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Tyler Wood 00:13
Welcome to Fill the Gap, the official podcast series of the CMT Association, hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process and decision making tools. By learning more about their key mentors, early influences, and their long careers in financial services, Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered, engineered, and refined the design of technical markets.
Tyler Wood 01:10
Fill the Gap is brought to you with support from Optuma, a professional charting and data analytics platform. Whether you are a professional analyst, portfolio manager or trader, Optuma provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at Optuma.com.
Tyler Wood 01:51
Good afternoon, Dave Lundgren, how are you this afternoon?
Dave Lundgren 01:54
Doing well. Tyler, how are you?
Tyler Wood 01:56
I’m very well. Welcome to Episode Three of Fill the Gap.
Dave Lundgren 02:00
Yeah, very exciting. Very exciting.
Tyler Wood 02:02
There’s no shortage of items to talk about. And I’m very excited about our next guest, Mr. Walter Deemer, who was a founding member and a past president of the CMT Association. In your perspective, Dave, what was the real standout about Walter’s storied career on Wall Street, that really struck you the most?
Dave Lundgren 02:22
I’d say probably a few things. One is: to go through his experience as an investor and as an analyst over these years, having started in the 60s, is especially pertinent today, because we’re going through – it’s debatable, but we’re going through what could be ultimately in hindsight, one of the greatest bubbles of all time, right? Well, we’ll see, but we do know that there are four or five on the books that we know for sure were bubbles and Walter navigated all of them. And so he had some pretty interesting insights to share with us in this episode, which I thought was really great. And then also the fact that he worked with Jerry Tsai, the original momentum investor in growth investing during the gogo years and, and so he had that experience to share, which was quite fascinating as well. And then anybody that follows Walter on Twitter knows that he has a incredible sense of humor. You know, if you’re not laughing at every other sentence speaking with him, then he’s having an off day. His wonderful nature and his sense of humor just came through on the episode as well. So I’m really looking forward to sharing it with everybody.
Tyler Wood 03:22
I thought it was very fitting to bring one of Bob Farrell’s own hires: Walt started with with Bob Farrell at Merrill Lynch in 1964. And as you mentioned, those gogo years with Jerry certainly gave Walter a lot of anecdotes to share with us in terms of some similarities and differences. And for those of you who are not familiar with Walter’s work, if you haven’t been one of his institutional clients for the last 40-some years – in our show notes, you’ll find links to Deemer Market Memos, and Walter took on the Herculean task of documenting and archiving digitally all of his market research starting from the 1960s. So just an incredible treasure trove of Walter’s own technical research. And hopefully, this interview with Walter will bring everything to life for all of our listeners. We do talk some more in the interview about Walter’s writings, he’s an author of several books. And most importantly, for those of you who are looking for a great read, can’t recommend enough his recent book, “When the Time Comes to Buy, You Won’t Want To: Timeless Pieces of Wit and Wisdom compiled by Walter Deemer.” So I’m really looking forward to sharing this interview with the world and hopefully getting some great feedback.
Dave Lundgren 04:36
Tyler, why don’t we spend a couple minutes updating our listeners on what’s happening in the CMT Association? We have a lot coming up in the coming year, but let’s share a little bit with our listeners.
Tyler Wood 04:46
Absolutely. The COVID crisis has certainly caused a lot of change for just about every industry and the CMT Association is part of that as well. So for those candidates who sat for the CMT exams in December, many of whom took the exam through remote proctoring, we’re very excited to share that on an ongoing basis, CMT exams will be available worldwide through remote proctoring as well as the Prometric test centers. We’ve worked with our partners at Prometric to make sure that those exams are delivered with integrity and security. There’s a lot more information about the remote proctoring process and the requirements for your system and your space to take that exam with the utmost security – find out more at CMTAssociation.org. The other exciting announcement is that for the last couple of years, we’ve participated in the CFA Institute’s stackable credential initiative, and I know we have a lot of investors from around the globe listening in to Fill the Gap. For those of you who are CFA charterholders, in good standing, we welcome you into the CMT program with a bit of a glide path: CFA charterholders can begin their exam process at level two. After a robust curriculum mapping process, we realized that a number of the same subject matter areas were covered throughout the CFA program, and there’s a natural fit for CFA charterholders to begin testing at level two. And for all of you out there who are considering registering, the next exam cycle is June 3 through the 13th of 2021. And we just finished the early registration period. So now in March of 2021, we wanted to offer a quick incentive for those who were interested in registering, but may have missed that early registration deadline, you can enter the code J21CFA100 lets you take $100 off of your exam registration at any of the three levels.
Dave Lundgren 06:43
Speaking of which, of course with COVID, affecting, as you said, all industries, of course, we usually have our annual symposium in New York. And of course, last year, we were unable to do that. But we do have a solution this coming year with a virtual investment conference, why don’t you tell us a little bit about that?
Tyler Wood 06:57
Thank you, Dave. It was a really difficult decision last spring to cancel the conference. And I know that’s one of the highlights for members of the CMT Association as well as a lot of investment professionals around the world that come for the networking, the engagement, and of course, the the incredible education. So in lieu of hosting a live event in New York City this April, we will be moving to a virtual format for the CMT Summit for the Americas, which will happen April 29 and 30th. That’s a Thursday-Friday, April 29 and 30th of 2021 with just a star studded lineup. And the concept for this year’s event is to take the markets in four themes: we’re going to focus entirely around the unprecedented moves that we saw in 2020, as well as what Walter would call excessive speculation. In today’s markets, hopefully, we will all be looking back in hindsight unscathed if and when this bubble is to unwind. But we’ll take the conference in four sections, looking at the relationships between commodities, interest rates and currencies, as well as a deep dive into the equity sectors, both domestic US and around the world. So stay tuned for more information on that. You can log on to CMTAssociation.org for more information about that upcoming CMT virtual summit happening April 29 and 30th.
