Episode #248: JC Parets, All Star Charts, “The Sooner We Can Find Out We’re Wrong The Better…Then We Can Go Move On To Something Else”
Guest: JC Parets is Founder and Chief Strategist of All Star Charts.
Date Recorded: 9/2/2020 | Run-Time: 1:01:46
Summary: In today’s episode, we’re talking technical analysis, and what’s going on in the markets right now. We cover JC’s jump into technical analysis as a way to seek a better way to manage risk responsibly.
We chat about his process of going through thousands of charts each week to help him see what’s going on in markets all over the world. We get into what’s going on in markets right now, stocks making new highs, rotation into emerging markets, a weaker US dollar, and July’s best performing index, the Dow Jones Transportation Average.
He even offers a simple and refreshing answer to the question of what would make him turn bearish right now.
Sponsor: Ikon Pass
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Links from the Episode:
- 0:40 – Sponsor: Ikon Pass
- 1:12 – Intro
- 2:28– Welcome to our guest, JC Parets
- 8:43 – What pushed JC in the direction of technical analysis
- 12:27 – How JC approaches markets
- 13:01 – Charting School
- 16:10 – Lens by which he analyzes markets
- 18:35 – What the markets look like to JC right now
- 23:54 – Warning signs JC pays attention to
- 26:43 – Favorite software to get through charts; Optuma
- 28:48 – The Meb Faber Show – Episode #246: Eric Sprott, Mark O’Dea, Oxygen, “I’m Trying To Look For Some Value That’s Not Appreciated By The Market”
- 29:08 – How JC thinks about rotation and position sizing among his positions
- 35:20 – Overview of currency and bonds markets
- 39:27 – What JC sees in energy and agriculture markets
- 42:54 – Curbing emotional responses to market action
- 45:11 – Putting together a portfolio
- 45:15 – The Meb Faber Show Podcast – Episode #244: Tom Basso, “Investing Is A Mental Game More Than It Is Having The Perfect Indicator Or…Even The Perfect Position Sizing”
- 48:30 – Sentiment and how it impacts investment decisions
- 51:49 – Best idea right now
- 53:36 – Thinking about exiting a stock
- 55:10 – Most memorable investment
- 56:11 – Focus of All Star Chart’s research (AllStarCharts.com) and emphasis on India
- 56:12 – The Get Rich Portfolio (Faber)
- 1:00:58 – Best way to connect: AllStarCharts.com, Twitter @allstarcharts, Youtube, Stocktwits, Instagram
Transcript of Episode 248:
Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing, and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Sponsor Message: Today’s sponsor is the Ikon Pass. With an Ikon Pass in your pocket, sweet days await at across a family of unique ski destinations. Across more than 40 Ikon Pass destinations the mountain community can explore wide open spaces, cut endless lines through fresh mountain air, and discover new adventures with old friends. So, whether you are a whole mountain bound are ready for a road trip rambles this winter, the best adventure is always the next adventure. On sale now. Every 2021 Ikon Pass comes with adventure assurance, giving you the confidence to ride. Discover the pass options and plan for adventure at ikonpass.com.
Meb: Hello, podcast friends. Another fun show for you today. Our guest is one of the most well-known technical analysts on the streets. He started a blog 10 years ago that ultimately became what we all know today as All Star Charts, where they provide research and commentary on hundreds, sometimes even thousands of global market charts updated each week. In today’s episode, we’re talking old school TA and what’s going on in the markets right now. We cover our guest’s jump into technical analysis, a way to seek a better way to manage risk. We chat about his process of grabbing a mug of coffee or glass of wine and going through thousands of charts each week helps him to synthesize what’s going on in the markets all over the world. We get what’s going on in global markets, stocks, potential rotation in the emerging markets, a weaker U.S. dollar and the unlikely best performer from this summer. He even offers a simple and refreshing answer to the question of what would make him turn bearish right now. He also ends the show with what’s his best idea? Please, enjoy this episode with All Star Charts’, JC Parets. JC, welcome to the show.
JC: Thanks for having me, Meb. What’s up?
Meb: It’s good to see you again. I don’t know the last time I saw you in person, it might have been Lake Tahoe. I’m a little nervous though, your judgment’s somewhat questionable. You’ve left us from the land of milk and honey, and moved east. Tell me that’s not true.
JC: It is. California was a two-year plan. That was five years ago, so it turned into a little bit longer for obvious reasons. I was living in Sonoma, easy drive to Tahoe. It was a dream come true for me, man, but I know you of all people, can appreciate this. I could actually, for the first time in my life, chase storms. So everybody who lives on the East Coast, once they figure out that skiing on the East Coast is just not, once you go ski on the west that you’ll never wanna ski on the East Coast again. So, once you figure that out, however long it takes you, then you’re gonna start going to the West Coast.
And it can be a shame if you get there and you just miss the storm. And then of course, it starts pounding the day you leave. Like, that’s just the way life works. And the fact that now I could just chase storms, the OpenSnow app was fantastic. They’re like, “It’s gonna stop snowing at this time. Leave your house at this time. Make sure you get the hell out of town by this time, because you’re gonna get stuck there if you don’t.” Like, man, what a great experience?
Meb: Yeah, well, we got Ikon Pass as a sponsor this year for the show, so I’m looking forward to some good skiing. Because last year my pandemic plan was to go hide out in the mountains, and they closed all the mountains so that was tough. However, you did leave at an opportune time. We were driving through Tahoe and NorCal about a week ago at the end of our summer romp, and there was a warning for fire tornadoes in Tahoe, which is something I’ve never heard before in my entire life.
JC: Like, two of the worst things ever in one.
Meb: Yeah, it’s like sharknado. Like, what else could you put into that? But hopefully, NorCal is getting under control. It was pretty gnarly when we went through.
All right, we’re gonna talk all things markets today. It’s super fun. You’re one of my favourite commentators on this space. I feel like as lonely technicians of the world, chartists are somewhat of a rare and odd breed. But let’s do a super quick background one minute, just overview, Miami to New York to California to Pennsylvania guy. Give us a quick overview, because I think it’ll inform a little bit of what we’re gonna talk about today.
JC: Yeah, well, I mean, listen, in the old days, think about how odd of a human being you had to be to be a technical analyst. Think about this. You had to get all of the data and put it on paper yourself, and draw with rulers and lines. Like, that was your life, so of course, people historically are gonna be like, “Look at that weirdo in the corner with his lines.” But now we have all kinds of personalities and types of people that can look at charts and analyze the market without being that weirdo in the corner with a ruler and a pencil. Times have changed, and there’s been this massive revolution of market behaviour analysis. I know you’re a behaviour guy, so we see eye-to-eye on that for sure, but we’ll get into that.
So, what happened? How did I end up in California and now in Pennsylvania? So, I started in Miami. My family came from Cuba in the early 1960s. I grew up in Miami, played baseball, if you can imagine that. I was pretty good. I wasn’t incredible, but I was good enough to play division one, and I ended up going to Fairfield University in Connecticut, which is right in the heart of the hedge fund capital of the world, right next door to Greenwich, Connecticut, all in Fairfield County. And that was really the first time that I had an internship at Merrill Lynch. A lot of my friends worked at hedge funds or Big Four accounting firms, or Goldman, or whatever it was, because back then, Meb, it was actually not just acceptable but encouraged to work at these types of companies. My, how times have changed?
