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Fill the Gap Podcast Episode Seventeen with Special Guest Laura Martin, CMT, CFA

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Summary

Timing is everything in the world of technical analysis, and this month we had the distinct honor of bringing the exceptionally talented Laura Martin, CMT, CFA onto Fill the Gap the very day that $NFLX dropped through the floor.

Darling of the “stay at home” trade Netflix had buy ratings from 39 other sector analysts. Laura made a massive contrarian call based on her combined technical and fundamental understanding of the markets and her covered stocks.

This powerful endorsement of the technical toolkit covers the “micro” applications to individual securities, but also Laura’s attention to the “macro” environment since enrolling in the CMT Program nearly a decade ago.  Intermarket relationships and historical studies have taken a front seat in 2022 as the paradigm of growth-focused investing has shifted.

Transcript

Tyler Wood 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 veterans 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, filled 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 Marketing.

Good afternoon, Dave longer in how are you today, my friend?

David Lundgren, CMT, CFA 1:14
I’m doing well. Tyler, how about yourself?

Tyler Wood 1:16
I’m fantastic. It’s a rainy Saturday, by the time we release episode 17 of fill the gap the CMT symposium will already be behind us. But from today’s standpoint, I can’t wait to see you next week in Washington, DC.

David Lundgren, CMT, CFA 1:29
Yeah, I am so so much looking forward to this. Suppose the moment obviously, it’s the first one we’ve done live in a couple of years. So it’s just it’s the best part of the symposium is getting together with your colleagues, you know, you’ve done for years, meet new ones. And as you always like to emphasize, and I totally agree the after session discussion in the cocktail sessions, if we call them that is always so much fun. And it’s really informative. And I just can’t wait to get there.

Tyler Wood 1:55
The last couple of years. I mean, there’s been great education online, people can access experts from all over the world from the comfort of their home, but it there’s not a lot of additional debate, right. It’s a sit and get. And the symposium was really interactive, and I’m looking forward to that. Speaking of interactive, our interview with Laura Martin here in Episode 17, was fascinating. Here’s, you know, Stanford undergrad, Harvard Business School MBA, got her CFA and later in her career, came back to find out that she needed a better discipline for understanding sentiment and market behavior and then became a CMT charterholders in 2016. Dave, with this conversation with Laura Martin, what what really stood out to you is as the highlight,

David Lundgren, CMT, CFA 2:38
I mean, at the end of the day, it’s almost as if we went out into the CMT community and tried to find the perfect CMT charter holder to make our point. And to bring home the point that you and I are always talking about in the in the podcast about finding folks on the fundamental side who find value in technical analysis, so much so that they get their CMT charter, it basically rounds them out as an investor and actually fills a significant gap, hence the name of that podcast, right? I mean, it’s very intentional. Example, the gap in the CMT charter filled a massive gap for for, you know, just the comments that she made about in particular, as you said, sentiment, I thought was really interesting. She used the charts to help her understand what not just a prevailing sentiment was, but when the trend changes in sort of simultaneously, when the trend changes and the sentiment changes. It’s a whole different ballgame in terms of how the stock behaves after then, in her very timely and very recent experience with Netflix was just a, it’s almost like we planned that as well, but she’s had a sell on it all through COVID. And, and she stuck to her guns and of course, the stock was down 37% I think on the day that we interviewed her. So you know, April

Tyler Wood 3:46
2022. What was fascinating about that day, Wednesday, when we recorded that was the first time that 39 Out of the 40 analysts finally downgraded from a strong buy to a to a hold or even a sell. And for Laura, that was the day that she went from a strong sell to a hold fascinating, fascinating to take a contrarian opinion. This is somebody who, who knows and loves deeply the fundamental side of the business, right. But she understood early on that when the back of sentiment breaks, there was no support under there. From a fundamental perspective, Netflix being a beloved stock through the stay at home trade, there just wasn’t anything to support price per share that it was trading at a fascinating moment. And awesome that we captured it in real time if

David Lundgren, CMT, CFA 4:31
I follow course, Netflix and many other stocks very closely, but I went back and I looked at how Netflix behaved from a relative performance perspective, relative to its peers relative to the market through that period where it went up with all the other state home stocks, but on a from a relative perspective was which is how she gets paid. It actually was a very, very best it was a mediocre stock. So even when the wind was at its back, yeah, going up with all these other state home stocks, her relative trend was it’s completely in Favorite. So just kudos to her. And whereas the community, of course, thankful that we were, you know, our body of knowledge was in large part of what helped us stick to her guns and recognize, you know, the sentiment and here we are today with a great call and on the books for,