Dave Lundgren 08:23
All right, welcome to Episode Three of Fill the Gap! Today we are joined by the legendary technician Walter Deemer. Walter, thank you so much for joining us today.
Walter Deemer 08:33
My pleasure. I’m honored to be here.
Dave Lundgren 08:35
Well, it’s certainly our honor, given your long, storied history and your involvement in the Market Technicians Association. Of course, now the Chartered Market Technicians Association, we have so much to talk about and get to today. But typically we would start with maybe how you got into the business and things like that. But I thought, given that you’re still active, and you’re involved on Twitter, and hopefully if you want, you can give out your Twitter handle for people to be able to follow you. And given what’s happening in the environment today, a lot of debate of whether or not we’re in a bubble or what’s going on in the equity space these days. I think the idea that you’ve personally not only lived through but you’ve invested and advised through three or four similar environments. And you’re famous for having, at one point, said in – I think it’s in one of your books, “I have seen speculation and this ain’t it.” And I think that’s something that you said throughout the 80s and 90s to anybody who felt there was a bubble going on at that moment. And having lived through the various bubbles before that, that’s something that you would say to them. And so I wonder, of course after that the internet bubble happened in 2000. And we look at what’s happening today, where would you say we are today in relation to these other environments that are now on the books so we can clearly say were bubbles? Are you concerned we’re in a bubble or or do you think this is just a strong bull market?
Walter Deemer 09:49
Well, if we can use the terminology to excessive speculation, then I think we’re in a period of excessive speculation. The first one I lived through was 1961, the electronics and the vending machines and the bowling alleys. And then 1968, 69 was the gogo years. And after 1968-69, there were various flashes of speculation in the in the 80s, or 90s. That’s when I would say I have seen speculation and this ain’t it. And that worked until 2000, when we had th dot com excesses. And now we’re in another one. The problem is, it’s easy to tell when speculative activity is excessive. The problem is, you can’t ever tell in advance how excessive it’s going to be before it finally peaks. Right. So you know, we’re gonna look back and say, yes, this was excessive. But, you know, you could say the same thing. And in 2000, you could say the same thing in January. And then, you know, you still had three months ahead of you. Can I keep trying to think where was the bell that rang in 1968? And where was the bell that rang in 2000. Then, in 1968, I remember that the Federal Reserve did something to tell people that there was too much speculative activity, and they were going to try to rein it in. And William McChesney Martin, who was the chairman of the Fed, made a statement that came out on the on the broad tape that said, there’s a dangerous – I’m paraphrasing – there’s, there’s a dangerous amount of speculation, and we’re going to try to rein it in, and our actions before we’re done will cause pain and suffering. Okay. Somebody, one of the people that worked for me, was at the news ticker, was sort of reading it in a scornful tone and said, Imagine, you know, a central banker thinking he could get us to stop pushing Four Seasons, Nursing and National Student Marketing up. But in the end, he did. And then 2000, I’m not sure this was it but there were a couple of discount rate increases, one in late 1999. Then there was another in early February of 2000. And then there was a third discount rate increase in March of 2000. And that one was three days before the top and the NASDAQ. Of course, he mentioned that, and people immediately think it involves three steps and stumble, he raised the discount rate three times in the market then react, but I kind of suspect what with people watching the Fed so closely and the famous taper tantrum move a couple of years ago that, you know, it might be rather than three steps in the stumble, it might be one hint and a tumble this time.
Dave Lundgren 12:29
Yeah. And for our listeners, there’s a chart that Walter posted on Twitter that actually shows a chart with the three discount rate hikes and the conversation that that he had around that if you’re interested in checking it out. Walter, what’s your handle on Twitter? Walter Deemer? As simple as that?
Walter Deemer 12:44
Yes. Simple Walter Deemer.
Dave Lundgren 12:48
So this is obviously it’s a difficult environment to navigate. What would you be saying today to an investor that’s straddling the fence between trying to acknowledge that it’s speculative behavior, but you’re also acknowledging that the market seems to be otherwise – outside of these pockets of speculation – seems to be otherwise healthy? What do you think is the right course of action for an investor to sort of navigate from here?
Walter Deemer 13:08
Use technical analysis? Yeah. No, manage your risk, you’ve got it. You got to have risk parameters in there, you know, have a risk level in mind for everything you own. And then no matter how good you think it is, you know, the final is whatever risk parameter you have, do something about it.
Dave Lundgren 13:24
Can you can you dig into that a little bit? That’s a really important concept, basically have a certain amount of risk on for each position. What do you mean by that?
Walter Deemer 13:32
Well, whatever position you have, use something to tell you when the trend is reversed; when the momentum was lost. So you can be as sensitive as you want, or as insensitive as you want. But to be sure you have it, you can have a stop loss point under a previous significant low, you can have a moving average, a couple of moving averages. And when you’re moving averages, when you break a short term moving average, or when you break a longer term moving average, or when the short term moving average breaks below the long term moving average, whatever you do, I tend to use the 13 and 63 day moving average on my charts that people asked me why. And I said, Well, I use 13 days because I wanted to short term average, and 13 was a Fibonacci number. And I use 63, because I was playing around with a charting package and the 63 day moving average seemed to work better than anything. So we tested every moving average, and the one that worked the best was 63 days. So it was dumb luck.