Meb: You know, it’s funny. You alluded to something which was the old school nature. I always have a soft spot when I see people that are still to this day, doing the hand, whether it’s point figure charts or whatever it may be. When my father passed years ago, we found some old notebooks where he had done some hand-written stock charts, but it’s funny, the branding and the narrative. If you look at the top 10 highest paid hedge fund managers across the board, almost every year now it’s under this umbrella. They call themselves quants. But really, it’s most of them being some form of price-driven sort of analysis. It’s a slightly more sophisticated term, but in reality, some of the best performers. When did you become inoculated? Because you weren’t always a TA sort of guy, right?
JC: Yeah, I mean, those hedge funds that you’re speaking of, those who are our clients. Our clients are household names. And I promise you, they’re looking at technical analysis, regardless of what they call themselves. In fact, we do really well with the fundamental community because they do their work, whatever it is that they do, and their GDP and PE ratios and whatever. I don’t know anything about that stuff.
But they’ll come to us and they’ll overlay the work that we’re doing, because we’re completely unbiased. We don’t care about any of that stuff. We’ll just tell you what’s actually taking place, because that’s what we feel is most important. The reasoning behind that, to me, it seems like a waste of time. I’m more of a what and a when and a for how long kind of guy.
And the reason, to answer your question, nothing else seemed to work. Nothing else seemed to manage risk responsibly. Like, we would have a situation, this idea makes sense to me and my 23-year-old mind like that means anything. But in my head yeah, bang, they’ll get bought out, whatever the story was. But there was no risk management. Like, there was no even conversation about okay, how do we know we’re wrong? What needs to happen to prove us wrong? So, we’re just gonna buy it forever and it’s gonna go to zero?
And then the worst part that happened to me is that I had some success. I remember buying Six Flags at like 22-23 years old, and it went from three to 12. So now I think I’m Warren Buffett, all of a sudden, because I got one right in a bull market, some piece of crap that quadrupled. And I just got lucky. So then I’m like, “Oh, I could do this.” So then I buy Magna Entertainment, MECA for the same reasons I bought the other one, and it went from like four to zero. So, I was like, “Okay, I guess that strategy doesn’t work so well. So how am I gonna manage risk?” And that’s how I found technical analysis. I got really serious about it, probably when I was like, 24/25 years old, and now I’m almost 40.
Meb: If you could think back, what were some of the defining, whether it be books, people, you followed, mentors, what pushed you in that direction? The very real pain of losing money is obviously, the greatest teacher. I had the same experience in the early 2000s, and I think I think a lot of people, whether they know it or not, will hopefully be going through the same thing shortly. My wife just gave me the shoeshine discussion, where she said her hairdresser was talking about how much money she is making in Shopify recently. But that can be a great teacher. What else was, sort of, the early inspirations for you on the path?
JC: So, when I realized that nothing seemed to work consistently and responsibly manage risk, then I was looking at people around me, and they were twice my age, three times my age, and they really felt they had a handle on things. It was quite obvious to me, at the time that they were clueless, and that scared the hell out of me. So, I was like, all right, I can get a master’s degree, maybe that’ll help me. And I was like, yeah, that’s not gonna help me in the market. And I’m not climbing up any corporate ladder, that’s just not my personality.
So, I was like, okay, so that’s out, then what about like a CFA where I could learn about companies and fundamental analysis and all of that stuff? And I was like, okay, that’s cool, that’s interesting. Or I could study for my CMT and learn about technical analysis and trading stocks and different asset classes. And I was like, well, that seems to make a lot. I don’t care about companies, I wanna trade stock. So, I was like, oh, the CMT thing seems to make more sense. This is ’05. So for me, that seemed like the right decision at the time. Little did I know how much that particular decision would impact the rest of my life dramatically.
So, early inspirations, first books I started reading were John Murphy, Edwards and McGee. I immediately fell in love because it made sense to me. Like I’m like, okay, that makes sense. Oh, if it does that we’re wrong? Okay, great. The sooner that we can find out we’re wrong, the better it is, because then we could go move on to something else, instead of finding out you’re wrong three years later at a zero. That’s terrible. Okay, so we can find out if we’re wrong quickly and we know when that will be, and then we’ll also know how we’re right and look for other things to prove that we’re on the right track. This makes way more sense than all that other stuff, so I’m gonna focus on this.
So, then I find Brian Shannon on YouTube, and I started watching all this alpha trend stuff, and I’m like, this is fantastic. There was some other guy named TK. Trading with TK and this is an old guy from the New York Stock Exchange on the floor, and he would do daily videos. These were like two dollar stocks, three dollar stocks. But he was always talking about risk management and different patterns. I’m like, “These dudes.” Every day after work, I would run home to go watch Brian Shannon and TK’s videos. That was like, 2005/2006. And then I’m studying for my CMT, and I pass level three, the CMT, in summer of 2008. Talk about perfect timing.
So I nailed ’08, I had a lot of success that year. And there were just people around me that saw me at a young age do well in that particular environment. And a lot of that had to do, or all of it really, had to do with the technical analysis and the way that I was looking at the markets.
Meb: It’s funny, you mentioned that. There’re so many parallels between our stories, where I had gone through the CMT program about the same time. Did you take the test, by the way, level three?
Meb: I was adamant that I did not wanna take the test in the same time they were going through where they were getting rid of the paper requirement, and it was like the last year of it. I think I’m like, the last person to ever submit a paper. They may have it again, I’m not sure.
JC: I think they had the option for level three, you could submit the paper. I said, “Just give me the test. I got this.”
Meb: Right. Well, so I was just done with taking these tests. So, wrote a paper. I had never any intention of ever being a content producer. This ended up being my first academic paper. And again, probably similar to your story, fast forward a decade later, and content has probably been one of the defining characteristics. But it’s due to me not wanting to take level three of the CMT why we’ve been writing all this stuff.
Anyway. So, ’08 happens, ’09. You mentioned, I think, a pretty important point, which is most technicians of any colour probably would have done really well during the financial crisis. And part of that has to do with, I feel like so much of Wall Street is 99% about just people who are focusing on what to buy, but also the when and the position sizing and when to sell, all these sort of concepts that get wrapped in with the price-based concepts.
Give us a little short intro, we’ll link to these in the show notes. By the way, you do a wonderful job with your introductory coursework videos, but for the new listeners, give us sort of a framework of how you approach markets in general, how do you think about them? And then we’ll get into all sorts of specifics.
JC: Well, remember the market is a discounting mechanism. That’s what that is. So, it’s discounting what the world’s gonna look like six, nine,12 months from now. That’s what that is. So, when “New York Times” comes out with a monster headline, like “Unemployment Spikes to …” whatever it is “Highest Ever,” whatever it is, and then stocks rally on news of unemployment. No, like market’s rallying on what it’s looking at next year. Like, the market crashed in February because of this headline that you’re now putting up.
