while. You know, stock starts to rally, it’s in a downtrend that’s underperforming the market. If, you know, eventually someone says, gee, maybe it’s my last chance to get out.

Yeah.

And, you know, it just keeps going this way, but it’s been this way for the pretty much the sixty years I’ve been on Wall Street.

You know, so sixty years on Wall Street. And in in I’m old enough to remember even, but back in the day, Marc, companies would have an initial public offering because it was the initial public offering so that they could raise money and build factories and hire employees and do all kinds of stuff.

And, you know, that’s why it was called the initial public offering. These days, these IPOs, there’s nothing initial about them. That. Right?

These are the you know, SpaceX, not to pick on SpaceX that just got cut in half off the highs in a few weeks, no big deal. But the initial offering for SpaceX, believe it was like in two thousand and eight. Company is twenty five years old, twenty four years old. There’s nothing initial about this IPO.

It was really the VCs dumping on the investing public, which I don’t know if you’ve noticed IPOs over the last half decade, six years or so, very consistently getting slaughtered. Can you tell me about the way that IPOs used to behave and how the investing public used to think about them and treat them and what has become of them this day and age? What are investors to think?

Well, let’s start right now because I have been telling investors in my market letter for the last ten years, you do not chase an IPO if it’s gone up fifty or one hundred percent on day one because six months later you’re a guaranteed loser.

If you’re lucky enough to get in on the offering and you’re not hamstrung because a lot of peep a lot of brokerage firms, if you sell the IPO at a big spike, you know, will blacklist you for future get the next one.

Yeah. But so that pattern exists.

Paying attention to the little games that are played behind the scenes? You see? You know, the broker calls you, you get your allocation, and he sees you flipping them. Next time the IPO comes, you’re not gonna get that phone call. So we want you to hang on to him and be a good, be a good loyal servant to the dumping.

So I asked someone who got a SpaceX allocation who’s pretty sophisticated. I said, he is still in it because he had told me he didn’t want to sell it because he’d be blacklisted from Anthropic when it comes.

He said, No, I kept five shares out of a hundred, just so my name was on the book.

Also, I mean, know, those shares- I don’t know that works or not, but he thought it does.

Yeah.

Yeah. The name’s also on the sell ticket there. So then so as investors okay. So tell me about the way it used to be.

It used to be, you know, this is a this could be a great company, and this is the first time investors have the opportunity to invest. Cause that was actually the case back then. What was that like? Sounds like a lot of fun.

Well, they price deals a little more less aggressively, than they do now where the demand is so so there. But I remember one, I think it was when Ross Perot’s company went public, and there was a big excitement around that.

Just to get an allocation of shares as a stockbroker, if you had retail clients, was a miracle, because all the allocations went to the institutions.

Of course.

Or to the biggest brokers in the firm, you know, who had clients that were the equivalent of institutional clients. Because the institutions back then, there were mutual funds. That was And then a couple of hedge funds.

No pensions or anything like that yet?

Not yet. No.

Then you started to get some internally managed pension funds. Actually, a client of mine, when we first started our brokerage business, is someone I had worked with when I was the head of the options department at a firm called Tucker Anthony in the 70s.

And one of my colleagues went to manage the General Motors pension funds in New York on what’s now called the General Odors Building because all the cosmetics companies were headquartered there, Revlon and Estee Lauder and so forth orders. Yeah, so, you know, they got the allocations and It was a big deal as a retail broker. So basically, retail stockbrokers didn’t really participate in the IPO.

And there was something where insiders couldn’t, like people I had an account, a friend of my wife’s from college, and her husband worked for a money management firm. It was called Standard and Poor’s Center Capital.

And I actually got her an allocation of a new issue, and I got a call from, guess what, the NASD. I mean, this is not legal. This is you’re not allowed to allocate. Said, well, she has nothing to do with her husband’s business.

She has her own money. It was dicey for me as a stockbroker. Pretty scary to be called up in front of the NASD in New York. This is we’re talking.

