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Fill The Gap Episode Twenty-Two, with John Lewis, CMT

 

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Summary

The timing of this month’s episode is uncanny. Investors around the globe are faced with a challenging market environment across all asset classes. Our guest this month was famously  quoted as saying: “There isn’t any alpha to be had in strategies that you always feel good investing in. Being uncomfortable at times is a necessary evil.” Lessons about sticking to your process really stood out in this month’s interview. And, what can be trite comments on social media have a much deeper impact coming from a veteran portfolio manager navigating markets with such a significant asset base.

John Lewis, CMT is a Senior Portfolio Manager at Nasdaq Dorsey Wright. In this role, Mr. Lewis is responsible for the investment strategies used in various different indices and models.

Since joining Nasdaq Dorsey Wright in 2002, Mr. Lewis has developed strategies for the firm’s Systematic Relative Strength series of separate accounts, the Technical Leaders Index methodology, global asset allocation strategies, and multiple series of UITs. His work is technically driven and focuses on relative strength and momentum as the main factors in the investment process.

One of the foremost experts on relative strength investing, Mr. Lewis has authored several original research papers on the subject. He is a Chartered Market Technician (CMT) and a member of the Market Technician’s Association and the American Association of Professional Technical Analysts.

Mr. Lewis earned an M.B.A. in Finance from the University of Southern California and a B.A. from the University of San Diego. He began his career in the investment industry in 1994. He is married and has two children.

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.

Join us in conversation with the men and women of Wall St. who discovered, engineered, and refined the discipline of technical market analysis to improve your own investment decision making and approach to markets.

For complete show notes of every episode, visit: https://cmtassociation.org/development/podcasts/

Resources

Transcript

Tyler Wood, CMT 0:13
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 discipline of technical market analysis.

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 www.Optuma.com.

Good morning Dave Lundgren and welcome to Fill the Gap the official podcast of the CMT Association. How are you on this chilly October morning?

David Lundgren, CMT, CFA 1:55
Yeah, chilly is. Right. You know, October is here. Halloween is here. So markets are a bit haunted. But, you know, hopefully we’re oversold enough to make a difference here. But we’ll see…

Tyler Wood, CMT 2:08
That’s right. I bet you can see all of the festivities in Salem, right from your office window, can’t you?

David Lundgren, CMT, CFA 2:13
We can’t, but we can see the traffic of all the people trying to get into the town. It’s crazy this time of year. I mean, it’s a logjam! Of Traffic

Tyler Wood, CMT 2:13
A logjam! Much like the markets these days? And certainly, it has been a challenging environment throughout 2022 for for most investors. This month’s podcast features John Lewis, CMT charter holder and portfolio manager on the asset management side of NASDAQ Dorsey Wright. What a fascinating conversation and so timely about sticking to your process. What really stood out to you in this month’s interview?

David Lundgren, CMT, CFA 2:53
Well, I mean, the main thing for me was was, we’ve had some, obviously, some of the most high profile, CMT charterholders in the business on this podcast. So we’ve been honored to have them and certainly honored to have them in the community. But what distinguishes John from the others, most of the others is that he, in addition to providing research, he manages quite a bit of money, I think it’s almost just a bit over 12 billion. So it’s a very substantial asset base, entirely managed using trend following and momentum in Point Figure charts and things like that. So it’s very unique in that regard. So this is really, I guess, in a way, you know, putting your money where your mouth is kind of thing. So it’s, you know, there’s research, and then there’s managing money. And I’m very familiar with both myself, having done both and doing both currently. So it’s just different when you’re managing money versus reading research. And so it’s just a great opportunity to get somebody with his insights and in depth knowledge of the momentum factor, what makes it work, etc, engage in a conversation, but with a perspective of having actually put all of this work and research to work as a money manager. So that to me was, is a real important opportunity for us. But you know, the other thing is, you know, if you do any research on John on the web, and in watch some of his interviews when he’s, he’s just famous for these quips that are that are just very, very punchy, but unbelievably insightful. And it really kind of get to the truth and I could go on and on as he’s, he’s actually had several of them in in the episode today. And so the one that I would highlight just to kind of really kind of bring it all home only because you and I talk about this all the time with other guests on the podcast, this notion of expectations in understanding what you’ve processed and, you know, might do in different environments. But he says, there isn’t any alpha to be had in strategies that you always feel good investing in. Being uncomfortable at times is a necessary evil and I just don’t think he can be said Veteran coming from somebody who knows what he’s talking about, because he’s implementing momentum strategies and feeling the pain of it. Day in and day out in the short term, while over the long term, delivering good results is a critical thing. And it’s, it’s as we always say, it’s not important. It’s important to have proper expectations yourself. But if you’re managing money, it’s also just as important to make sure that your clients and the investors in your strategies have proper expectations. And you know, John, nails that with that comment.

Tyler Wood, CMT 5:27
Absolutely. You know, we’ve, we’ve seen the stock market, sniff out some some bubble territory, certainly in meme stocks, and some of the some of the more irrationally exuberant activities that were going on in 2020, and 2021. But there’s no time like the present to sit back and listen to a podcast with people who have actually successfully navigated multiple cycles. And as as we were recording this, and just thinking about my own podcast, listening, there are so many fascinating individuals out there with great stories to tell. But beyond the storytelling or beyond, you know, just just capturing the next big idea that next disruptive technology, the next name that, that everybody’s talking about, I think fill the gap for me, fills this need of, of actually grounding yourself in what is real and what is established. Which is not to say that disruption isn’t exciting as well. And I certainly think that some of the some of the large institutions of finance yesterday, are going to change for sure. And we talked about blockchain technology in almost every one of these interviews. And certainly there are more changes coming. But I think, sitting down with somebody like John Lewis, who is not an old man, he’s just been doing this a long time, because he got started early and had a fair, fair stroke of luck finding, finding some technicians that he could really align with right out of grad school. But it to your point, his quote, in the episode about investing is about having a few good ideas and a cast iron gut. To me like that, that just speaks volumes about somebody who has actually lived it or walked through it and not, and not speculating from the sidelines, he didn’t just write a few books or come up with the ideas and not actually have to bear them out. So I’m really excited about this month’s interview, because it is such a great reminder that markets do indeed change. But your strategy really has to, you really have to be able to stick to your discipline in times like these.

David Lundgren, CMT, CFA 7:36
Yeah, I love that. You know, I can’t wait to get get to the episode. But before we do that, why don’t you share a little bit for us, to our listeners with what’s coming up in the CMT Association for the next couple of months, and then we’ll hop into the episode.