Tyler Wood 5:13
you know, hearing Laura’s, you know, recounting when she decided to approach technical analysis with with real vigor and go through the CMT program and spend all those years studying and passing tests you said it was because she was covering these these mass aggregators, Amazon, Netflix, Google Facebook, and they kept going up when, for fundamental reasons, there was no reason for them to go up. And I don’t know if you remember Dave, but in our conversation with Ralph and Pora, it reflected back on being a youngster in the early days of the MTA back in the late 1960s, meeting Ralph Ratnam. And he asked what was then you know, very senior veteran member of Wall Street asked him you know, sir, what, what was the hardest market to trade, and then immediately stopped himself. He’s, oh, that was a stupid question. You traded through the crash of 29. That must have been impossible. And Ralph Ratan them told him, No way. Suddenly, it was the 1950s Because everything kept going up despite all of our belief that it couldn’t. And there it is, again, right history rhyming, if not fully repeating where at times sentiment can elevate price per share of companies that for any fundamental reasons don’t seem worth it. So yeah, particularly in the short term, particularly in the short term. So fascinating conversation with Laura Martin for all of our listeners to fill the gap. Please enjoy this conversation and the May issue of fill the gap the official podcast from the CMT Association. 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.

David Lundgren, CMT, CFA 7:19
Welcome to fill the gap, the official podcast of the CMT Association. This month, we have an especially interesting conversation lined up with one of Wall Street’s top sellside fundamental analysts, Laura Martin. Laura attended Stanford for undergrad and later received her MBA from the Harvard Business School. And she is actually one of the rare dual charterholders she holds both the CMT and the CFA charter. Over the past 20 years, Laura has accumulated numerous accolades for her research acumen, including Best of independent research boutiques, and repeatedly ranking among the best according to Institutional Investor magazine. Since 2009, Laura has been the senior entertainment and internet analyst at Needham company. So this conversation could not be better timed, given what’s been going on in her coverage over the past 12 months, and of course, leading up to this period. So this ought to be a very interesting and timely conversation. So with that introduction, Laura Martin, welcome to fill the gap.

Laura Martin, CMT, CFA 8:13
Thank you very much for inviting me. I’m happy to be here.

David Lundgren, CMT, CFA 8:16
We know you had to push our discussion off about a half an hour because you had to do a media appearance because of your spectacular call on Netflix. I think it’s down. Tyler just said 37% today so congrats to you on that fantastic call. I know you took a lot of heat for it during the COVID bubble when everything that was stayed home related exploded higher and but you stuck to your guns, which is something rare we see on Wall Street. So congrats to you on that.

Laura Martin, CMT, CFA 8:38
But I tell you the CMT really helped. Because you know, sometimes when you get these stocks where I think what the CMT does the best is telling you that sentiment matters in addition to fundamentals. So for these stocks that sort of get ahead of themselves, because everyone loves them. We’re the only sell. And everybody has, you know, when I have 40 analysts competing with me on this name, and they’re all strong buys and buys. So the CMT really tells you think about sentiment, and think about what happens when sentiment gets broken. And that’s what’s happening today. The back sentiment has been broken today. And that’s why it’s down 37%. And it might be overdone. But you know what, if sentiment is going to stay negative here, it can stay at this level for a year, just like it stayed over valued for two years, during COVID. So I really think the CMT and there’s a new habit to David, you must agree with this. That fundamental analysis is really helped and aided and abetted by the CMT kinds of frameworks. I think they’re very complimentary, and they make you smarter on both directions, both on the chart, but also on the fundamentals. I think they’re really

David Lundgren, CMT, CFA 9:47
you really just hit the nail on the head in terms of what Tyler and I are trying to do with this podcast in order of what we’re trying to do trying to shed light on the value of technical analysis and show people how to connect the two between technicals and fundamentals show the bow To the CMT association itself, but then lastly, but certainly not least find those CMT charterholders who are thriving with that charter. And you, of course, are a perfect example of that. It just happens to be quite timely that today we have a very explicit example to refer to in our conversation. So once again, congratulations for that. What will be super helpful for our listeners is to get a sense for what got you into the investment business, kind of just a quick overview of your journey through the business. But then ultimately, and most importantly, for this audience, what got you to think about, you know, I think it’s time for me to get the CMT and think about things a little bit differently, what got you to sort of take that leap of faith and get your CMT? Sure.