Dave Lundgren 14:28
Yeah, that also happens to be three trading months, because every month on average has 21 days. So 21 times 3 is 63. So that’s why I use a 63 as well. And that’s how I kind of got to it myself. So one of my, I guess one of my quests going forward is to try to dig into and discover why it is that we can have people like yourself who have freely shared their knowledge, their experience, you know, one of your rules in your book, I’d like to get to, as you say, read a good book. So there’s many many good books we can read as investors. You mentioned reminiscences of a stock operator, which is it’s got to be at the top of everybody’s list not to read just once, but many times. So we have all these resources available, we have successful analysts and PMs sharing their knowledge and wisdom. And yet, despite access to all of this, we still have generations of investors who blow up and go through these periods where they just don’t do things properly. They don’t manage their risk in there, they get over their ski tips and things like that. So why do you think that’s a recurring pattern? What is it about investing? Is it investing or is it humanity? What is it about this process that makes it so difficult to not screw up every cycle?
Walter Deemer 15:39
I will quote from my very first and my very best mentor, Bob Farrell. Bob Farrell has 10 rules. So I sent him an email. I’ve been very fortunate because I worked for Bob Farrell, starting in 1964, at Merrill Lynch, and I’ve been able to follow him and work with him and talk to him ever since until he finally retired a couple years ago. So I sent him an email and I said, Bob, I’ve seen terrible versions of this, and I want to put it in my book. Could you give me your official version? pretty please? And oh, by the way, do you have any new rule you’d like to add? And Bob’s new rule is, though business conditions may change, corporations and securities may change and financial institutions and regulations may change, Human Nature remains essentially the same. So that’s why it happens over and over, you get fear and greed, you get people seeing that things work well. And everybody laughs at the crazy stocks going up until they see everybody else making a lot of money, and then they decide they’re gonna do it. And then somebody says you might do a little on leverage. And then somebody overleverages a little more until finally they just go to an excess. And this thing ends up going the other way, just human nature. Yeah.
Dave Lundgren 16:54
I guess maybe I’m, it’s the idealist in me. But I wonder what it is that it – clearly it’s human behavior and human nature and things like that. But me as an investor, I mean, I, I’m open to all those things as well. I mean, I get greedy, and I get fearful and everything else. But I, at the end of the day, I’m a technician and a trend following technician. And I guess maybe, for me, what it’s been is the discipline to listen to the market. And so I’ve never blown up, I’ve had years where I didn’t do well, but I’ve never blown up. And it’s because I’m a technician. And I just, if I’m actually doing what I’m supposed to do correctly, then executing the stops, Walter, that you refer to is what’s always kept me out of trouble. So I guess, hopefully, through this podcast, and through other efforts, through social media and whatnot, maybe we can just bring more attention to the power and strength of technical analysis and how it can protect us from what we otherwise can’t prevent, which is just being human, right.
Walter Deemer 17:44
Well, also, there’s a there’s another factor, and that is you have to be disciplined, and that, you know, a lot of us get emotionally involved. I am, I am not a good trigger, because I get emotionally involved in everything. And if I ever buy or sell, and so I buy something like so I don’t want to watch it every five minutes and things like that. And discipline is putting in a stop. And then of course, when whatever is going against you triggers your stop, you say, Oh, this can’t be, this is great, stocks been doing so well. And everything, I’ve got the wrong thing in there, I’m gonna pull my stop. And that’s where the discipline comes in. Right now. It’s like, I won’t mention their names. But a major institution in Washington had a technically oriented fund that they managed in house, their two technicians managed it, and the fund didn’t do well. And they finally folded it a couple of years afterwards. And we asked them at a meeting when the Boston technicians would get together. Why didn’t you perform? I mean, you’re doing your technical analysis? And the answer was, we didn’t follow our signals.
Dave Lundgren 18:52
At least that’s a self-aware answer, right?
Walter Deemer 18:54
Yeah, it is. But I mean, it’s very, it’s very important, because you have to be disciplined. You got to follow your signals, right? I have found, for instance, the best recommendations were ones that I say, well, the work says this sector, or this group shouldn’t be doing well. I really don’t believe it. How can this work right now? And they usually did. And the ones that didn’t work, were the ones where your technical work said that they should be bought. And you say, Well, this is obvious. This is this is the surest winner I’ve ever had in my life. And they’re they’re the ones that usually backfire. So again, the discipline is to follow your work wherever it leads you.
Dave Lundgren 19:36
Right, exactly. Yeah, that’s really well said. Actually, that’s perfectly summarized. You’ve in the past also, I don’t think this is in your books, but in past conversations, you’ve made the distinction between being an analyst versus being a manager, which I think you’re kind of touching on now. And I just, I’m curious what you think about that notion and what it is that makes somebody a good analyst versus a good manager. How come oftentimes it’s very difficult to be both? Is it a different skill set? Or what do you think it is that divides managers from analysts?
Walter Deemer 20:05
I think a good manager has to have ice water in his or her veins. And not all analysts do. I certainly don’t. So a good money manager will be probably be a good poker player.