So, the market is what we refer to as a discounting mechanism. And as technicians, what we do is we analyze the behaviour of the market as opposed to the goods and the services that a particular market deals with. I don’t care how many shoes Nike selling, I care about what the shareholders of Nike are doing, and what they’re doing relative to shareholders of other stocks as well. So, that’s really what I’m comparing it to.
So, we start with what we call a top down approach. So, the first thing that we wanna do, if you ask me, “Hey, JC, what do you think about Tesla? What do you think about Apple?” The first thing that I’m gonna do is I’m gonna tell you about every country in the world. We’re gonna look at every stock market from a long-term time horizon, and then break it down to a short-term time horizon.
The beauty of technical analysis is that we incorporate a multiple time frame approach. So, I’ll look at the London FTSE 100 going back 25 years, Nikkei in Japan going back 25 years. All the countries in Latin America, Peru, Chile, Brazil, Mexico. We’re gonna look at African stocks. We’re gonna look at Australia, New Zealand, Singapore, Taiwan. We’re looking at developed markets and we’re looking at emerging markets, and we’re comparing emerging markets to developed markets. We’re comparing Asia to Latin America.
So, we’re seeing what stocks are doing globally first. With that analysis, we’re doing the inter market work. We’re looking at what the commodities are doing, not just gold, silver, platinum palladium, oil, natural gas, but also corn, wheat, soybeans, cardamom futures, palm oil futures in Malaysia. If there’s a futures contract, it’s probably on our radar. Same thing with the currencies, maybe not every currency, but probably the top 60 currency crosses from dollar Canadian to yen and euro, to naki saki and about 60 crosses. So, we’re just seeing the flow of money.
And then of course, the biggest and baddest of them all, we’ve got to look at the bond market. That’s the smart money. You wanna know what’s happening in the stock markets, you wanna know what’s happening in the commodities market, start with the damn bond market. That’s where the wisdom really lies. So, it’s very important to be looking at across the curve, every country in the world or most of the major ones, maybe not every country, maybe not that dramatic, but we’re looking at across the curve, at pretty much the most important countries in the world, not just in the United States, emerging and developed markets.
So, after we do all of that work, then we’re gonna come to the U.S., or we’re talking to our India clients, then we’ll get to the NIFTY 500, or in this case in the United States, we’ll get here to America.
Meb: I always smile when I hear you on Twitter or elsewhere, where you’re like, “All right, it’s Saturday or it’s Sunday, I’m gonna sit down with a coffee or some wine, and gonna review 1,000 charts.” It’s just such a wonderful old school approach that I don’t think a lot of people do anymore, but you end up pattern recognition after so many times.
So, when you’re looking at what these markets are doing, all these various markets, what is the lens at which you’re actually viewing these markets? Are you looking for trends? Are you looking for support and resistance? Are you looking for Fibonacci? Like, what is your sort of framework and the main sort of muscle movements you’re looking for with all of these markets?
JC: The answer is all of the above, and probably, in that order. So, you pretty much nailed it. I mean, the first thing, we’re looking at is price. We’re looking for trends. You’re asking me about stocks in America? Okay, the first thing we wanna answer is are stocks around the world going up? Are they going down? The gloom and doomers that are telling us that the world’s coming to an end and this is a bubble and the whole thing, even the gloom and doomers, or the biggest perma bulls of all time, I think we can all agree that if the world is in fact coming to an end, European banks are probably gonna be leading the march down to zero. There’ll be front and center, Deutsche Bank and company, leading the march down to zero.
Well, we can all agree with that. Well, guess what? That’s not happening. So, that’s just one of a zillion things we could talk about. But that’s just one very simple. You wanna know whether you should be buying or selling stocks. What are European banks doing? Are they crashing or are they ripping? Because if they’re ripping, things probably aren’t that bad. You know what I mean?
Meb: You have a great quote on Twitter, where you were like, “There should be like a MTV real world for perma bears. Put them in a house together. They can complain all day. It’d be just like the Jersey Shore, but with way worse people.”
JC: I said that? That’s pretty funny.
Meb: I laugh so much at that, because this concept of price, there’re some great quotes by Ned Davis, the charts are dated, but the title alone is worth it, called “Being Right or Making Money.” And there’s another sort of tangental quote, which is “Price is like the only indicator that can’t diverged from itself.” And look, I consider myself I’m a value guy but a trend follower at heart, and almost every other ratio you could possibly have every other sort of analysis other than price, they can diverge forever, and really, this being the final arbiter of what’s going on.
So, all right, it’s 2020. It’s the first week of September. This decade’s been exhausting already. We’re only not even a year in. Let’s walk through sort of stairstep, what the world looks like. I think everyone would probably wanna start with the biggest and favourite for everyone, which is U.S. stocks. Give us a lens into what the world looks like right now.
JC: Well, this is a market of stocks. It’s super cliche to say, but it’s the biggest truth. When we talk about the S P 500, they’re 500 stocks, or like 504. So they’re like that, right? Because Berkshire and Google or whatever. So, there’s like 500 stocks. The Russell 3000 has 3,000 stocks. The Dow Jones Industrial Average is 30 stocks. We need to understand what these things are. The New York Stock Exchange composite has much more international exposure. Over half of the top 100 components of the New York Stock Exchange are actually foreign companies. So, it’s important to understand why the New York Stock Exchange has been under-performing the NASDAQ 100, for example, and what’s the NASDAQ 100. But it’s not regional banks, it’s not energy, that’s why it looks way better than the indexes that have regional banks and energy.
So, I think it’s important to understand what’s inside of these things. Meb’s like, “Yeah, you tell them, JC, Mr. ETF over here, right? What are the components?” So for me, I think that’s really important. So, what does the world look like? Well, are more countries breaking out to new highs and completing basis, or are more countries completing tops and breaking down to new lows? Which one of those is it? Or are they just sideways messes? I would argue that you alluded to earlier that I just go through 1,000 charts, it was probably a lot more than that.
But the beauty of it is, is that everybody is going out of their way. Everybody spends every day, all day, trying to build algorithms and formulas so that they don’t have to do that, instead of just doing that. Don’t people just understand that you spending all day building these fancy algorithms and back-testing this? Man, if you just stop doing all that stuff and just sit there, listen to some good music, pour yourself a glass of wine, or a beer, or coffee, or whatever, you’re into tea, and just sit there listening to good tunes, and just go through all of them. And you know what’s gonna happen? It’s gonna make it impossible to miss a major theme, because you’re just gonna get punched again and again and again, with the same patterns and the same trends, where it almost becomes impossible, Meb, to miss major themes that are going on around the world. It really is fascinating to me, human behaviour, that they work so hard to be so lazy. The irony in it is mind boggling.
Meb: Yeah, you’ve spoken to this in real time over the last few months as the U.S. market has continued to, I would say, inch higher, but jump higher. And people, behaviourally, or whatever it may be, always, I think, really emotionally struggle with new highs. Our friend Jerry Parker, classic trend follower, always says, “People are hopeful with losses and really afraid with gains, or afraid with markets going up.” You had another quote, I like to quote you because you have so many good ones, but it says, “By the time it actually ends badly, you can make a lot of money.”