Tyler Wood, CMT 7:49
Absolutely speaking about doing it in real life. We are currently running the global investment challenge. So Dave, it’s been a fantastic project that was born out of our Mumbai India office and the team there that ran ran a pilot project last year with a number of student groups in our academic partner program. So universities and colleges across the Asia, Asia Pacific region, we’ve expanded that to a global audience. And so students from around the world 1000s of them are actually practicing a lot of the techniques and the tools and the concepts that we teach in the CMT program, so their professors are in there with them. It is a tract competition. We’ve got pretty exciting leaderboards and doing a lot of mentorship along the way with current CMT charterholders who are helping the students out and pointing out some areas of opportunity or conflict in the strategies that they are employing. That will all wrap up at the end of this month end of October 2022. And we will announce winners in multiple categories. Those who did the best job with risk management had the lowest max drawdown those who had the best Sharpe ratio, best risk adjusted return and we’re gonna announce those winners at the November 5 CMT Asia Pacific Regional Summit. It’s a it’s a great pleasure, Dave to have you and many others flying over to the other side of the planet to help present and preside over this fantastic event. The last time we got to do it in all three dimensions was October of 2019. So we’re coming back in person for everyone in the region or who has the ability to travel to Mumbai, India, will be at the St. Regis Hotel on November 5 2022. But if you can’t make it to India, you can also attend that conference. As an online attendee. We’ll have a virtual simulcast to folks in every corner of the globe. You can register right now at on https:cmta.fyi/2022apacsummit . So really excited for my colleagues, Joel Pannikot and Kaizad Marolia and the entire volunteer team over in in the region from Hong Kong, Singapore, Malaysia, also India and the Middle East, helping to bring that conference together. So really excited to have a great event here on November 5 2022. And with that, Dave, let’s dive into this interview with John Lewis CMT here on the gap.

David Lundgren, CMT, CFA 10:26
Welcome to fill the gap, the official podcast of the CMT Association. I’m your co host, Dave Lundgren, CMT, along with freshly minted CMT charterholder Tyler Wood congrats Tyler. This month Tyler and I are joined in conversation by John Lewis, Senior Portfolio Manager at Dorsey Wright associates. As a fellow CMT charter holder, John oversees the management of just over 12 billion in assets, utilizing systematic momentum, and relative strength strategies. He’s written several white papers on a topic and is a past presenter at the CMT symposium. John Lewis, welcome to fill the gap.

John Lewis, CMT 11:01
Thanks, guys. Thanks so much for having me on.

David Lundgren, CMT, CFA 11:03
Yeah, it’s a real pleasure to have you on here. I mean, we have all kinds of folks on here, from analysts, to strategists, to money managers. So I always love to get the folks on the podcast who have the experience of managing money using systematic momentum, because it just brings in different insights beyond the analysis and back testing and things like that. So I’m really looking forward to this conversation. You know, you’re really well known in the CMT community. But for those that don’t know you, why don’t you take a couple of minutes and introduce yourself to our listeners, tell us a little bit about your career. And if there were any sort of Aha! moments that got you to really commit to the technical approach to investing?

John Lewis, CMT 11:42
Yeah, so I’m a Senior Portfolio Manager at NASDAQ Dorsey Wright. Most people I think, are familiar with Dorsey Wright, and the research product. And that’s been a huge research product in the FA Community since 1987. But I work on the money management side, the money management side of Dorsey right started in 1994. I actually came on in 2002. But I started kind of back, on this finance journey, I think back, really in undergrad I was going to the University of San Diego. This is the early 90s. So I don’t want to give the exact year because when you say that I’m gonna sound very old, but it was quite a while ago, and I wound up getting an internship for one of my classes at a Smith Barney office, was it like it might have even been Smith, Barney Shearson, or something like that back in the day. But yeah, so I would I would drive up there. And at first, you know, they had me calling people on the phone. And then I was looking up this fundamental stuff that we were doing in this class. So looking at PE ratios and dividend yields, and cash flow stuff and things like that. But there was another guy in the office who did technical analysis, his name was Richard Bell, he’s still in the industry, I still periodically will hear from him. But he was doing this. And he had Metastock back in the day. And I was generally pretty good with computer stuff. And I think that’s kind of a theme that you’ll hear throughout my career. And so I kind of got interested in that. And it really just made a ton of sense to me, you know, while everyone was busy looking up all of these financial metrics and things like that, we could look at these things on the computer and say, Well, I mean, this stock is going up, right? That’s really what we need, or this is going down, or what do we need to avoid that or whatever. So I think that’s kind of how I got started on this journey of technical analysis. And then I had a few jobs after that, wound up in graduate school. And then ultimately, after graduate school, I was I was hired at Dorsey, right. And the rest is kind of history.

David Lundgren, CMT, CFA 13:40
Was it Mike moody, who hired you over at Dorsey?

John Lewis, CMT 13:43
Yeah, so Mike moody and Harold Parker. Were out here in Pasadena. So I still live in work in Pasadena. They were out here and I was in graduate school again, looking for an internship, right. So if you’re in college listening to this, maybe you should, you know, put a little effort into that internship. But it was really kind of a weird way that I got it. I was looking for something to do for this internship. And I got the old, at the time, right, it was the MTA Association directory. They used to mail it out, right? It was a paper directory. This is before it was online. And I flipped through the whole thing. And I started circling and dog earing pages of people that were around here. So you know, like John Bollinger was in there, I found Mike and Harold in Pasadena. And so I just called them up. And I said, Hey, I’d like to come like work for you for free. And as it turned out, I couldn’t do it right away because they were in this tiny office and they couldn’t fit like a third person in but then they moved to a bigger spot and so like my second semester of second year in graduate school. I wound up working for them and they hired me on after that. So that’s how that whole story went. Yeah, it was great working with those guys.

Tyler Wood, CMT 14:53
John, was there any mention of technical analysis in your MBA program?

John Lewis, CMT 14:58
Pretty much that it didn’t work. That was I think the the main mention of it there was really nobody around that would give kind of any credence to any of it. Even momentum at the time that, you know, even the academics had been on that since, like 1993, when that big paper was published, but there was really none of that. In my portfolio management class in graduate school, we had somebody who was from a real kind of investment banking background, really. And so it was hardcore numbers, and really nothing about technical analysis.

Tyler Wood, CMT 15:32
So had you already decided from your work with Richard bell at Smith, Barney, that that you wanted to pursue something in technical analysis? Is that while you went through the MTA directory?