Dave Lundgren 20:16
Tyler Wood 20:18
Walter, you were touching on this idea about risk management, in particular around ideas that were surprising to you, or you expected something different? In your book Deemer On Technical Analysis, you wrote, “The problem is that because the stock market is so black and white, you know, instantly whether or not you’ve made a mistake, if you buy a stock at 80, because you think it’s going to 100. And instead it goes to 75. You may not agree with the $75 price, but that’s where it is, for all of the young investors or analysts out there.” What would you say about knowing when you’re wrong, and is in fact, a broken signal, a signal that didn’t work as expected, more powerful, the move in the opposite direction to what you were expecting is, does that give you more signal strength?
Walter Deemer 21:07
Well, the late Mike Epstein, who was one of the greatest market analysts I’ve ever met, was famous for saying the most bullish pattern in the world is a failed head and shoulders top. Otherwise, this talk goes through every part of a head and shoulders top, the left shoulder, the head, the right shoulder, volume characteristics, breaks down from it, and then pulls back to the neckline, just classic. And then instead of touching the neckline, and going down, it goes up and up. Up, what it’s doing is saying it’s a failed signal. Mark Dibble of Fidelity once said, Sometimes what something is not doing is more important than what it is doing.
Dave Lundgren 21:47
Yeah, I had a mentor; boss, I should say, who was later became a mentor as well, Joel Barber over at Thomson Financial. And he used to say, when what you expect to happen is not happening, the opposite is happening. And that’s basically saying that oftentimes when expectations go the – or not betting the market goes the other way, that’s when you can get your most explosive moves. And I, in my personal investing, I’ve seen that many times I’ve actually reverse positions based on that where I just knowing full well that when you have a failed pattern, because the notion is, is that if you have all the boxes that check for a bad outcome, and you don’t actually get that bad outcome, then you have everybody positioned for that bad outcome, which kind of plants the seeds for a pretty powerful reversal. And I think there’s a lot of wisdom in that as well.
Walter Deemer 22:32
Yeah, I mean, one of the best examples of that is a certain electric car company.
Tyler Wood 22:37
Yeah, I haven’t heard about this. There are electric cars now.
Walter Deemer 22:40
Yeah, the fact that fundamentally that, you know, it wasn’t supposed – it couldn’t do what it’s doing and kept doing it and doing it and doing it. And the price action was pretty convincing. And the naysayers there was a big positive case, obviously, and there was a big negative case. And what the market was saying was the positive case was right, as I am fond of saying price is everything.
Tyler Wood 23:01
You have a wonderful saying, Walter, that you watch their feet, not their mouth. Yeah. You know, that ties together everything about human sentiment and the behavior of the investor public. Can you tell us what that means to you in hated bull markets and perhaps excessive speculative bull markets?
Walter Deemer 23:20
Well, Tyler, I think it gets back to sentiment bull markets, okay. This is from john, sir john templeton, bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. So what that is saying is that there are various stages of a bull market, you gradually get to disbelief to gradually accepting to gradually, you know, getting all excited about it. And then at the end, you project the trend up into the indefinite future. One of the things that makes technical analysis so fun is that you know, every excess eventually leads to a correction of that excess. There are no as Barbaro said, there are no newer eras,
Tyler Wood 24:05
Right? excesses are never permanent,
Walter Deemer 24:08
excesses are never permanent, even though you think they are and you think they should be.
Tyler Wood 24:13
So can we dig into that for just one more minute? I know, Dave, you’re dying to ask the next question. But in terms of other we talked a little bit about trailing stops, we talked about what you would look at for a short term and a long term moving average. Could I ask you, Walter, about market conditions or market internals that you feel are still relevant today in 2021, or those that may have changed over the course of your career? This is year 59, if I’m not mistaken for you. So what I’m specifically looking for, we’ve seen volume move to pretty extreme calculations, just even this month, were trading at close to 16 billion shares a day and yet the price moves that are typically characteristic of such high volume are not there. We’re not seeing volatility and crashes in the way that we’ve seen historically. Is volume broken as an indicator?
Walter Deemer 25:09
No, I don’t think so. I don’t think you can fine tune with volume charts. I usually do. Don’t have volume on it, because I’m skeptical of what’s reported and what’s not. But for example, that, you know, back in the old days, weren’t the greatest indicators was the American Stock Exchange volume as a percentage in New York Stock Exchange volume back in the gogo years, it was up to 70 or 80%. Back in 1961. During that speculative phase, you had the only two days in history that the American Stock Exchange traded more shares than the New York Stock Exchange. And so when the NASDAQ started trading, unusually high volume relative to the New York Stock Exchange recently, I said, you know, that would seem to be trying to tell us something I don’t know when, when the reverse is going to happen. But what it’s saying is clearly that we’re in a new phase where people are accepting and trading on more speculative stocks. And I hasten to add that in the old days, the NASDAQ was all the racy stocks and the New York Stock Exchange were all this, the blue chips. And now half the blue chips are on the net on the NASDAQ and half the speculative stocks are on New York Stock Exchange. So I’m not sure how much to read into it. But you know, clearly that, you know, when you get these little $2 stocks trading a billion shares a day, it’s trying to tell you something. It’s not normal. John Bennett, my boss gave a talk of the contrary opinion back in the early 1970s. Basically, what we do at Putnam is we use exception analysis, we follow all sorts of indicators. And we look for exceptions of an indicator is just doing what it normally does. We ignore it. If it goes to one extreme or another, we pay attention to it. And I would submit it at the moment that volume and speculative stocks is at an extreme.
Tyler Wood 26:55
Very well said. Can I ask you one more we’ve seen, even last week, the NASDAQ posting the largest number of net new highs ever. And by a pretty wide margin, does the strength of market breadth offer a signal now in 2021, as it did in 1971, or 1981? Do you feel that market breadth is still a helpful measure for understanding the regime that we’re in?