JC: Bubbles are great. If you see a bubble, go buy it. That’s the rule of thumb. Bubbles are fantastic. I don’t know why people are so scared about bubbles. Do you know how much money is made in these damn bubbles? Just identify what the risk parameters are and make sure to be disciplined to that.
So, for me, Meb, what’s happening around the world? I think the answer is more countries are breaking out. More stocks are breaking out around the world, forget even the United States, globally. And the worst of the worst of the worst aren’t going down. That in of itself is evidence. It doesn’t mean you need to go by UBS and Credit Suisse and Deutsche Bank. It doesn’t mean you need to buy them. That’s just a source of information.
So, then we come to the United States already with the mentality that stocks around the world are going up. They’re not going down, rotation into emerging markets. And without rotation into emerging markets, what else is going on? Weaker dollar, precious metals are doing well, base metals are doing well. All of that is a similar theme. Who is the best performing index in the world in July? The Dow Jones transportation average. Right?
So, you’re seeing materials made all time highs this month. When was the last time you could say that? So, when people were like, “JC, there’s only five stocks that are driving the whole market. It’s all one big bubble that’s about to burst.” I’m like, “Five stocks? Materials just made all-time highs, Taiwan is breaking out. Semiconductors are breaking out. Railroads, truckers, all of these indexes are breaking out. Healthcare, all time highs. Communication, Facebook, Google, consumer discretionary making all time highs relative to consumer staples.
None of that is evidence of risk aversion, that is evidence of risk appetite, which to me answers the question, should we be spending more of our time looking for stocks to buy, or should we be spending more of our time looking for stocks to sell? And it has been abundantly clear since basically, April, really, that we need to be spending our time looking for stocks to buy. And when we start to see deterioration in breadth, in other words, when that stops happening, when we stop getting that expansion, when we stop getting that participation, the list of new lows starts to pick up, that will be evidence that a top is coming. It’s not like you hit an all-time high and the market crashes the next day. The crash that we had in February came after more warning signs than any stock market crash in history.
Meb: What would have been some of the main flashing yellow/red lights as we came into this year, that got you worried?
JC: It’s the opposite of what we’re seeing now. What are we seeing now? More countries making new highs, more sectors making new highs, more stocks making new highs, more stocks showing bullish momentum characteristics. All of that is evidence of breadth expansion. Throughout the third and fourth quarter of last year, we were probably the biggest bulls on Wall Street, obnoxiously so. Analysts, clients, colleagues, were telling me, “JC, what’s it gonna take for you to be bearish?” I’m like, “Well, we keep seeing more new highs.” Basically, what I’m saying now. What’s it gonna take to get bearish? Well, fewer sectors making new highs, fewer countries around the world making new highs, an expansion in new lows, your stocks showing bullish momentum characteristics. When we start to see that, that’ll be evidence of breadth deterioration, which is classic prior to an index peak.
So, what happened? In, I believe it was January the 16th, that was the high for the market. And people are gonna be like, “Well, the S P went on to make new highs into February 19 or 21st,” whatever it was. Fine, but most stocks had already peaked on January the 16th, and it all started going down. And the worst stocks, the regional banks, they peaked in December. So, you’re seeing relative weakness from financials, which is classic. I mean, you wanna talk about the ’07 peak, there you go. And you’re seeing breadth deterioration.
By the time the S P, the DOW and the NASDAQ made those final highs in February, small caps were already putting in lower highs, transport’s putting in lower highs, all the laggards, all the losers. Micro caps, mid caps, the advanced decline line was putting in lower highs, the New York Stock Exchange composite, the value line geometric index. I mean, you can go on and on and on. The list of 21-day highs, the list of 63-day highs, all of them deteriorating, the percentage of stocks showing bullish momentum characteristics deteriorating. By the time that final high was made, there was nothing left making new highs. Everything was already rolling over and making new lows.
Meanwhile, bonds are breaking out, precious metals are breaking out, volatility is breaking out. Like, hello, what are you waiting for? See you, we’re out. Again, it goes back to the beauty of technical analysis, is that there’s not one holy grail that’s gonna tell you buy or sell. It doesn’t work that way. It’s a weight of the evidence some of the parts approach. It’s the holistic approach that we use, which is why I sit there with my glass of wine bottle and go through 5,000 charts. That’s why we do it. This is just a beautiful example of the inter-market relationships and the way that the whole world is tied together. While the world was falling apart and the stock market’s having the biggest crashes in history, we’re being quoted in the Wall Street Journal as having the best day in the history of our firm. It was amazing to witness.
Meb: So, I’m smiling because you mentioned 3,000 charts and a bottle of wine rather than a glass, because I imagine that’s gonna take more than 15 minutes. What is your go-to resource, software, while we’re on the topic? How do you speed through 3,000 charts? Is there any particular go-to for charting, you like?
JC: We’re pros. We do this professionally. We have a big team, so we use a company called Optuma. It’s not cheap, but I mean, it’s fantastic. To me, it’s the best in the world. Shout out Matthew Verdouw. What I like about Matthew is that he listens to us. CEOs of other charting software’s don’t care what me and my team have to say. So you know what? Screw yourself then, I’m not gonna help you. But I promise you, from the bottom of my heart, if you have a charting software you wanna make sure that all my ninjas are ripping through that thing, telling you how it could be better, and myself included. But it’s not just me, Bruni, and Straz, and Patrick, and all these guys. If you own a charting software and you’re not constantly picking the brains of me and my team, like what are you doing?
So, anyway, shout out Matthew Verdouw. He listens to us. He’s building great stuff. Shout out Rob Corbyn, speaking of people who listens to us, also gets it. What I found the reason why most charting software suck is because they are built by coders trying to get in the finance game. What I love about Rob is that he’s one of us. He’s a trader ex Goldman. Like, he’s you and me. He’s getting into coding, or he got in the coding game, right? This is the only time I’ve ever seen that, which is why it’s such a great tool, I think.
Meb: We’ll add links in the show notes. So, you touched on an important point, which is the media, and in particular, for whatever reason, commentators always get focused on whatever the five, 10 securities topics of the day are. And that’s all anyone wants to talk about. So today, in early September, that’s the Apples and Teslas of the world. A year ago or two, it might have been crypto. In a world of tens of thousands securities, and you mentioned materials, it’s hard for people to get hot and bothered about materials, but you can see pretty monster moves in many of these sectors.
We got some Canadian listeners. We just did a natural resources podcast, came out today. I mean, I think the miners are up like 50% this year. So, there’s opportunity everywhere, and it’s always surprising to me to see people, all they wanna talk about is like one or two topics.
All right, U.S. stocks, we’ve established they’re romping and stomping, hitting new all-time highs. A lot of foreign markets are as well. When you’re looking at, sort of, one asset class like global stocks, how do you think about either rotation or position sizing, where if everything is looking good, are you saying, “Hey, look, we should be rotating amongst some of these sectors or markets?” How often is that? I would characterize you probably as like an intermediate term trader, if that’s accurate. If not, correct me.