Oh, nineteen sixty eight, ‘sixty So the new issue game was totally different back then. But you had gunslinger, we’re called gunslingers. The original one was Jerry Tsai.

He worked at fidelity then he went off and formed his own management company. He was one of the first Momentum investors Crazy crazy crazy shearsome my firm actually took his mutual fund public, raised money for it. He would jump on these new issues once they started trading because he knew supply was limited and the other institutions were slower than he was. You know, back then if you got an allocation of a new issue and you’re a mutual fund, you didn’t flip it.

That just it wasn’t the style back then. And also if you had too many short term gains in a mutual fund, you had to pass them on to your shareholders as short term distributions.

Right.

So this is not the game they’re playing.

Yeah.

Jerry Tsai, the Manhattan Fund, it was called in nineteen sixty seven, he knew the game. So when Ross Perot’s company went public, when some of the hot stocks went public, he’d buy in the aftermarket even if he got an allocation because he knew that the other institutions were gonna be slow to jump on it. There wasn’t enough research and so forth. That’s really how the game was played back then.

Very different.

Totally different. Hundred percent.

Well, Marc, you know, you’ve got sixty years of experience. Alright?

So, you know, I’m You keep reminding me, JC.

No way. Where is that as a badge?

That’s a I’m out of it.

And you’re still there?

Still in the game. And I’ll tell you why, because I love it.

Yeah.

I love what we do. I love helping people as you do. That’s why I have such admiration for your work because you don’t have to do what you’re doing. My guess is that you’re doing this because you want to help people.

You know, this community, Marc, that we have here at TrendLabs, absolutely beautiful.

It’s like my therapy session because my wife doesn’t care about I about crack spreads. She couldn’t care less. You know? She wants to call the fence guy. That’s what she’s interested in.

Exactly.

Can you call the fence guy?

She doesn’t care about what’s you know? Right? So, like, if it if it wasn’t for this community, you know, to be able to share, these are the trades I’m putting on. This is what I think the market is happening.

This is my friend Marc, and we’re gonna talk about all kinds of amazing things. And, I’d love for you to join me. And that’s what really truly this is. So yes, agreed.

Totally passion for me. But the question I was gonna ask you is that a lot of the people listening, a lot of the people in this community don’t have that kind of experience. Right? I’ve not been doing this for decades.

Maybe they’re relatively new to the market or maybe they’ve been doing it for five or ten years and just they haven’t seen all of the cycles. What sort of advice? I mean, I know that you probably get asked this all the time, but like for real though, like any words of wisdom you could pass on to somebody who doesn’t have your experience to kind of like accelerate the learning process on some things that may have taken you longer than you wish?

A great question. And I can answer it based on my wife Sandy’s experience. We started the company, I was retired in two thousand and nine because Sandy’s four zero one ks plan got cut in half. She had worked all her life at her own marketing business.

And when she called the advisor at LPL, what should I do? He said don’t do anything. The markets always come back. And finally when she was down fifty percent, she said I can’t stand this anymore. I said, well sell everything you have.

He was in ten different mutual funds. Ridiculous. Diversification didn’t work in a bear market.

Buy an S and P, open an account of Vanguard, buy an S and P index fund. She said, Yeah, but what do I do then? I said, We’re going to start a company. I’ll take everything I learned and build a simple to read gauge that combines fundamentals, because that’s what drives the market, and technicals, because that’s how you know what to do in the market.

And that’s how Shake and Analytics and the PowerGauge got started. Well, Sandy is now managing all our money.

And the first principle is have a discipline and stick to it. Follow it every day. You don’t have to follow the market every day, but anytime you’re inclined to make a trade, everything has to be right. Otherwise, you don’t have to act.

And so, it’s like they say in New York City, and it’s true, never run for a bus, there’s another one coming along in five minutes. Same in the stock market. So that it starts with keep it, have a discipline, keep it simple, let the trades come to you, and believe in what you’re doing. It doesn’t have to be complicated.