John Lewis, CMT 15:43
Yeah, I mean, I think I knew that ultimately, that’s what would work for me, you know, I had done some stuff with traditional fundamental analysis and things like that. It just didn’t really click for me, my brain just worked differently. And the technical analysis stuff always just seemed to really make sense to me. It was, for me kind of the easiest way to go about doing this. And it just was something that has always worked for me. And so I thought, you know, that that’s probably the path I should go down. To be honest, I wasn’t sure I was going to be able to do that path. Right. I mean, there’s not a ton of these jobs out there and available. And it was a little dicey, you know, trying to find that, but you know, we made it work. And it’s so far anyway, worked out pretty well.

Tyler Wood, CMT 16:30
You mentioned being into computer stuff, and having access to Metastock and a charting program, did you continue to explore a lot of that through grad school? Or was it once you joined Mike moody and Harold Parker, that you got into more of the big data that the market kicks out for us.

John Lewis, CMT 16:46
So I did some of that in grad school. But it wasn’t like a computer science type of class, right? There was some Excel stuff in there, there was a lot of like statistical analysis types of things. And we use different programs for that. But at the time, you know, in addition to Metastock, I had TechniFilter Plus, if anyone remembers that, I mean, I still use that now, which is crazy. So I had all this stuff and then I could just kind of do it. And then when I started at Dorsey and working for Mike and Harold, we started kind of digging into some of these things. And I could do a lot of that research since I had that ability. So that was kind of nice, we were able to take a bunch of information and kind of start to formulate some different strategies and things like that. And that just really grew. Now, when I look at it, we’re so far from where we started, we have our own testing platform that we do in SQL Server, and there’s, you know, a lot more going on, there are a lot more computing power. So it’s a lot easier for us to develop these strategies now.

David Lundgren, CMT, CFA 17:48
When you’re thinking about technical strategies, momentum, etc. There’s two ways to think about it. There’s momentum, pure momentum, and then there’s relative performance, which is basically dividing the stock’s price by the market itself, or whatever the index is, or the bogey, that you’re trying to be just observing that trend, obviously, the strengths and weaknesses to both, and I’m just curious, in your work, do you use them both? And how do you use them? If you use them both.

John Lewis, CMT 18:11
So mainly, we’re using the relative strength type of factor. Momentum and relative strength, we actually wind up using it interchangeably. I think, in the CMT world, everyone knows there’s kind of a difference. But we wind up dealing with so many people that aren’t like fully immersed, you know, with that nomenclature, that a lot of times they hear relative strength, and automatically, they’re like, “Oh, so you use that RSI thing that I can get on Bloomberg, right?” That’s kind of the first thing that they go to, and we’re like, “No, it’s really like momentum,” right? Like the quants kind of took momentum and made it their own. So sometimes we piggyback on that just to make it easier. And at the end of the day, we’re doing the strategies that ultimately we have to get sold to wholesalers, and to individual FA’s, who end up selling them to their clients. So for us, it’s super important to take everything that we do and be able to distill it down to something very, very simple. That can be explained. Because if it can’t, then it’s really hard to sell the product. And so a lot of times, we’ll just refer to it as momentum, because quite frankly, that’s kind of how the industry knows it.

Tyler Wood, CMT 19:19
So for our listeners, can we just break that apart for a second, when when you refer to momentum, are you talking about a fixed period rate of change? Versus momentum that you would observe in an RSI tool, maybe break that apart a little bit for our listeners,

John Lewis, CMT 19:34
Generally, we’re looking more at like a fixed kind of period rate of change, right? So that standard academic definition of 12 minus one, which is really you know, the last 12 months of performance less the last one to get rid of that kind of mean reversion. So something like that, right? Not so much the RSI overbought oversold kind of indicator. We have some of that on the Dorsey Wright side. But the reality is, when we’re doing a lot of these strategies that we put together for different clients, we might only be rebalancing something, say quarterly, for example. So the overbought oversold thing really doesn’t come into play when you’re only changing the portfolio that much. So it really is this kind of fixed performance period. And then we’ll rank all the securities in the universe, we want to hold like the top 10% of them and sell them when they fall out of the top half, like the thing. So from that standpoint, it’s pretty easy. And then obviously, we do a lot of stuff with not only kind of that fixed period type of momentum, but with point and figure relative strength as well, because that’s really what kind of Dorsey Wright is known for. And that’s where we’ve made hay over the years.

David Lundgren, CMT, CFA 20:41
Yeah, I wanted to talk about that. Because there’s actually I think, maybe, Jeff De Graaff is the only other one that I know of who actually uses point and figure on a regular basis. He’s been using it more, I guess, heavily on crypto and whatnot. But I do see him use it. And of course, you guys are known as being as point and figure being a primary tool for you. But so not only is that rare and interesting in and of itself, but you probably the only ones on the planet who use point and figure on relative strength. So explain how you got to that point, because that’s pretty interesting.

John Lewis, CMT 21:12
Yeah, so you’re right, there’s not a ton of people that use it. And essentially, what we do for those of you who don’t know is we take a ratio line, right? So we talked earlier about taking the price of the security and dividing it by the benchmark. So say Apple divided by the S&P 500. And if that ratio line is going up, Apple’s outperforming the benchmark, right, which, in our business, in kind of the the money management, relative performance business, that’s what super important to us, for us. And a lot of these products, if the markets down 40, and we’re down 20, that’s a really good year for other people not so much if they’re looking at absolute performance and things like that. So I think that’s important to kind of keep in mind. But yeah, we just plot that ratio on a point and figure chart, right, and we can very clearly and objectively see what’s doing well versus the market and what’s not. And you just get those clear and objective buy and sell signals on a point and figure chart, as well as that kind of column on an intermediate term basis, is that column of X’s or O’s? Right? Is it doing well or poorly against the market?

David Lundgren, CMT, CFA 22:19
So bringing the two together, you’re trying to focus the portfolio on securities that are that have a positive, I guess, rising series of boxes on the point and figure on the relative performance. And then amongst those trying to buy the best momentum?

John Lewis, CMT 22:31
Yeah, exactly. And we’ve found over the years, I don’t think this is any secret for anyone that’s done a lot of momentum research is that the best returns come from the very top end of that momentum ranking thing. So you know, the top 10% is going to do better than the next 10%, that’s going to do better than the next 10%. That tends to be the case with all factors. So with investing in general, all the extremes kind of tend to do better. Value is the same way, quality is kind of the same way, low vol the same way, momentum, those returns stack in monotonically. And so yeah, what we’re trying to do is get these like long term winners, and then pick out the ones that are doing best right now we’ve got like a number of different kinds of tools that we use to do that.