JC: Yeah, we’re trying to make money this quarter, so we’re looking at weeks and months. We don’t care what happened today. With very few exceptions. There are certain parameters that if something happens on a given day, we do care, but that’s so rare. Chances are I probably don’t give a damn what happened today. We don’t care what happens next year. I mean, I don’t know what I’m having for dinner tonight, let alone what’s gonna happen next year or after the election or whatever, after the Olympics, or whatever they’re asking me.
When you talk about how people only wanna talk about 10 stocks or whatever it is, it’s because a lot of the people that are talking are in the business of distraction. So, it’s their job to distract investors from what’s important. That’s their job. So, most people talking, they’re going at it with those intentions. You and I, and most of your listeners, probably, we wanna know what’s actually important. We don’t need those distractions. Those distractions can be very sexy and they have cool music, and maybe a pretty journalist or, ways to attract us. Really, that’s just their job to distract. It’s our job to ignore and focus on what’s important.
The beauty of price behaviour is that it will never steer us in the wrong direction. Price will never be restated. Earnings are an estimate. And if you know anything about auditing, these are like 23-year-old kids fresh out of college who don’t know anything. So, you got these analysts that are analyzing the data being built by these 23-year-old auditors? Like, I mean, that’s a joke. The garbage in garbage out. They could either be lying to you or wrong. CEOs can be lying to you or wrong, innocently, just incorrect. GDP numbers and all this economic data, number one, those are estimates. Number two, we know for a fact they will be restated.
So, none of that makes any sense to me at all. If there’s a buyer and a seller for a particular stock, they’re gonna transact and they agree to transact at a specific price, at a specific date and time, and that will never change forever. The beauty of the markets and why technical analysis works, why good technical analysis works, I should say, is because we’re analyzing trends and markets trend. I mean, I’m not Mr. Statistics and bell curve. I’m not that guy, but I do know that the market returns are not evenly distributed. It’s not like a normal distribution curve.
Markets trend, so if something’s going up, there’s a higher likelihood that it’s gonna continue to go up than for it to completely collapse. Not a 50/50 chance. This isn’t a roulette. It doesn’t work that way. Markets actually trend. So when you get on a hot streak in roulette, like, that’s just in your head. It’s not really a hot streak. But in the market, that’s a hot streak. A three-point shooter in the NBA, that’s a hot streak. Keep feeding him the ball. He’s hot. He’s got the groove. I was a baseball player. When a pitcher is on, because pitchers are weird people. You think technicians are weird, pitchers other weird ones. So, always in our head. But if a pitcher is on, to take them out for the sake of taking them out because you wanna have a lefty face, to me, that’s the most idiotic thing ever. He’s on, leave him on. He’s got good stuff.
So, in markets, in pitchers, in three-point shooters, there are trends. Give him the ball, leave him in there. Keep buying that stock.
Meb: There’s a great recent example, which is I saw a tweet and it’s talking about this, we referenced this a few years ago. It looks at all the Wall Street analysts at the big firms, and they project where the S P is gonna be next year, and it always, always clusters between let’s call it minus five and 10%. Usually, it’s really like three to 10%. And if you know anything about statistics in history is that normal market returns are extreme, so the majority of the time, stock markets are way outside of that range.
JC: Yeah, they’re supposed to be, what is it? Eight percent a year, but it’s actually never been eight percent.
Meb: Yeah. And so I used to joke, I said, if you want to be the most accurate Wall Street strategist, you just project every year that it’s gonna be up 20, and you’ll be far more right than the rest of, you can go back in history and show you’ll be far more right than everyone else. And this year, the S P is already, I think, bumping up higher than any analysts had predicted. So, it’s like already a classic example of the group think and herding. But in the tails of the market returns, I think a lot of people just don’t conceptualize the possibilities of these really big moves to both sides, both up and down.
JC: Well, in the career risk, too, because if you’re a sell side analysts, or one of the three that are left, if you’re one of those, let’s just say there’s 27 analysts that are covering this one stock, and 25 or 26 of them have buy recommendations and you’re the lonely guy with a sell, you better be right. You better be right. You’re the analyst, you’re gonna be like, well, let’s see, I have three kids in private school and a wife that doesn’t work, and a mortgage and a vacation home, and I got all this. So, I can risk all that because I think this is a short, or I could just be like, oh, you know, I got it wrong, but so that everybody else, and now I get my insurance and my kids can stay in private school, and my wife doesn’t have to work, and we can go on fancy vacations, and she gets jewelry and blah, blah, blah.
That thought process is real. And it might hurt some people to hear that, but that’s the way life works. That’s Wall Street. And their conflicts of interest are just beautiful to watch, because you can exploit that. There’s opportunity there.
Meb: It’s conflicts and just very natural human nature of career risk. It’s sort of easy, also to like, naysay a lot of that behavioural setup, but it’s a pretty rational decision for lots of those people. If you’re in that position, like you said, and you get it wrong, you’re fired, so what’s the better choice? This is why you see, for example, like the home country bias in every country where people invest all their money in their own country.
JC: And the regional stuff, how if you’re in California, you’re probably gonna be more overweight tech, if you’re in Texas, you got more overweight energy, if you’re in the northeast, you got more financials. If you’re in Canada, you’re all up in the natural resource space.
Meb: Yeah. So, we talked a little bit about stocks. You mentioned a topic that hasn’t been getting that much press, and I think that being that of the U.S. dollar over the past, say, six months. Talk to us about dollars, currencies and bonds, what’s going on in that world? That’s a weird world, where I think five, 10 years ago, if you were asked any of the traditional fundamental strategists about where we would be with sovereigns today and how so many are negative yielding, no one would have predicted it. Talk to us a little bit about what you see going on in currencies and bonds.
JC: Think about the concept of we are paying, not we, but like, investors are paying governments for the right to lend them money. Did I get that right? Like, I just think about, what people fail to realize, people are like, how can anybody want to be in a bond with a negative yield? What those people fail to realize is what’s the alternative? They’d rather be doing that than be in anything else. They have a reason why they prefer to do that. People don’t realize that everything is relative. Everything is like, oh, should I buy this? Well, as opposed to what? What else could you be doing with that money? So, that’s interesting.
Number two, we had quite a reversal in the U.S. 10s and 30s this month. They closed July, at the lowest levels in history, 10s and 30s, and then put in outside months, in the month of August, which basically means we put in new lows below the prior lows, new highs above the prior highs from last month, and closed near the highs. So, that’s an outside month. What does that mean? That’s very characteristic throughout history as something that typically occurs at turning points.
Now, we need follow through and confirmation this month to show that yes, in fact, that was a turning point, number one, number two, we didn’t see those outside months in yields around the world to confirm that. And number three, we haven’t necessarily seen the outperformance out of regional banks that would most probably be consistent with higher rates.
So, those are a few things. You’re looking internationally, looking at regional banks not just relative to the U.S. stock market, but also relative something like REITs, real estate investment trusts that are higher dividend paying names. So, if you’re a fixed income investor and you’re not able to get your yield in the bond market, you’re gonna go to the stock market at those higher dividend paying names. So you’ll see that sympathy bid and things like REITs and [inaudible 00:37:42] as rates continue to fall, or as the market believes rates are gonna fall. And then you’ll see that sympathy selling, historically we’ve seen it anyway, and then the relative strength in regional banks as rates go higher. The fundamental community tells me it has something to do with margins and yield curves and whatnot. That’s not really my problem. I just know that on a relative basis, regionals tend to do well if market thinks rates are going higher.