Laura Martin, CMT, CFA 10:40
So I came out of investment bank, I came out of Harvard Business School and went into investment banking, then jumped to the buy side for Capital Research and manage money, which was great. Then I came to the sell side, which is sort of, you know, I would say, a little bit higher stakes, because you’re competing in published reports. And so you have to be willing to be wrong on a global platform or be right. And then Netflix can be very controversial Netflix cell call was a great example of what you have to love as a sell side analyst because you don’t, you can be wrong on the buy side, and no one knows, except your compensation. But on the sell side, what’s in print, everybody knows. So for two years, lots of guys, I went on interviews are like you’re an idiot. And I’m like, maybe. But again, I think what I really like about having the CMT in my toolbox, is being able to look at the chart. And when someone says, Laura, what’s fair value? Or where do you think it trades, I always gate my fundamental work by what the chart tells me. Even if I think fundamental value is down here at, you know, $250, if I think that the sentiment is gonna, if I look at bollinger bands, and it tells me it’s not gonna go below 300, because there’s real support there, I’ll use 300, because that’s actually the right number, even though it might take two years to get to fundamental value. And I think that’s the better advice for people in the near term.

David Lundgren, CMT, CFA 12:04
Yeah, I love it. So So was was there along the way in your career? Was there an actual catalyst that you can point to this said, Okay, enough is enough. I’m going to figure this out and augment my toolkit by getting my CMT charter.

Laura Martin, CMT, CFA 12:16
Yes, there was it was this, I was covering Apple, Google and Facebook, and they kept going up and up and up. And I could find no fundamentals kept telling you to downgrade them. And then you downgrade event would go up more. And so I think what the CMT helps me with is that that was the catalyst is it just fundamental analysis did not work for these mass aggregators. And it was, a lot of it was sentiment driven at the beginning, a lot of the upside to aggregation and the Internet economics that were going to turn out to be winner take all were sentiment oriented. Well, those are the three names that worked, I was covering 10 names you’ve never heard of, because it didn’t work, right. So you could see, you could track the sentiment and see how people were feeling. And then what happens is, as you guys know, once the sentiment disappeared, if there isn’t fundamental strength, and underlying it, just there’s no downside protection. There is no worst case anymore. And that’s what we’re seeing in Netflix today. But in some of those ones that are like gone now, CMT totally helped me say, Okay, guys, here’s what the sentiment is telling us. This is what we think fundamental value is. So you could tell people both, here’s what the chart says, Here’s what the fundamental research says, take your pick. And I think people who don’t have both really are at a disadvantage over those of us who have those tools in our toolbox.

David Lundgren, CMT, CFA 13:38
Yeah. Yeah, I should just let you keep on talking, because you’re saying everything that that mean, everything you’re saying is you’re making all the points you’re trying to make with this podcast, and so very much appreciate having this conversation with you. You mentioned a rather advanced technical indicator, the Bollinger Band, which is something that’s obviously John Bollinger was we were fortunate to have him as one of our guests here on the podcast not too long ago, with a listen, if you haven’t heard of yet, what are some of the other tools that you rely on from a technical perspective?

Laura Martin, CMT, CFA 14:05
So the three I like four, I absolutely overlaid my bollinger bands on everything I look at, I would say I use that my top three or that one, my second one is price at volume. That’s super helpful to me, like where I’m looking at where stocks are gonna hit a ceiling or hit a floor. I’m using the price of volume coupled with the Bollinger band for volatility. I absolutely look at the track and money flows. I think that’s really helpful to see what’s happening with sentiment flows in and out are they dissipated and of course I use the MACD, if it’s a momentum stock, right? You can’t use it if it’s oscillating. So I would say put it forth. It’s super important if you’re dealing with a growth stock. It’s less important if you’re dealing with oscillating you know companies so I’d use it for most often because I use Bollinger bands and price at volume for everything. Alright, the MACD is the most important if it’s a growth stock.

David Lundgren, CMT, CFA 14:57
Hey, totally agree with that. And I’m curious if Do you speak to your trading desk at all about what’s happening from a, from a flow standpoint? Because the trading desk is right at the epicenter of supply and demand? I mean, that’s where it happens. So do you ever see something happen in the market and call your trading desk and say, Hey, what was that? Like? What was the volume? Like? Who’s the typical buyer who’s a typical seller in this in these transactions?