Walter Deemer 27:19
I do, I do. But I go back to the very first Fill the Gap podcast you had with Bob Farrell. He had something that stuck with me, he said the breadth divergences don’t last very long anymore.
Tyler Wood 27:32
Did you hear that? We’ve got a certified listener of Fill the Gap on Fill the Gap.
Walter Deemer 27:37
That’s, that’s good. No, but you’re not going to go wrong listening to Bob Farrell. He knows 10 times more than I do. And then some, but you know, and he’s got 10 times more experience. But when he says something like that, I sit up and pay attention.
Dave Lundgren 27:51
So what you mentioned already his 10 rules, and I guess now 11, right? If it’s okay with you, I’d like to give name to Walter’s rules to live by, which actually comes from your book, just looking at the subheadings. Throughout that chapter, this is chapter 23 of Deemer On Technical Analysis, you just kind of go through and you list your rules to live by and you give a little bit of color behind each one. Again, there’s actually, there’s not a lot of overlap between these and Bob’s, so there’s a lot of value here as well. But you know, I guess I’m kind of circling back to, you know, this notion that I’m bewildered about how investors can keep repeating their mistakes, etc. The very first thing you say is one of your rules to live by is document your important decisions. And that’s to me, if I was to say, what’s the one thing investors can do to help make them a better investor tomorrow relative to where they are today? It is to you know, write a diary and write down what you did, why you did it, and be as explicit as you can about it. So here you are, Walter Deemer, way more history and experience than I have, you will be given an opportunity to list your rules. And the very first one you said was document your important decisions. Can you discuss a little bit about what that means to you?
Walter Deemer 28:59
I think it’s very simple that we all make a lot of mistakes in our careers, the trick is not making the same one again. And so if you make a mistake, that’s normal, that’s your tuition in the field of investing. The trick is not to make it a second time and not make it a third time and not make it a fourth time. If you write it down, you can look back, see what you did was wrong and vow as best you can not to repeat it. Right? And then when – and then when you do something right? You know, you do want to repeat it. So I just have a list of two stacks of papers, stuff that worked and stuff that didn’t work. What you want to do is look at the stuff that worked and do it again. And you want to look at the stuff that didn’t work and not do it again. Right? It’s so simple.
Dave Lundgren 29:42
Why aren’t we all rich? For me it’s been – it’s writing a trading diary is a self discovery process. And I try to be as honest as I can about it when I write it. And in the moment that I’m writing things, I actually can’t possibly appreciate the value that I will take from those comments over From now a month from now or a year from now, when I go back and read what I was thinking at that moment, and just oftentimes how much my behavioral bias was causing me to, to either at least feel things, if not do things that were completely opposite of what I should have been doing.
Walter Deemer 30:12
Yeah. Another thought along that vein is keep a couple charts by hand. Now, back in the old days, we had to keep charts by hand, we didn’t have computers, you know, we didn’t have that stuff, but keeping a chart by hand. The major thing though, some of the bellwether stocks, some of the big indices and stuff. If you have to actually draw in the high, low, close and volume every day, it forces you to think about it just for a little bit. Whereas you’re watching them on a screen. You know, you have a list of stocks, you can go flash shoot, and you hit next, next, next, next, next, you’re looking at for less than a second, then you can miss these little subtleties. So it sounds old fashioned. Remember, I’m old fashioned.
Dave Lundgren 30:52
Speaking of old fashioned, let’s from here, why don’t we rewind a little bit and talk a little bit about how you got into the business in some of your earlier experiences, some of your early mentors, you’ve worked with some really important shops, you’ve had your own company, you’ve worked with Jerry Tsai, which is something I’d love to dig into. So what would you like to begin? How would you like to start that leg of the conversation?
Walter Deemer 31:13
Well, I was born in 1941.
Tyler Wood 31:18
I remember was a bright light at the end of a long tunnel.
Walter Deemer 31:21
Remember, a bright light says we’re almost at a secular low. I went to Penn State and Penn State was in State College, Pennsylvania. And they didn’t teach technical analysis. But I was fortunate because there was an adjunct professor there who worked in the one brokerage office downtown. And I spent more time there than I did on campus. And as it turned out, he was quite involved in technical analysis. This was in 1961, and 62. And then 1962, we had a crash, the Dow Jones, which was a real average back then went from 735 to 525. In a matter of months. The low was the Cuban Missile Crisis low right. And the thing was that decline, you know, it was it was a very, very emotional decline. Because we hadn’t seen anything like that for years and years and years. And the adjunct professor, the technical guy, he said, look at the advance decline line. So you saw it a mile away, and I got impressed. And in the end of March, I was taking a ride home to where I lived in Philadelphia, which is about three hours away. And I got this book out of the Penn State Library by a guy named Joe Granville. Joe Granville is a pretty persuasive author. And I was just reading it in the backseat of a car and I was just hooked. So that’s what got me started on technical analysis. And so I wanted to be a technician, and Wall Street didn’t hire technicians, but I got into Merrill Lynch and I had to go through the regular training program. And Archie Crawford was working for Bob Farrell. At that time, Archie Crawford is still he’s one of the only admitted astrologers. So though I can tell you a number of people who are astrologers, but wonder did they have these various cycles that work so well. And you say that’s very impressive. And if they have dimensioned cycles happen to do with planets, you don’t throw them out of the office where y’all mentioned their planets, you say you listen to him. So anyway, so Archie is trying to leave Merrill Lynch. And finally one day, he told Bob Pharaoh, I’m leaving, I’m leaving. And Bob Pharaoh said, fine, you know, give me the odd lots. And one day Archie said no. I mean, I mean, I’m leaving at the end of the week. So Bob now needs to find somebody to replace Archie and doesn’t have time to train them. So I was the only trainee that knew anything about this stuff that didn’t have to be pre trained and everything. So I jumped over a bunch of people and got working for Bob Farrell in April 1964.