David Lundgren, CMT, CFA 23:15
Right. So are there any other factors that come into play, like volatility or liquidity or anything like that? Or is it just take what’s in the index, do this ranking and trend analysis process and then build a portfolio from there?

John Lewis, CMT 23:27
It’s kind of mainly the latter. A lot of times, what we’ll do is we have established indexes, and then we take subsets out of those based on our momentum ranking system, in terms of like liquidity and volatility and things like that. There’s a couple of things, if we’re doing something, we run a micro cap strategy. So yeah, liquidity comes into play there. But that’s really just for the ability to trade in and out of these things on an efficient basis. We’re not doing any sort of liquidity analysis in terms of the overall investment merits of the security. And then on the volatility front, we do a couple things. So the point and figure relative strength chart and point and figure charts in general, do take care of the volatility somewhat, because the box size that you use is essentially a volatility filter, right? So you can set that to take out a bunch of the volatility. The other thing that we’ll do, and we found that this works really well is we can use some very simple factors in addition to momentum to kind of tweak the overall return characteristics of the strategy. So we can calculate, say, low volatility rankings, and then use a momentum screen with that and create like a momentum and low volatility type of index. And that tends to work very well. We do that with value also. So like momentum plus value, so we do some of that work, but it’s not really the backbone of what we do most of what we do is just kind of straight price based momentum or relative strength.

David Lundgren, CMT, CFA 24:57
Right. You touched on something there I’m wondering if you can flesh out a little bit for us? This notion that what’s in the top decile that tends to produce the best performance going forward. An I’ve heard you over the years, say something to the effect of I’m going to paraphrase it. So you can correct me if I’m mistaken. But we know that the top decile produces the best performers, but we have an inclination to want to try to buy the ones that are sort of in the middle on the assumption or in the hope that they’ll get to the top decile. And that is actually a fallacy, you should actually buy them if they’re in the top decile, and don’t buy things that are sort of in the middle kind of doing well, on the hope side, it’s almost like you’re trying to buy the low and get in before it becomes a leader. So I’m assuming you’ve back tested that and you’ve kind of flesh that out a little bit, maybe you can tell us what you found there.

John Lewis, CMT 25:39
Yeah, so it’s really hard to buy something in the middle, and hope that it goes up. We know like doing all the research that all of these different momentum or relative strength ranking systems, whether it’s like 12 Minus one, whether it’s point and figure, whether it’s some sort of like point and figure matrix type of thing, the top of the matrix, the extremes always performed the best, there’s more volatility in there. There’s other issues with it. But that’s really where the performance is. So there’s a couple things I think that people really get hung up on with this kind of deal where you’re buying things that have already demonstrated the ability to outperform, but that’s part of it, the stocks need to demonstrate the ability to outperform if they can’t do that, to start with, it’s probably not ever going to happen, what you want to stuff that has demonstrated the ability to outperform. It might be up 100% already, but that’s okay. Because what we found in this is, you know, people kind of laugh when I say this, but what you’re looking for, right are things that go up 3- 4- 500%. Well, the only thing that those all have in common, they were all up 100% At some point before, that shouldn’t really kind of scare you out of it. The other thing that we like to show a lot is Ken French, right at the fama French model, who told us that momentum didn’t work. And this is one thing I always laugh about with Mike Moody wrote this blog post years ago that said, Ken French should go check his own website. He’s got a ton of data out there, and there’s some momentum models and they go back to 1927. And you can look at how these things perform. All they do is they take a 12 Minus one factor and rebalance it every month. It’s super simple. Well, you can see that that extreme, you know, when you buy the extremes that does the best. But when people get really worried about with momentum, is that what happens if I buy this thing, i t’s up a ton of misses earnings, and it’s down 20 or 30%? Well, when you start looking at the data, those kind of blow ups for lack of a better term, they’re in all of those back tests, all of that high momentum stuff winds up being in there, it still outperforms. So then the question becomes, like, well, what’s the real problem in doing that? The problem is that you don’t get rid of it when it underperforms or when it falls out of the top half or the top quartile or whatever. So I think momentum in order for it to succeed, it really turns out to be more of a behavioral thing. Instead of just kind of a math problem. I think people try to turn it into a math problem. But for us anyway, and Mike was really big on this and Harold as well. But Michael was really big on this part is that the implementation that’s really kind of the unsexy part of any investment strategy is really the most important part. Because there’s a lot of stuff that works. But if you can’t implement it properly, then you’ve got big problems. And so getting back to the original question about at the extremes and things like that, people are very hesitant to buy that. And I think you have to have some sort of very disciplined and unemotional way to do it. That’s why we’ve kind of gravitated toward these systematic or quantitative type of models. And that really helps us just buy what we need to buy and not worry about all the other problems that might be there down the road.

David Lundgren, CMT, CFA 28:58
I think the implementation concept is something you harp on all the time. And I definitely want to touch on that I was looking forward to having that discussion. But I have another John Lewis truism that I wanted to quote for you, but it’s brilliant. So it’s a constant process of driving the portfolio to where the strength lies is so much more important than the actual securities that go into the portfolio. That’s such a brilliant, important, I believe, definitely overlooked observation about what momentum investing is all about. So I wonder if you could spend a little time on that.

John Lewis, CMT 29:28
Yeah, I mean, that is so important. And I don’t think people really realize that everyone loves stock picking, right? They love to talk about this stock or that stock or what is Netflix doing or hey, I own Target, I’m gonna go there instead of Kohl’s. At the end of the day. It really doesn’t matter what those names are in your portfolio over long periods of time. Sure, it has a huge effect over this quarter or the next six months or something like that. But it’s really the theory of strong assets will continue to outperform, as long as you systematically get rid of the weak things and keep buying the strong stuff, it’s kind of that whole philosophy that makes it go. And we did some testing a while ago. And we essentially bought stocks at random in a computer back test. So we form portfolios of like 25 stocks, or 50 stocks. And we would have this basket of high relative strength names, maybe there was 100 of them in there, and we’d just buy stuff at random. And then we’d sell them when it fell, say, out of the top quartile of our ranks, and then just go buy something else at random, right, and you run that 100 times, what we would find is over long periods of time, all 100 of those trials would outperform. Now, from year to year, there’d be a ton of dispersion. And you might have half of the trials underperforming and half of them outperforming. But over long periods of time, they all outperform. So this constant thought of what Peter Lynch said, right of watering the flowers and pulling the weeds and constantly pushing the portfolio to strength. That’s really where the money is made, whether you own Apple or Intel or whatever, as long as they’re strong. That’s okay, if there’s going to be some dispersion between portfolios over short periods of time. But in the end, it kind of all works itself out over time.