But few things I’m looking at there in terms of the currency space. one of the big things we were looking at coming into Q3 was for that weaker dollar. So, we couldn’t be more thrilled to see the dollar getting slaughtered. What were the implications? In our heads, it was less about the dollar. We’re not trading currencies here, or very little. It’s not so much where we’re gonna short the dollar, it’s what does the rest of the world look like in a weaker dollar environment? Precious metals are doing well, emerging markets are outperforming, base metals are doing well. copper, new highs, the Freeport McMoRans, Caterpillars of the world, that industrial global growth complex, Aussie dollar, Aussie Yen, that world. Latin America rotation into that space, natural resources, those are the things that come to mind in a weaker dollar environment, and guess what’s been happening in the past couple of months.
Meb: It’s funny, because back pre-last financial crisis, you and I were cutting our teeth before the GFC, every pension fund on the planet was interested in commodities. And then you’ve had this 10-year period of decimation, disinterest, really all that put together. I mean some, since 2012, P.
And then you’ve seen just one after another, all the pension funds, all the big money institutions start to get rid of their commodity exposure the last two, three years. It could be one of the worst times. You’re starting to see, it probably lead with precious metals, and then base metals are starting to pick up. What are you seeing in energy and ag? Are those two areas that are still lagging? Are there any signs of life there?
JC: Well, they’re not going down. So, that’s like step one, because ag’s just been a mess forever. The energy obviously, has been a mess, so they stopped going down. So, step one for an uptrend, they stop going down. So, you got that going for you. Look at natural gas, absolutely ripping in the last couple of months. I think that’s interesting. oil off the lows, obviously. Think of oils above 40, it can’t be short, I don’t think, but that’s an interesting level that we’re looking at there.
Energy is not really something we wanna be betting on today. I mean, we’re looking closer. More energy stocks keep coming up on our radar, more material stocks keep coming up on our radar. Because what we do, Meb, from that top down approach, when we get to the U.S., we’ll look at every index as we mentioned, but then we’ll look at every sector, all 11 of them, or 12 or 10, depending on who you ask. Energy, healthcare, financials, tech consumer.
And then we’ll break it down to the individual industry group. So, financials, it’s not just Wells Fargo. You’ve got broker dealers, you’ve got regional banks, you’ve got insurance stocks. In healthcare. It’s not just Johnson Johnson and UNH, you’ve got medical devices, which are basically tech stocks. You’ve got biotechs, you’ve got pharmaceuticals, you’ve got managed health. Energy, you’ve got refiners, integrateds, explorers and producers, oil services.
So, you have different industries within a sector. I think it’s important to differentiate between them, because medical devices and pharmaceuticals don’t look anything alike, as they shouldn’t. The medical devices look like tech stocks because they actually are, but they’re just stuck in the health sector. It’s important to really recognize that.
So, we’ll do that whole top down approach, so by the time we decide that we’re gonna buy Intel or we’re gonna to short Exxon, 95% of the reason we’re doing that has nothing to do with the chart of Intel or Exxon. It has to do with the other 4,000 charts that we looked at that boil down to the fact that yes, we wanna be in some sort of mega cap, semi, whatever it is. That’s number one.
Number two, in order to supplement that top down approach so that we don’t miss anything. we’ve created bottoms up filters. We got this one thing called Under the Hood, where we’re looking for stocks that have an unusual increase in investor interest, whether it is on social media, we have data, our friends in like folio are providing interesting data, StockTwits is providing interesting data, stock charts. I mean, there’s Twitter. Robin Hood was releasing it for a while, too. So, there’s interesting data that we can see what people are interested in. That’s a great way to see what’s on the radar, and hey, maybe it wasn’t our already on our radar. Usually half of them already are. And we can either join the momentum and buy along with them or say, “These people are lunatics. They’re crazy. We’re gonna short it like Nikola, we did a few months ago.” So, that’s one of them.
Another one we’re doing is what we call two to 100. We call it the 50 baggers. So, these are stocks that are graduating from small cap into mid cap status, crossing that two billion market cap sort of level, and are within 13 industry groups that we’ve decided have the highest potential to go from two billion to $100 billion. So, these are consumer, internet software, cloud computing, solar, software, semiconductors, all of those. We found great names there. These are names that wouldn’t have been on our radar because they’re coming up and we’re very focused on working our way down. This is a great supplement. So, we’re making it more difficult every single day for us to miss anything, which is the goal.
Meb: How challenging is it or not, for your subscribers, followers on the 50 bagger concept? One of the things when we used to have discussions with people and they have gains where they double their money, 3X, 5X, they started to get very itchy and wanting to realize that gain. Do you have that experience as you’re interfacing with people on the way to 50x, at some point, it was a 10X. I imagine a lot of people are super stoked, super happy, ready to take that gain and have that 10X, but really to get to the 50 or even 100X, that’s only one stop on the path. Is that something that you think is a struggle for people, or is it…?
JC: You know the answer to that. You do a lot of behaviour analysis. You know the answer, you’re just giving me an alley up here, because you just wanna hear me say it.
Meb: But my question is you may have some sort of mental hack, because I don’t. I mean, I have a struggle. I’m just like, “Look people, you’ve got to be patient,” but people don’t wanna hear that.
JC: There’s no cure. There’s not like a pill you could take to cure yourself from being a homosapien. You’re gonna have these emotions. The prescription, if you will, is to, number one, anticipate these emotions. So, knowing you’ve got a three bagger on the portfolio that you haven’t touched, understand that you’re gonna wake up tomorrow and you’re gonna be like, oh man, I need to get out of this before I lose all the money I just made. Like, know it’s coming, and then when it does come, be like, “Ha, ha that’s me. I’m still a homosapien. Don’t do that JC.” You’re never gonna get there unless you learn that the hard way. And even the best, and you talk to a lot of the best, and so do I, they’re still making these mistakes. We’re human. So, that’s number one.
Number two, when I say that we’re looking for 50 baggers, two to 100, we’re not literally buying it at two billion and holding it and selling and when it gets to 100. All we’re doing is building a universe of stocks that are on their way to potentially going to 100, and we’ll take chunks along the way.
Meb: Yeah, I mean, I think that’s really the sensible prescription for people to even maintain their sanity. They start to go even crazy with the gains, because it is the what if I lose it? It becomes such a big part of the portfolio. So, we often tell people to sleep at night sort of, ideas. “Look, just take some off the table as it goes. If that reduces the potential bad outcomes of sell it all or hold it all,” because you could have 1,000 examples of either case, where it continues to go up and also just goes back down to zero and you lose all your money.
So, we recently just had on the podcast a great guest, old school trend follower, Tom Basile, really thoughtful interview. We spent a lot of time talking about entries. But he’s been doing this for decades, and talked about an area that so many people, I think, neglect and spend less time on is the concept of really position sizing, risk management, thinking about how to put the portfolio together.
Any general thoughts on those concepts, as well? Because I imagine so many people talk to you, as you mentioned, so much of it is what do I buy? What now? But like, how do you think about the general risk management of the funds and portfolios?