Dave Lundgren 33:52
It was it was you, Arch Crawford course, Bob, who else was in the group at that time?
Walter Deemer 33:58
Bob Sutton and then Bob Inch and Mr. Dunkak, Bill Dunkak, of course, he ran the department,
Tyler Wood 34:04
Right small department in 1964.
Walter Deemer 34:08
Probably the biggest technical department on Wall Street, my friend. We had very few visitors, we were on the seventh floor down at the end of the hallway. And to get there, you had to get off the elevator, walk to the end of the hallway and make a left and go down a dead end to our little office. And the problem was that the telephone room which at Merrill Lynch was gigantic, was straight ahead of there before you made that turn? So we had people wandering around looking for the telephone room rather than for us.
Dave Lundgren 34:36
Better than the bathroom? Right?
Walter Deemer 34:39
Yeah. And again, as Bob Farrell said, right back in 1962, Merrill Lynch was advertising. Come on, Charlie put those charts away. Yeah, right. They actually did. I found the ad and I put it out on Twitter that that’s what Merrill Lynch was doing in 1962. The problem is the brokers loved that they were getting ideas from us and the ideas were making money. So thanks. Couldn’t keep us hidden.
Tyler Wood 35:01
You sent me that clipping Walter. And we’ll be sure to put that in the show notes so that people can can see what their own eyes just yeah. Disdainful. The attitude was towards –
Walter Deemer 35:11
Disdainful. Yes. And then I left Merrill Lynch in 1966. I went to Jerry Tsai, when he started the Manhattan fund. And that was the gogo years. So I saw the speculation there. And I love Manhattan and funding, went to Putnam in Boston, and they were at the heart of the nifty 50 growth stocks in the early 1970s. So I was not only in the public mutual fund speculation of the late 60s, but then I was in the institutional speculation of the early 70s. So I was lucky. There were two waves of speculation back then.
Dave Lundgren 35:46
Did Jerry Tsai consider himself to be a technician? Or was he just wise enough to hire technicians?
Walter Deemer 35:51
No, he was a technician.
Dave Lundgren 35:52
He was, he did it. He was sort of the William O’Neil of his day.
Walter Deemer 35:57
He knew something, he would delve into it. But he knew, he knew the basics enough to know the chart, right? We used to keep charts by hand. Of course, in those days, every stock that came in, and if a stock opened up above the previous day’s high and then reversed and closed below the previous day’s low, you know, that’s an outside date. But Jerry would look at that, and point his finger and jab at that, that day’s long that says, oh, Walter, big high, low, close.
Dave Lundgren 36:27
Okay, so that’s why he hired Walter.
Walter Deemer 36:29
That’s way higher, deep go ever since I referred to outside reversal day as being high, low, close day.
Dave Lundgren 36:37
So actually, this kind of leads to a question I was going to ask you, because after the Manhattan fun, of course, Jerry Tsai went on to a very successful career, including becoming a CEO and chairman of large companies, etc, and being very philanthropic with the wealth that he did accumulate. But having said that, his Manhattan fund when the gogo years kind of waned, if I’m corrected, the assets in the portfolio declined about 90%. And to me, if I think about somebody who’s a strong adherence to the principles of trend following and technical analysis, that’s a pretty hard feat to get to down 90%. If you’re following trend, what do you think happened? Cuz I know you weren’t there at the time? Is it? Maybe that’s, maybe that’s why it went down? 90%? Because you weren’t there. But what do you think happened?
Walter Deemer 37:20
Yeah, you got caught up in the speculation, and you forgot to get off the merry go round when the music stopped.
Dave Lundgren 37:27
Yeah, that to me, that’s, I can cite many lessons like this, that I’ve learned through my career where you see these truly phenomenal investors with great long term track records in and yet, something happens where something just trips them up. And before you know it, they’re looking at an 80% loss. And something I’ve always kept in my mind is that if it can happen to them, it can certainly happen to me. So that that’s one thing to keep in mind is, you know, the market’s on the hunt for everybody and anybody that’s willing to, to put the money in its pocket.
Walter Deemer 37:54
Well, one of the one of the old slogans of the old Market Technicians Association was “market professionals managing risk.” And if you don’t manage risk, you’re gonna get your head handed to you. Maybe not today, maybe not next week, maybe not next month, but sooner or later. You’re gonna happen.
Tyler Wood 38:13
Sorry, Walter, just speaking more to the application of technical analysis in investment management? Do you find that the position sizing for each security is more important, or the inviolable rules of trend following? So my question is, is it more important to understand your total risk reward ratio and what you are placing on individual positions? Or is it more important to understand the rules of technical analysis and knowing when to get out?
Walter Deemer 38:42
I’m going to defer on that one, Tyler, because that really is a money management question. And I’m no good as a money manager.
Tyler Wood 38:49
You and me both.
Walter Deemer 38:51
At least I’m smart enough to admit it. Most people learn the hard way.