David Lundgren, CMT, CFA 31:24
It’s great, I think on every episode of the podcast, so far, we’ve got moments where our guest, say something where I’m like, Man, you got to stop, rewind, and listen to that a bunch of times. And so far, you’ve already had two or three of them. But I’m sure was, that’s a section to our listeners that I would go back and listen to again and again, because it does not get more important than that if you’re trying to implement momentum. So thank you very much for that, John. One of our guests earlier was Andreas Clenow, he wrote a fantastic book called stocks on the move, I think it was, and in that book, in the last section of the book, he literally walks through month by month, the results of the back test, and the pain is almost palpable of the drawdowns he’s having and everything else. But over the course of that full performance, he trounces the market. But the point is, is the ability to walk through and live through the ups and downs of the strategy, which can be at times pretty volatile. But today we are in about a few minutes, we’re going to get the Feds next announcement on what they’re going to do when the market is going to do what it does. And, you know, I wonder if you can talk a little bit about how in your back tests, none of that matters. Because all the Fed decisions that have ever happened, all the earnings hits and misses from Apple, they’re all in your back tests. And what’s more important is the strategy and its ability to deal with these things over time more so than and you’ve already touched upon it already, John is more important than any individual stock in the portfolio, what it does or doesn’t do,

John Lewis, CMT 32:40
For sure. So having that discipline to get rid of the losers and to kind of move on and keep pushing the portfolio to strength. That, to me is clearly the number one thing if you’re going to invest using any kind of momentum type of strategy like this, you have to be pretty relentless and ruthless at cutting these things out. And we did a experiment, you know, maybe maybe a back test, I guess more of an experiment. And what we did, instead of selling things when they reached specific sell thresholds that we normally set, we would kind of sell them at random, right? And so things would fall out. And I think that kind of gets to what happens in a lot of people’s actual portfolios, right? They’re like, Oh, my God, I bought this like two months ago, there’s no way I can go back to the client and tell them I made this mistake, or oh, you know, let me hold on to this. And when I get back to even all get out, we see that kind of stuff all the time. The reality is, David, it’s like you said, it’s not like the blow ups or these Fed things that matter. It’s really your ability to keep pushing to strength. And if you don’t, there’s a tremendous opportunity costs of not being in the strongest thing. And that is something I don’t think people realize, when you let these other things slip into the portfolio, you just have dead weight that you’re carrying along. It’s not doing anything for you. It might not be hurting you so much. But everything has to be healthy. In a momentum strategy and a trend following strategy. I’m sure the more trend following people you have on this podcast, you’re probably going to hear the same thing from everybody, it’s that the success rate isn’t huge, but when they work, it’s big. And you wind up making the majority of your profits from a fairly small number of trades. So the more dead weight you have in there, the less of these things that you have, that could be really, really good, right? Your portfolio is essentially distracted right? By just having a bunch of things in there that don’t matter. So it’s super important to just cut that stuff out. And that opportunity cost is something that I think that’s what does people in and that’s why this is really hard to do. It seems like it’s easy, but it’s not.

Tyler Wood, CMT 35:04
I wanted to ask you about multiple timeframe perspectives, so you just hit on the expectancy formula. And you could be wrong four out of five times in individual trades, but you have to really lean into the ones that work. So how frequently is the optimal time to rebalance the portfolio’s? Simple momentum factor, we’re talking 12 Minus one months. But could you also use it 12 weeks and do a quarterly piece? or 12 days if you’re a really short term trader? Does the momentum factor work in the same way over all time periods?

John Lewis, CMT 35:39
Well, so I think there’s two parts to that question. So the momentum factor works at a pretty specific type of time horizon in terms of how you’re measuring the momentum to rank. So if you’re very, very short term, that’s a problem, right? Because you wind up trading all of this kind of random market noise, what you really are looking for is to trade the trend somewhere in the neighborhood of six to 12 months in terms of like point to point when you’re doing rankings, that tends to be the sweet spot, that you can go a little bit shorter if you’re using say, like major market ETFs, because they just don’t have the same amount of volatility as individual equities or commodities, or whatever else you’re ranking. But it really is an intermediate term ranking system. If you go too far, by the way, like three years, five years, there’s all sorts of mean reversion there, too. So you have to avoid the really short, like one month, that kind of three to five year deal. Six to 12 is kind of the deal for the ranking. Now, the other part of that question was, how often do you rebalance, and that you can really rebalance on a number of different timeframes. So we have stuff that’s been very successful, that does it every quarter, we have some stuff that holds things for like a year, and UITs, we have stuff that does it as needed. So we look at it every week. And if we have to make changes we do, or we just kind of let it roll. So you can do it all sorts of different ways. But remember, we’re always using the same type of intermediate term time horizon ranking system, and then just looking at that at some kind of frequency. And we really like in a momentum strategy to have things set up where it’s not like a full rebalance, you kind of knock things out, that have fallen below, and you keep the things in there that are already working, it’s much better for taxes much better for turnover, and then that allows you to have those things that run for years to just stay in there as they kind of ebb and flow over the course of their full cycle.

Tyler Wood, CMT 37:42
Yeah, in a prior episode, we had Rusty Vanneman, who talked about that, mean reversion tendency at the three year momentum mark, possibly fertile ground for somebody else to do some research as to why those market cycles persist. But thank you very much, Jim. And then I guess, in terms of the risk management approach that you guys use for implementation, do you use a volatility screen? Do you use it percentage stop? You know, what are you using to identify what needs to be taken out of the portfolio?