JC: Yeah, so you wanna think into the future. What is the world gonna look like, what is the market gonna look like if we’re right, on this particular thesis or in these sets of thesis? What does that world look like? As time goes on and more data comes in, we wanna say, okay, is the data in fact confirming? Are we seeing those things? Or are we seeing the things on the list that it would take to change our mind and maybe a more defensive posture would be best? We have two different lists. What’s it gonna take to prove that we’re right, and what are the things that we’re gonna see that suggest we’re probably wrong? We wanna make those lists.
I think at the top of the list of what is it gonna be that it’s gonna prove us wrong that maybe we shouldn’t be buying stocks, that we should be selling them instead, on that list is small caps and micro caps falling below the June highs. Those June pivot highs, I think, are really important. One of the concepts that we discussed was that if even the worst areas can go down that, in of itself is bullish. So, small caps, micro caps have been laggards for some time. Transport as well. They’ve already broken out to new highs. So, I think seeing small caps and micro caps IWM and IWC breaking below those June pivot highs. I think that would be step one to maybe we shouldn’t be so bullish and we need to be selling more stocks.
Meb: The small cap, particularly the value guys, got absolutely drubbed in Q1, I think small cap value was down like, 50% at one point. I think it’s a struggle for a lot of people, this general, what they see as a Wall Street Main Street displacement, where it’s like diverging on the way the world looks today. You mentioned, I think, accurately, the struggle for so many is being able to separate that from the potential discounting of the future.
JC: But I don’t understand. We have the data, Meb. We know the market is a discounting mechanism. People are obsessed with what’s happening today, and the stock market isn’t showing what’s happening today. If you actually think that and you think that the market, Wall Street and Main Street are separated, you’re basically telling people that you can see the future, and you’re like this, like, omniscient, whatever, and you can actually see the future. No, you idiot, you don’t know what’s gonna happen six months from now. But the market is pricing that in.
And you wanna know what else? The people with the most amount of money and the most amount of information, who has that? The people with the most money. I don’t know what information they’re getting, neither do you. But you know what they’re doing with that information? They’re buying stocks. Some governments have that information, some don’t. They may or may not tell you, but the people with the most money and the best information on planet Earth, what are they doing with that info? They’ve been buying stocks. So, whatever they’re seeing, to me, can’t be so bad.
Meb: Talk to me a little bit about sentiment, the struggles of the behavioural creeping in. And then as you look at the canvas, what’s going on in the world, as you are on Twitter, talking to people, how much of that plays a role in what you guys actually do? And how much of it is really just colour that you say, huh, interesting that, this, that and the other is happening? And how much of it actually is like oh no, this is an indicator that is part of our process?
JC: Yeah, so there’s quantitative sentiment analysis that we’d certainly do, that is useless. I would argue probably north of 95% of the time, it’s useless. It’s a lot. But when it is at extremes, Meb, when the rubber band is stretched to points that it has never been stretched to, or it hasn’t been stretched in quite some time, that’s when we’re interested. That, in the stock market might be a couple of times a decade at best. So, just understand how useless sentiment is, and harmful, in my opinion, because I think an overwhelming amount of time is being spent on analyzing sentiment when I think the real conclusion is that it’s usually useless, and you’re gonna drive yourself crazy because you’re between those bands. Wait till it exceeds the bands and then start focusing on it, is how I see it.
So, I look at sentiment not from a top-down perspective, but from a bottoms-up. Like, holy shit, look at what the hedgers are doing in cocoa, or bond facts have never been at this point, or the dollar this. So, like, sentiment…and it’s hard to find sentiment data for individual stocks. I think you need to be picky with what sort of data you’re analyzing. The Commitment of Traders, I think, is a great one. Consensus saying, things like that. Any sentiment, I think, should be looked at only at extremes, number one.
Number two, from an anecdotal standpoint, it’s tough saying, “Oh, everyone’s bearish. Oh, everyone’s bullish.” Really? Is it really everyone? Are you just like, are you bullish and you just like saying that everyone’s bearish? Like, there’s a lot of all that that goes on, so I think you need to be real careful.
My grandmother, bless her heart, is the greatest contrarian indicator of all time. I’ve got the data. I have a monopoly on this data. I can tell you stories when she called me in 2017 asking me about this new currency. I’m like, “Number one, it’s not a new currency, and number two, the fact that you’re asking me about it, it’s a sell.” I think Bitcoin peaked a week later.
Another time in 2015, I show up at her house and usually she gives me a great big hug. I mean, she’s 90 years old. Gives me a hug. This time she opens the door and instead of hugging me, she runs to the kitchen, she grabs El Nuevo Herald, they’re in Miami, so this is the “Miami Herald” in Spanish. And it’s got a euro, like the euro sign, sinking in the ocean. She’s like, “Euro,” and shaking her head. I remember I called Phil Perlman. I’m like, “Yo, we need to be shorting dollars, buying euro like, stat.” Like, [inaudible 00:51:20] bearish euro. And then sure enough, euro rips dollar gets slaughtered. When “The Economist” comes out with robotic bulls in early February on the cover just as the tech is hitting our target and we start shorting stocks, and I see a bunch of charging robot bulls on the cover of “The Economist,” I’m like, holy shit, if this isn’t a fade, I don’t know what is. Nailed it again. “The Economist” is a great contrarian indicator. I would say of all the magazines, they’re the best.
Meb: Because we’ve got to start winding down for you. We’re starting a new feature, I’m gonna hold you to it. You’re the first person we’re asking this, but it’s gonna be a standard question from now on. I’ve got to put your feet to the fire. If you say early September your best idea right now, what comes to mind?
JC: Wow, best idea. I’ve got a lot of ideas. I really like this two to 100 situation we got going. The names that are being pulled up are sexy. My favourite of all of them. I’m gonna give you Dynatrace.
Meb: Is this a robotic dinosaur GPS? What is it?
JC: The ticker symbol is DT, $13 billion market cap company as we speak.
Meb: So, no baby. That’s a solid upper mid cap. Technically large.
JC: Technically large above 10. So now up 13. Number one, it’s an uptrend. Number two, it’s been basing for three months, so these idiots to tell me that the market is going parabolic, I could name you 200 stocks that have done nothing for the last three months. I don’t know what parabolic they’re talking about. DT, I think is a great example of that. Dynatrace, in the software space. So, there’s that top down approach. We like stocks as an asset class. We like U.S. stocks, we like tech, we like software, we like stocks in uptrend showing relative strength and positive momentum. Check, check, check, check, check.
And then most important of all of those is that the risk versus reward is in our favor. You can throw away all that other stuff, where’s the risk reward? Is it in your favor or not? I think it is. If the stock is above 44, we wanna be long. So, if the stock is not above 44, we want nothing to do with DT, and we wanna be taking profits at $61 per share.
Meb: Most of your ideas that you look at when you initiate a position, is there any sort of hard and fast exit, stop, trailing stop, or is it more particularly chart-based? How do you think about the exit?
JC: Always, you wanna let the market prove to you where you’re wrong. The market doesn’t care what your risk threshold is. These arbitrary trailing stops based on your personal risk threshold, do you think for one second the market gives a damn about that? No, not at all.