The proof of the pudding is her account is at new all time highs. It’s up more than four hundred percent from when she sold out in September of two thousand and eight, way more than four hundred percent. And two years ago, was up forty one percent following the power gauge. Why?

Because she didn’t bring a lot of baggage.

You and I have baggage, right? We’ve had bad trades. We’ve been got, you know, we’ve pulled the trigger once too often. You know, we’ve seen stocks go against us. She has no baggage. Totally believes and she’s been doing this now since twenty twelve. So fourteen years.

But but to this day, she has the exact same methodology that she had back when she started. She’s refined it a little. She understands, you know, what a Fed day is now and how markets get volatile. And she doesn’t even watch our portfolio on those days.

I mean, she’s still in She still has a fifty percent position in Nvidia from twenty twenty one.

Wow. Nice.

Know, and she’ll add to it and then take the profit in her retirement plan because obviously you don’t want to do that in an individual trading account taxable. So it starts with a discipline.

Never think you’re smarter than the market. That’s what Marty’s wife told me.

That’s where relative strength comes in, by the way. This is important.

No matter how strong the fundamentals are, whether they’re quant fundamentals, whether it’s Goldman’s research, Jim Kramer, if the market doesn’t agree with you, guess who wins?

Mr. Marcet always wins. That’s what relative strength is all about.

A stock has to, at some point, very soon after, for me, it has to before, after you buy it, start validating your opinion. And the stock does that by outperforming the S and P. It’s as simple as that. So have a plan.

Don’t think you’re smarter than the market. Stick to the plan.

Let the trades come to you. Don’t try and go out and find the trades unless someone like JC Perez is telling you he’s found the trade for you.

I appreciate that.

Don’t be greedy because someone once told me it was an investor in our company, it has his own brokerage firm going back into the early 60s. He said, Marc, anytime I have one hundred percent profit in the stock, I Sell something. I don’t know. Maybe I don’t sell half but I just want to book a profit at that point and start playing with house money Yeah, and you know greed can be your undoing in the stock market and when the technicals turn Well, so here’s another thing never fall in love with the stock because it won’t love you back Yeah, when the when the technicals turn the stock doesn’t know you own You’ve just got you know, who said that? It’s, I don’t know, one of the, one of the old economists in the market.

When the facts change, I change my opinion.

For us, the facts are technical. Right?

What do they say? Strong opinions loosely held?

Yeah.

Yep. So that’s it. Well, listen, Marc, you’ve given us a lot of your time, and I appreciate that. We could go on for hours and hours and hours.

We didn’t even talk about wine. That would be a whole another conversation. Maybe we’ll do another podcast about But guys out there, the whole TrendLabs community, we really, really appreciate you being here. I hope you guys enjoyed that.

Maybe we’ll do this again sometime, Marc. I really, really, really enjoyed this conversation. Really had a good time at dinner the other day. We definitely gotta do that again.

That we can do again. I’ve got a new restaurant in New York City, Thompson Street. It’s an Italian restaurant, ten years old, nobody talks about it. The best Italian food and wine list in New York.

What’s it called?

It’s called think it’s Santa Rosa Trattoria Pimenta.

Okay. Alright. Well, Pimenta means we gotta drink a Barolo then. Alright?

Yeah. That’s exactly what I did the other night. So I I would love to do it, JC. That’ll be that’ll be on me. A lot of fun.

A lot You heard them here.

Getting free Italian meal in, in New York City. Alright.

And and better than any restaurant in Milan, and, we go to Milan twice a year.

Better than anything in Milan. Wow. That’s aggressive. That’s a I’ll be the judge of that. Alright?

Yoki. Do you like gnocchi?

Who doesn’t?

Too heavy for me. This is the lightest gnocchi I’ve ever eaten with a a pesto sauce. Amazing.

In. In.

I I really enjoyed this, JC.

You’re a prankster from Marc. Legend. Wall Street legend, Marc Chaikin in the house. Give it up. Appreciate everybody being here today. Happy Friday. Everybody had a good weekend.

Fist bump.

Thank you so much, my man.

Fist bump. Beautiful. I love it.