John Lewis, CMT 38:12
We do a number of different things. And some portfolios, where we have some overlays for just, you know, kind of absolute price performance, we like to use point and figure trend lines and things like that, that is very similar to a 200 day moving average. That’s not kind of the bulk of our business. But we use that and people are often interested in those types of things. And those are two kind of very easy suggestions that we have found work very well. Normally, the big thing we’re doing is we’re just using the overall percentage rank in terms of where to sell. So if we’ve got 100 securities, and we rank them all, you know, we’re buying stuff, say out of the top decile, so say, 90 and above, and then we’ll sell things if they fall either out of the top quartile or out of the top half the issue there is, it’s super hard for us to give you a percentage, right of like where that happens, because the whole that is kind of dependent on where that whole universe is moving. But you kind of get the idea, right? It’s really, you want to stay in that top half or that top quartile. And then something we’ve been doing recently, and I think this might be a little surprising to people, because of the amount of underperformance that we’re using, but it tends to work very well is it’s essentially like a relative chandelier stop. So when you buy it, you calculate what the relative ratio is. And as it outperforms, you just keep cranking that stock up. And if it starts underperforming that stock just kind of flatlines and doesn’t ever go down. Right. So that chandelier hangs from the from the ceiling. For those of you who aren’t familiar with that, and we’re setting that at, you know, about 20 to 25%, relative underperformance of the market, which I think people think is a lot, but you know, we give these things room to work. And, you know, we already talked about, like how a small number of trades make up the majority, like when we look at that portfolio when you do that, and when you have that kind of long or fairly wide relative stop, the turnover is very manageable and, you know, strategy that we’ve got to get, like 70% turnover, which is super manageable, but you have stuff that winds up in there for years. Right? So in the back test, you might have something like Danaher, Sherwin Williams was one that’s in there for years, there’s some, like insurance companies that stay in there, and it can be in there, you know, we had something in there from like, 2003, and just came out like last year. So, you know, that’s kind of a nice way to run a realistic portfolio, people think that that stop is really wide. But I think the stops need to be a lot wider than most people think if you’re running these momentum type of strategies,

David Lundgren, CMT, CFA 40:56
Can you talk a little bit of how the idea of constantly pushing the portfolio towards strength, on the one hand is probably the most important thing to do. But then you have other names that are in there, because of the stop mechanism that are clearly not strength anymore, and they might even be drawing down 20% relative to the market, which is not enough to get out by keeping them in the portfolio is preventing you from pushing the portfolio towards current strength?

John Lewis, CMT 41:17
Yeah, that’s the huge balancing act with developing any of these strategies. How much of that do you leave in the portfolio? And what we found is that these portfolios can withstand having that stuff in there, as long as you have a plan. So I talked earlier about, hey, we’ll just sell it when I get back to you. But that’s not a real plan, right? I mean, what you’re looking to do, essentially, you know, you’re gonna have a bunch of kind of market performers, or small underperformers in these portfolios, you’re really looking to chop off that hand side of the distribution, you know, 70%, underperformance 80%, underperformance, and you can get rid of those and get a few of the ones on on the right hand side, then you’re in the clover, there always will be stuff in there. That’s kind of deadweight, but it does two things. It’s not always bad. Because the more you push to the extremes, right, the more performance you’re generally going to get. But also the more susceptible you are to the overall momentum cycle. So the more pain you’re going to have at the terms, the more overall volatility. And if you’re just trading for your own account, that’s totally fine. But if you’re managing other people’s money, and you have to kind of answer to, you know, why is there so much deviation from the benchmark and things like that, having some of that dead weight in there does help manage some of that overall portfolio volatility, because not everything is really on that high momentum type of cycl at that same time.

David Lundgren, CMT, CFA 42:51
You know, you’re touching on the momentum crash, which from a factor perspective, is the one attribute of momentum that really undermines it in the eyes of advisors over the over a full cycle. So the idea is that a momentum crash, which as you said, happens most often at a turn, and in particular, on a bear market bottom, that momentum crash can wipe out four years worth of alpha in the span of a few months. And so all those things that you did to that you had to do in order to stay with the factor during that four year period, thereby earning that wonderful alpha can if you’re not careful, get wiped out in a span of a few months by a momentum crash. So one of the things that sounds like that you’re doing is you’re allowing some of the former winners to kind of hang out in the portfolio, maybe just keep the entire portfolio from being invested in that top decile at all times. But I’m wondering if there are other things that you do.

John Lewis, CMT 43:40
Yeah, so we do tend to spread the bets out over different macro sectors. So that tends to help. Momentum is like really, really good at picking up themes, right. So if you’re not careful, you’re going to have a diversified portfolio of semiconductor companies at the top, right? And it’s really, momentum loves everything at the top right. That’s what trend following is all about. If you don’t love it at the top, you’re not doing something right. So you do need to kind of spread the bets out, you know, you do need to have different types of companies in the portfolio so that you’re not on one cycle so that it’s not like, hey, you know, energies doing well, today, I’ve got everything in the portfolio, just screaming, right? Because my entire portfolio is levered to energy. So we construct these things so that there’s enough kind of play in there that we diversify some of the themes in there. And that tends to help. And then the other thing I’d kind of like to go back a little bit about the momentum crashes because I think that’s a real interesting point. And I think it’s like you said, David, it’s something that really does scare people away from momentum. In terms of like the crashes off the bottom, it tends to be like, if you’re shorting the laggards, that really does the damage, but you can have these massive relative lags from the leaders. And we looked at kind of the overall cycle of momentum out and underperformance versus something more traditional, like growth and value, momentum tends to be much sharper, but quicker and quicker to recover than something like growth and value. So what you wind up with is these, everyone’s used to these growth value cycles, which, you know, we had value underperforming for like three years, you’re getting killed by the paper cuts day after day after day, you’re still dead at the end. But momentum is much sharper, it corrects quicker, people don’t understand that. And so when you get this sharp underperformance, they’re out. And that’s a huge problem. That’s when you need to be buying these things. I just wanted to make that point because that momentum crash thing is for real, but if it’s managed properly, it’s actually a really good time to go buy these momentum strategies when they underperform like that.

David Lundgren, CMT, CFA 45:52
Yeah, just the defensive momentum. You had mentioned that momentum loves what it loves at the at the very end, what I believe, and I think the numbers bear it out, is that momentum loves what it loves, at the very beginning of trend to because it’s also top decile, then it’s us as humans who love it at the end, but momentum loved energy eighteen months ago.

John Lewis, CMT 46:11
You’re right. That’s a great point. It’s unemotional. Yeah.

David Lundgren, CMT, CFA 46:14
Okay. All right. So let’s talk about implementation. Because I think that was a really important point. And something that’s very rarely talked about, I love how you phrase it, something to the effect of, you know, we spent too much time trying to make momentum better and coming up with new ways to measure momentum and tweak it this way and that way to try to make it better, when in fact, it’s fine, just as it is the value added is how you implement it. So can you flesh that out a little bit for us.