The first thing you do is you wanna say, at what price am I wrong? Let’s say the stock’s at 46 and the stop’s at 44. That’s two points I’m reading wrong. And let’s just say that I’m willing to lose two percent of my portfolio on this trade. Worst case scenario, I lose two percent, I’m okay with that. So, I’m like, okay, so now let’s just say I have $100,000 in an account, I’m willing to lose only $2000 of that. So, then you divide that amount of money that you’re willing to lose, by how many points you are away from your stop. That’ll tell you how many shares you should own to express your thesis in the market, based on your risk parameters.
And then your profit parameters, in my opinion, should be exponentially greater than that particular risk. So, if it’s two points of risk that you’re taking, I think you need at least 10 points of upside, ideally 16 or 20, realistically to really do it right, I think. So, that’s how I look at that, seven to one, eight to one, risk rewards, yeah.
Meb: Yeah, the power laws are the big winners do so much investing to take care a lot of the losers, which we all have, of course, but the big winners are what we’re looking for. You look back over the years, I’m assuming there’s been probably thousands of different investments that have caught your eye. What’s been the most memorable investment? It could be good, it could be bad, everything in between.
JC: I think it’s investing in me. I get asked by everybody and their brother, yourself included, today, what’s your best idea? All the journalists, what are you buying? My friends, my college buddies, high school buddies, family, what are you buying? What are you buying? Do we buy airlines, do we buy cruise lines? They love bottom fishing garbage. What are you buying? Everybody wants to know what stocks to buy. What’s gonna get them rich. You wanna know the best investment? Everything that I’ve done on myself. You wanna go invest in some venture capital in tech, that’s great. But why not hire an engineer to build stuff for you that you want? Because internally, that’s gonna help our process, which is gonna make everything better. And then maybe we even package it and give it to the public and we can make money that way or just do good for the community.
The one thing that I’ve consistently won, where I’ve won, is when I’ve decided to bet on myself instead of on some stock or in, you know, whatever.
Meb: Yeah, we did a post earlier this year, four-part series, but the first was on this concept of the get-rich portfolio. It was on, essentially, the takeaway was the theme you’re mentioning. Tell me a little bit about it. So, you guys do a quarterly/yearly subscription. Is it only focused on institutions? Can individuals subscribe? And then also part two of that is, tell me about this India offshoot? Why India?
JC: Well, we have institutional clients that pay higher prices. They have different needs. One thing we’ve noticed about the institutional community is that they all have different objectives. They all want different things, not just from the portfolio, but then therefore from us. Whether you want us to sit on a monthly meeting with you, or whether you wanna get access to our analysts on a weekly basis, or you want certain reports that we custom build for you that we deliver to you on a weekly basis. Some people wanna talk to options, some people don’t want anything to do with options. Some are more global macro, some just want the idea of flow. Everybody is different.
But then for the All Star Charts on the platform, we have a quarterly subscription, it’s a little under 500 bucks a quarter. And we have an annual subscription. I think it’s about $1,700 for the year. We’re about to raise that to $2,500. So, go to allstarcharts.com and get it now. And then what everybody gets is two monthly conference calls, live calls. We actually have one tonight, as a matter of fact. And I sit there for an hour, we talk about everything in the world, from the global macro down to the specific trade ideas.
Then we have a bunch of research that we put out throughout the week, every week, both quantitative and individual ideas of global macro and domestic. We’re building new tools every day and sharing that with our clients, which is why we have to raise prices because we need more resources.
We’re a team of 15, Meb. This started off as a blog on StockTwits 10 years ago, and now we’re a team of 15, the most widely read team of technical analysts of all time, simply because we have access to that with all of the social tools and whatnot.
And then that’s how I discovered India. So, years ago, like everybody else, you hear India, India, India. “Oh, India’s popping off. Oh, India. India this, India that.” I’m like, you know? I’m gonna go over there, I’m gonna see what the hell all the fuss is about. Worst case scenario, I get some good eats, and best case scenario, I learn something and see what’s going on over there.
So, Bloomberg invites me to give a presentation and I’m like, “All right, I’ll speak at Bloomberg.” So, I go show at Bloomberg, 250 people standing room only. Like, people fighting to get tickets for this thing, people hooking each other up. It was like a concert. I’m like the Justin Bieber of technical analysis in India, all of a sudden. And I’m like, holy shit. And these weren’t like mom and pop investors off the street with like Velcro on their shoes, with popcorn breath. It’s not one of those conferences. These are like, real traders, the biggest PMs at the biggest shops in Mumbai, standing-room only, listening to this Cuban screaming about NIFTY 50 and whatnot. And afterwards, people coming up to like, “Hey, JC, let’s go get drinks, let’s do this, let’s do that,” I’m like, “Yo, okay. All right, I see you.”
We’ve been back a couple of times. We’re building a massive business out there. We’ve got boots on the ground. We continue to grow. We continue to learn more about the market, more about the culture, more about the people, the sports. I love everything about India, from the food, to the people, to the architecture and everything in between. It’s just great. Like, we’re making money over there, and everything’s fantastic, but man, I’d do it for free.
Meb: Well, when the world opens back up, let me know next time you go over, you’re making me hungry today. I’ve never been to India.
JC: Good. We’re throwing an epic party. The plan was to throw the party this November, and we weren’t able to do that, obviously. When everything opens up, we’re gonna have the biggest badass party in Mumbai. Everybody is invited. It’s gonna be so sick, so sick, Meb. You’re coming through.
Meb: I know, I’m sad. I was supposed to be in Spain this fall, now it’s virtual. So, one of these days. You know, it’s interesting, the local to me here in Los Angeles is a good friend. Longtime market historian and technician John Ballinger, and for years he’s been talking about all these pockets of huge interest in technical analysis all over the world. And certainly, in many of these countries, particularly over like the last 10 years, but in some countries like Japan, where markets think about equities have essentially gone nowhere for three decades, buy and hold as a philosophy is not even really a concept that people traditionally think of. And so when you have a lot of these other interesting methodologies, you have an entire generation of people that are much more technical inclined in some areas of the world. So, there’s interest globally, for sure.
JC: I’ve seen it 100%, Meb. I’m telling you, people don’t believe me because they haven’t seen it with their eyes. Go see it. Go to the Philippines, go to Taiwan. Go to Singapore. Go see what’s going on there, Malaysia. It’s crazy.
Meb: Look, we could keep you forever. We’ll have to have you back on and chat about where the markets are in the coming months. JC, it’s been a blast. Where do people go? Where do they go find out more information, find out what you guys are doing?
JC: Yeah, go to allstarcharts.com, follow me on twitter @ allstarcharts, YouTube @ allstarcharts, StockTwits at allstarcharts, IG @ allstarcharts. I’m easy to find. Contact me if you have any questions, or even if you just wanna say “What’s up?”
Meb: Awesome, brother. Thanks so much for joining us today.
JC: All right, Meb.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us email@example.com. We love to read the reviews. Please, review us on iTunes and subscribe to the show anywhere good podcasts are found. My current favourite is Breaker. Thanks for listening, friends, and good investing.