Dave Lundgren 38:54
I was gonna give me credit for your answer. Actually, Walter, that was a very self aware question, which we appreciate. So Walter, you’re – one of the things that makes you unique is that all of your experience is dealing with institutions. Is that right?
Walter Deemer 39:08
Yes. So except for Merrill Lynch at the beginning, but ever since 1966? Yes.
Dave Lundgren 39:13
Right. And so you’ve spent a large part of your career advising institutions, and having sort of the inside scoop on what’s going on within the various complexes that you worked in? And I’m curious, I think it was in 1980, you left to start your own shop?
Walter Deemer 39:28
Dave Lundgren 39:28
Did you feel like you lost any kind of an edge or the technical tools that you had to now run a business and advise clients from the outside without, were those tools adequate? Or did you feel like you’ve lost an edge by not actually being in there in the meetings, seeing what people are doing, etc?
Walter Deemer 39:43
Well, I think sometimes this is an advantage not being in there because, you know, I’m a big contrarian. You know, having started in the business working for Bob Farrell, who’s one of the great card carrying contrarians of all time, then meeting Dean LeBaron and in the late 1960s, and being a good friend of yours for many, many years. So I’ve always been a contrarian. And the thing is, being contrarian means going against the crowd. You didn’t matter was the ground or the people at the cocktail party or whether it was your fund managers that did, I always thought when I was at Putnam, if I made a presentation that was bullish, and fund managers, you know, leapt to their feet afterwards and started cheering me and then ran into the trading room with buy tickets in their hand, I would go back to my office and shake my head, and I said, I’ve done something wrong.
Dave Lundgren 40:31
That’s not gonna work.
Walter Deemer 40:33
On the other hand, if I made a bullish presentation, and it looked like I had two heads, one of which was orange, and then went on to something else, I would go back to my office, I think this one might work.
Dave Lundgren 40:44
Painful, but true. I mean, I have very, I have many similar experiences to that. So Tyler, maybe we can transition a little bit and talk about the Market Technicians Association. And while we’re on it.
Tyler Wood 40:55
Absolutely. So Walter, I wanted to recognize for all of our listeners that in 2016, the Market Technicians Association brought you to New York to deliver the Lifetime Achievement Award of the Association, the highest honor that we can bestow on any technician, because you have been a stalwart contributor, and an incredible advocate for the discipline amongst professional analysts and money managers. And I wanted to ask you about, you know, the disdainful approach most institutional investors had for technicians in the 1960s. And if you could share what the experience was of a collective of like minded professionals coming together to create a society for technical analysts, and what that meant for you in terms of going into the 1970s, and having a position on the street, and particularly your move up to the buy side, to affect some changes?
Walter Deemer 41:46
Well, again, I was lucky Tyler, personally, because I was at a place in the 1970s, that accepted technical analysis, which was platinum, and Boston had a couple others, Fidelity and Wellington, but most places didn’t. And so we were the Rodney Dangerfield of the investment world, we didn’t get no respect. And we thought maybe we deserved respect, which is why the thing that we were talking about John Schultz wrote the full lawsuit, I think he called philosophy and practices or something like that, you know, it was trying to defend why technical analysis existed, which is, of course, because you buy stocks, and stocks are something analyzed with technical analysis. So it was – it was an attempt to try to do a couple of things. One of them was to become accepted professionally. And the other was to get to share information. So the 19 of us got together at the beginning. And the first big fight in the MTA was in the very early years, because the movers and shakers of the MTA were in New York, so it was called the Market Technicians Association of New York. But as it turned out, there were three of us in Boston, who worked for institutions. And so the people in New York were on the on the sell side, and they had to go out and try to earn a living. And we were on the buy side. And we had institutions behind us and they were all for us getting professional recognition. So in the beginning, it was all volunteer, there was no Tyler Wood in the early days. Yeah, it was all volunteers. And that built on that – Fidelity published monthly newsletters, Bill Diani at Wellington published the Quarterly Journal. And I at Putnam ran the membership department and ran the reservations for the first seminar in Williamstown in 1975. So we were we were doing all the sort of legwork, the heavy work and everything. And the three of us get together and says, Why are we doing all this with the Market Technicians Association of New York, so we decided to yell and scream and they finally knocked in New York, and it became the MarketTtechnicians Association and became the CMT Association. So that was, that was the first big thing. But again, back before the MTA, the sharing of work was never done. People didn’t share the work. I mean, I heard proprietary indicators in my work all the time. And the MTA opened it up. It’s where people started sharing work. And now it’s just ubiquitous, but in the old days, that everybody was having to reinvent the wheel all by themselves every day. And the other thing was becoming professional. When I was president, I, you know, I did my best to try to get a consensus and go with it, but it wasn’t easy. And what I ended up doing during my term, the MTA became a splinter group of the New York Society of Security Analysts. And that was the first step about being accepted. The CFA Association did not have splinter groups in that in those days, so you had to become a splinter group, the NYSSA, but let me tell you when I would do something, when I would be communicating on behalf of the MTA to the SEC or somebody like that. You’re the MTA, who the heck are they? I said, Well, we’re a splinter group, the New York Society of Security – Oh, okay. Talk to us. So it was a very start. So the people in the CMT Association now, it’s the Dark Ages, talking about the Dark Ages, we were not considered professionals, which we are now. And we were not considered. We didn’t – people weren’t sharing their work.
Dave Lundgren 45:24
Walter, as the President of the – you were the sixth President, I believe, I think very few people are aware that they owe the existence of the continued collection of short data, short interest data to a letter you wrote to the SEC to defend the need to keep that database going. You wanna you want to tell us a little bit about that?