John Lewis, CMT 46:36
There’s a lot of different ways you can implement momentum, and a lot of it does come down, especially if you’re on the asset management side of the business is to what kind of product wrapper you’re allowed to do this in. So you have to sometimes be a little creative. If someone comes to you and says, Hey, I need an index full of momentum stock, well you can’t just go trade that every day, right, There’s some certain parameters that you’re given, and you can’t just go do whatever you want. So there is a lot of that kind of creativity that comes in terms of designing these momentum processes to fit in to these different product wrappers. And so that’s always been very important to us. And then what we really focus on is a couple of things. So we want to make sure that in real time, this can run with acceptable turnover. And we don’t have a bunch of stuff constantly coming in and out of the portfolio. I mean, people have to be able to handle these strategies too, again, we’re not just dealing with our own money, you have to find investors for this type of stuff. So that’s really important to us as well. And so looking at the overall picture, we can design these types of strategies to fit different wrappers. But then the other thing that’s really important is the story. And making sure that everybody is on the same page, there’s not a strategy out there that’s going to outperform every month, every quarter every year. So you need to make sure that everyone that investing in these things, understands what’s going on, why it’s outperforming why it’s underperforming, that’s not going to prevent everybody from buying at the top and selling at the bottom, there’s no way you can stop that data is just an industry tide, that there is no way you can stop. But you can help prevent some of that. So your overall asset level is not incredibly volatile, right, you can kind of manage some of that. This whole part of implementation is not just coming up with this kind of systematic, automated way to calculate momentum, it’s really getting it into the investor accounts, and then managing that and managing expectations going forward. That’s so incredibly important.

David Lundgren, CMT, CFA 48:48
You know, if you were to be sitting with an advisor, and the advisor says to you, “I’m fully invested, I have these various factors that I use over time, because they’ve all back tested, and I believe in them. And you’re coming to me with momentum, which is not in my portfolio.” And the adviser said to you, “so therefore, if you want me to make room in my portfolio for momentum, what do you recommend I replace it with?” What would you say to them?

John Lewis, CMT 49:11
I don’t know, if I completely replace anything, depending on what they had. Momentum is actually really good in an overall portfolio setting with a number of other factors. So with value with high yield or high dividend type of strategies, as well as low volatility type of strategies. And so that mix is very well in fancy way to say it is the correlation of excess returns is negative. What that really means is when momentum does well value often does not do well and vice versa. And so you can mix and match those strategies in the portfolio and achieve very similar returns and actually reduce the volatility because different things are working at different times. And so I don’t think at Dorsey Wright, we’ve ever been advocates of just having a 100% Momentum portfolio, that is really not a great idea unless it’s your own money and you can handle that. If you’re a financial professional, and you’re putting together a logical portfolio for clients, you need to have not only just diversification in terms of having different companies managing your money, if you’ve got five value managers, you’ve got one big value strategy, right? What you need is some diversification and process and diversification in thought, and momentum mixes well with those other things because momentum is a trend continuation strategy, you’re buying things that have gone up a lot, you want that to continue. Value, on the other hand, is a mean reversion type of strategy, you want things that have underperformed, you want them to revert to the mean, those things are going to perform differently at different parts of the cycle. And that’s where the real juice is, right? Mixing and matching different strategies, different processes, different thought processes, in order to deliver better results overall, for the end investor.

Tyler Wood, CMT 51:08
Yeah, just to paraphrase what you said a minute ago, John, the story is so important, and not the story of what’s happening in the market. But the investment philosophy behind using the tools and identifying how this is a complementary tool set or another piece, you know, part of the recipe for a lower volatility, more sustainable portfolio management approach is a point well taken. And there’s no time like right now to get really crystal clear with clients about what the investment philosophy is, and how we’re going to stick to our rules, even as markets are going through what seems to be a fairly sizable regime shift. And we’ve seen that leadership from the last cycle doesn’t tend to persist into the new cycle. So what I was hoping to switch gears to with you, John, has current thoughts on this market, things that you’re seeing come flying out of the portfolio. I mean, we just talked about, you know, energy and the XLE being the highest performing sector of the S&P 500 in the year 2021. Right, it’s not new, that energy outperformed, but it felt like a lot of folks just noticed sometime in June, loaded up and then got smacked on that momentum play. How are you dealing with the massive rotation? And what are you looking for in these next few months ahead.

John Lewis, CMT 52:21
It’s been a tough year since we run trend following type of strategies, because there hasn’t been a ton of trends, the trends have not been sustained. They’ve been really choppy, and I don’t think you’re gonna hear much different from any other kind of trend follower out there. And to be perfectly honest, 2022 has been difficult for everybody. I don’t know anybody in this business that’s just skipping along merrily, just counting their money this year, it’s been difficult for everybody all around the way we tend to deal with all of these choppy markets and regime changes and things like that. Obviously, we just stick to our models. I think anyone listening by now can figure that out. But what that means is that we wind up having a lot more turnover. in markets like this, it’s been an incredibly busy year on the portfolio management side, a lot of trading, a ton of things don’t work out. A ton of things, you put it in at the top, like we talked about, and then it reverses and you’re taking it out very quickly. People are scratching their heads. If you’re a glass half full person, you’ve got short term losses for the tax man next year. If you’re a glass half empty person, the trade didn’t work out. So it just kind of depends on how you frame that. But realistically, it’s tough. And going through these regime change is very difficult for everybody. It’s very difficult, obviously, for momentum, I think we’ve held up decently well, and a lot of our strategies, and this year so far anyway, looks to be one where it’s really important to avoid the laggards so far this year. So a lot of these tech names, a lot of these consumer discretionary names, haven’t been great performers so far this year. Obviously, energy has been great. And energy, kind of circling back to what we talked about before. Energy is not a big part of the indexes anymore. I mean, it was an underperformer for so long. It’s a very small part of the S&P. So if you’re running momentum, your portfolio can really easily get way out of line and energy. And so we’ve tried to keep that at a reasonable level. And a lot of these areas, still a massive overweight, that’s where a lot of the juice has been. But honestly, if we weren’t careful, we could probably have 80% of the portfolio and energy and, you know, because that’s, that’s where all the ranks are. So, you know, we’ve been dealing with things like that. And so it’s just been, it’s been a very, very strange year. The good news is that these things always resolved themselves one way or the other. When you’re going through them it seems like it’s going forever. It seems like it’ll never ends, it seems like the light at the end of the tunnel is a train, and not really the end of the tunnel. But that end of the tunnel will be here. And we’ll get through this and we’ll look back on and be like, “huh, 2022 was crazy” and then you know, we’ll be off and running. So, ya know, that’s kind of what we’re thinking about. And I think it’s just really important to try to just keep everybody in the market, not let them get super frustrated sentiments horrible. So dealing with that has been tough. But, you know, the more people we can keep around and keep in these strategies, the better the payoff will be for everybody down the road.

Tyler Wood, CMT 55:34
One more thought on that the optimistic view for a lot of the baby boomer generation, or certainly for a lot of financial advisors in this country, they probably remember a time where transaction costs were really high. Do you feel like the the behavior towards turnover is a little different in our market structure that’s fairly frictionless?