Walter Deemer 45:42
You know, what happened is the SEC decided, I think it was 1978 that they were proposing to discontinue the weekly member firm and specialist short selling data. And the MTA members did not think that was good, because that was statistically the public specialist short selling ratio was one of the best indicators going, right. And we didn’t want to lose it. So, you know, I wrote a letter to the SEC, and I said, you know, basically, on behalf of the MTA, we would like to keep this data, and they ended up keeping the data.
Tyler Wood 46:14
You talked about the importance of sharing work for all our listeners, again, it’s at Walter Deemer. On Twitter. Just about a month ago, you shared a 2009 Charles H. Dow competition paper from Wayne Whaley about market thrusts and momentum indicators. In the early days of what has now become the CMT Association. Was there a reluctance between competing firms for for actually sharing calculations that the indicators that you found that were working are those that weren’t? Was there competition between the various members of the organization?
Walter Deemer 46:48
Absolutely. Somebody, somebody found the secret to the universe, they didn’t want to share it. Also, whether the other Dow award winning papers was one Paul Desmond did on identifying market bonds, which would have the among other things, he discussed the 90% upside and downside days. Mm hmm. Which is, which is still an interesting statistic. So but again, you know, he shares, I had a policy of Putnam and somebody came up into my office to try to peddle their service. I said, Well, what is it? And they said, Well, you know, it’s proprietary, I threw him out. Because I didn’t know it had something to do with something didn’t make any sense. I wanted, I wanted to be able to dismiss it. And the other thing is, there are all sorts of indicators out there and you’re playing one against the other, I can find today I can find a very bullish indicator and a very bearish indicator. So the trick is, what is making the indicator bullish? And what is making the indicator bearish? One of them’s gonna be wrong.
Tyler Wood 47:42
And just because there’s a correlation between seal populations in the Antarctic and the S&P returns, doesn’t mean there’s causation there, right?
Walter Deemer 47:52
Gave it away.
Dave Lundgren 47:56
Okay, so on that note, we should probably come to a wrap for a while here. I absolutely want to say thank you very much, Walter, for taking the time to join us today and share with us your experiences and your wisdom.
Walter Deemer 48:08
Thank you for having me, I hope some of it came through.
Tyler Wood 48:11
Absolutely anything, any last words that you have for the technicians of 2021. And what they might be able to expect over their next 59 years in the business?
Walter Deemer 48:24
I can see 50 I can see 59 minutes ahead, let alone.
Dave Lundgren 48:28
Then you see 63 minutes ahead.
Walter Deemer 48:31
The two things I keep repeating in my books that I had fun with, putting new hire people out of the Harvard Business School, so I had to teach them the facts of life, the real world. Thing number one is the stock is not the same as the company. And thing number two is price is everything. Right? Don’t remember it as technicians, you’re analyzing price. It’s not. It’s not seasonally adjusted, it’s not revised. Later on it price is what it is. You may not agree with it. I suspect you don’t agree with it. But that’s what it is. And the other thing is the stock is not the same as the company and we buy stocks not companies, had I grown up working for Warren Buffett, I would have a different attitude. But I didn’t so I don’t.
Dave Lundgren 49:11
Right. Those are all bits of wisdom that are sprinkled throughout your books. I think the other book that we didn’t mention was, I think it was in 2019.
Walter Deemer 49:20
Yes, “when the time comes to buy you won’t want to,” which I published in 2019. And as luck would have it that we had a certain unpleasant period in early 2020 when the market went down like 37% in six weeks. And the the background got worse and worse and worse with the vaccine and the economic shutdown and that would remind people every once in a while I had this book called, “when the time comes to buy you won’t want to,” right, then I will guarantee you who guarantee you anybody in his or her right mind did not want to buy the day of the bottom.
Dave Lundgren 49:56
Yeah. Well that the book is wonderful. Anybody that knows you knows your wry sense of humor, your humility, wit, your integrity and all that shines strongly through and all the books you’ve written. So we’ll make sure for our listeners, we’ll make sure that we’ll provide links to the various books back to Amazon and any other things that you’d like to have a share in the notes. We’ll be happy to put them in. So with that, Tyler, anything else?
Tyler Wood 50:21
That does it for today. Thank you again, Walter. Really appreciate you taking the time with us and looking forward to seeing you and Bobby very soon.
Walter Deemer 50:29
Thank you. It’s been my honor.
Dave Lundgren 50:30
Thanks so much, Walter.
Tyler Wood 50:36
Fill the Gap is brought to you with support from Optuma. In addition to candidates’ study of the official CMT curriculum, Optuma provides a full video course on all of the material that candidates need to know, for each level of the CMT exams. Each course is broken up into modules, ranging from 15 to 45 minutes, depending on the complexity and length of the topics being covered. Learn more at Optuma.com Hey, Dave, can you tell our listeners a little bit about the resources that go along with this podcast?
Dave Lundgren 51:15
Absolutely. So, when when we host a guest, of course many things will come up throughout the conversation: charts, a book that they’ve read, or a perhaps a book, they’ve written, some of their research, what have you and so we just want to make sure that our listeners know that at the end of each podcast, or at the end of each episode, there will be links to the various resources.
Tyler Wood 51:34
And for those of you with feedback to Fill the Gap podcast, there are speakers that you want to have us interview, suggested topics and themes that we need to be covering. Please send your feedback to email@example.com; you’ll find all those resource links available at CMTassociation.org under the Fill the Gap podcast page.
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