John Lewis, CMT 55:55
I think the turnover question, at least now anyway, when we talk about turnover, it’s about taxes. I think that the trading and transaction cost is negligible. When you’re talking about looking for stocks in a portfolio that are gonna go up to three, four or 500%, tiny spread and small ticket charges, nothing, right. I mean, you got to buy what you got to buy. But yeah, people, people are generally concerned with the tax implications. And for momentum and trend following the nice thing is, it’s about the most efficient way you can do it for the level of turnover that you generate.

Tyler Wood, CMT 56:28
Yeah. And then the one other question I have is just in a range bound market where the index isn’t doing anything, if we just even think about the period from 2000 to 2010, lost decade of no real return at the index level, does momentum work in a highly rotated or highly turned over portfolio as a stock picking strategy? Is there enough juice in even a short term gain on the momentum factor to keep performance above what you would get just by holding the index and not getting any real return.

John Lewis, CMT 56:59
So when you get the period like that is generally really good for momentum, you know, obviously, relative to the index, but w-hat you have when the index is flat, is generally not everything is flat, you have a bunch of stuff doing well and a bunch of stuff doing poorly. So momentum strategy can pick out those names that are doing well and just overweight them and avoid the stuff that’s doing poorly. And you can kind of generate alpha from both sides. I think it was Alan Shaw, he used to say and back. This is when I used to get the tapes, remember, the MTA library used to have the cassette tapes, and you could order them. So I was doing that back in the day. And he used to say that your performance is determined as much by what you own is what you don’t own. So that gets to that point where you just avoiding stuff is just as important as buying the strong stuff, especially in that kind of sideways environment. So when the indexes are ripping, and the S&P is the only game in town, it’s darn near impossible to beat it with any strategy, right? It’s just super hard to beat. But when it’s not doing well, you can find those pockets of strength. And it really is a good stock picking type of strategy. So yeah, if we get that kind of environment, I think momentum should do wonderfully.

David Lundgren, CMT, CFA 58:11
That’s fantastic. So maybe we can move towards wrapping it up. But I wanted to just leave our listeners with one more John Lewis nugget, which pertains pretty much to what we’re talking about. But this is so good. I can’t not say it. There isn’t any alpha to be had in strategies that you always feel good investing in. Being uncomfortable at times is a necessarily evil. There’s no better time than to say that then now but that is so true. And you know, momentum works over time, but it doesn’t work all the time. That’s true of all factors. And the idea is that if you feel good all the time, you’re not making money,

John Lewis, CMT 58:45
For sure. I mean, if this was easy, everyone would do it. And all the alpha or profit would be just the arbitraged away, right? I mean, there has to be something uncomfortable about doing it in order to earn a profit. People talk about has the market change this, that and the other, I think more people have changed, they’re less willing to do things that are uncomfortable. I think that’s just kind of part of where we are now as a country. And if you are willing to go out there and take the road less traveled and be willing to be wrong sometimes, in order to be right more times than not, I think there’s a lot out there for you. And it’s you know, not only momentum, but other things out there as well. But I think it’s super important for people to realize that you can’t make all of the pain, you can’t make all the underperformance go away. You just have to deal with it the best you can. And someone told me a long time ago when I first started in this business, you know investing in investment management business, it’s a survival game. You need a couple of good ideas and a cast iron stomach and that’s what makes a career. For us, that’s been having this real kind of disciplined, systematic process that just allows us to essentially fly the plane using the instruments even through the fog and just do what we need to do.

Tyler Wood, CMT 1:00:02
Very well said, I feel like we’re collecting more John Lewis nuggets as the podcast goes on a couple of good ideas in a cast iron stomach. I’m gonna remember that, John, for financial advisors who are listening that want to get connected with NASDAQ, Dorsey, right, what’s the most appropriate path for them to get in touch with your team?

John Lewis, CMT 1:00:20
Yeah, the easiest way is to go to the website, dorseywright.com. You can sign up for a free trial there if you’re interested in what we do. And then we’ve got all sorts of investment products out there. You can check on your firm’s manage account list, things like that, or, you know, our office for the money management side is out there on the Dorsey Wright website again at dorseywright.com. So feel free to give us a call, send us an email, whatever, we’d be happy to answer any questions you might have.

Tyler Wood, CMT 1:00:48
And for members of the CMT Association who want to get into a vigorous debate about one box versus three box reversals on their Point and Figure charts, how do they get hold?

John Lewis, CMT 1:00:57
Don’t call me.

Tyler Wood, CMT 1:01:01
John, I can’t thank you enough for all of our listeners who are in the CMT program, John actually offered about a year and a half ago that for everybody who was in the program that wants to see what institutional technical research looks like, take advantage of that free trial to NASDAQ Dorsey Wright research components while you’re sitting through the exams. And that really just helps kind of bring to light how practitioners of these tools put these aspects to work. So thank you very much for spending the afternoon with us, John, and any last comments that you have for our listeners?

John Lewis, CMT 1:01:31
No, I mean, it’s been a great journey. For me, I think technical analysis has really been a big part of what I do. And the CMT Association has been a big part of that as well. So I can’t thank you guys enough for having me on and for all the good things you’ve done for the industry over the years.

Tyler Wood, CMT 1:01:47
For all of our listeners, we’ll see you again here next month. Thank you so much for your time and for listening to Fill the Gap, the official podcast at the CMT Association. See you soon, John. Thanks, John. Thanks, guys. Fill the Gap is brought to you with support from Optima. In addition to candidate study of the official CMT curriculum, Optima 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 optima.com.

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 refine the design of technical market

Contributor(s)

Tyler Wood, CMT - 2022

Tyler Wood, CMT

Tyler Wood serves as Managing Director of CMT Association with the aim of elevating investors’ mastery and skill in mitigating market risk and maximizing return in capital markets through a rigorous credentialing process, professional ethics, and continuous education. He...

Dave Lundgren, CMT, CFA

Dave Lundgren, CMT, CFA

Dave Lundgren, CMT, CFA is a 30-year investment industry veteran, with a focus on technical analysis strategies, particularly momentum and trend following. He has held both analyst and portfolio manager positions at several major investment firms, including Wellington...

John Lewis

John Lewis, CMT

John Lewis is a Senior Portfolio manager with Nasdaq Dorsey Wright and is responsible for the investment strategies used in various different indices and models.  Since joining the firm in 2002, Mr. Lewis has developed strategies for the firm’s Systematic Relative...