Laura Martin, CMT, CFA 15:17
I do not.

David Lundgren, CMT, CFA 15:19
I used to do that. When I was with Wellington, when we were managing money, we would call the trading desk just to get a sense from them. And they’re just fantastic. Probably one of the best desks on the on the buy side, if not the best, they just always gave me some really interesting insights. You know, you talked about rounding out your toolkit, maybe give you a trading desk or call and say, What do you see there? That was probably a number of CNTs on your trading desk, I’d imagine just to get some additional color that you can kind of triangulate with your technical observations and your fundamental observations, and then what’s happening real time on the trading? Yeah, Tyler,

Tyler Wood 15:47
I just wanted to stick on this Netflix call, because there were a couple of comments you made over the last few months that that really caught my attention. First and foremost, being that Netflix is no longer a growth stock, we should be treating this as a media company. And so I was wondering if you could expand a little bit on being a TMT analysts for all of these years, do you see technical analysis, having even more importance are folks who are focused on growth equities who are focused in these sectors that are perhaps most susceptible to changes in interest rate environment? And maybe how you’re dealing with that, from a philosophical standpoint, now that we’ve had such a regime shift here in 2022?

Laura Martin, CMT, CFA 16:23
Well answer it this way. I do think that what technical so what we’ve been talking about so far is let’s call it micro economic technical analysis, where I’m looking at Netflix, I’m telling you where it’s going to trade. And then that’s an overlay of what the charts telling me and what’s the and what the fundamental value is. Okay, that’s like micro. The other thing that CMT, I use less often, but right now, very importantly, is technical analysis also, has you pay attention to things like currency swings, wars, inflation. Yeah, I think as a fundamental analysts, sometimes you can lose sight of those macro things. And I think a CMT training makes you realize that these macro events and what’s happening to the equity markets writ large, actually, you have to pay attention to that compared to the bond markets or gold or oil, these other markets. Because I think that CMT training, those three exams are constantly making you trade off between equity markets, and other. And I think if you’ve been trained as a fundamental analyst, just in the equity markets, it’s really easy to forget all those other markets compete with you. And so then you get, like blindsided by some of these macro trends. And right now, like, for 10 years, it didn’t matter. Interest rates were coming down, and there’s their inflation. But right now, it matters that you think it’s important to pay attention to sort of these bigger issues about how to equity returns compared to bonds or gold or currencies, right. So you think that’s another, maybe less frequent but more important in certain times in the market, that CMT training gives you,

Tyler Wood 18:00
for sure, that rotation away from growth into value, you know, out of the stay at home tech trade and into oil and transport. It’s really easy to miss if you are just focused on the fundamentals of just your sector. How much work do you do with other colleagues throughout Needham? I mean, I would imagine that in the team of analysts, there aren’t that many other CMT charterholders do they lean on you for opinions in that macro sense?

Laura Martin, CMT, CFA 18:25
No, I would say no, I would say that my business is one of experts. So I don’t really talk to the healthcare guy. And I don’t really talk to the ship guy. I mean, maybe sometimes you do, but I mean, you’re not. They’re gonna figure out what makes sense for their business. Like, why Fern was super supportive of me getting a CMT, because I told him, I can’t make these calls on Google and Facebook and Apple legitimately because like, they keep all the signals tell me to downgrade them. And I can tell you, that just doesn’t feel right. But I need a new set of belief systems, I need a new framework. And CMT gives me. It’s like having both Judaism and Catholicism all in the same vein, like sometimes you need one, sometimes you need the other to give you the right answer. And so my firm was very supportive of that. But if an analyst doesn’t feel he needs both, can force them to get both

David Lundgren, CMT, CFA 19:15
right Can I bring in another religion also known as valuation. As a growth investor, one of the biggest downfalls I’ve seen over the years five growth investors is that they adhere too much to evaluation framework because you know, they overweight and I should say in stocks get expensive and they just keep going as you indicate the charts tell you to stay long, but oftentimes, the thing that keeps people from engaging is valuation so how do you process valuation as you’re looking at a coverage name looking at the chart things like that?

Laura Martin, CMT, CFA 19:43
I mean, I think the way to shorthand the answer to make it super clear, I think that if companies are trading on a P E, which is like a value idea and half the time on an enterprise value to EBIT da you can basically use fundamental analysis it should abide by market averages and it has to be growing faster, like some of the really strong academic work that’s been done on value stocks, I absolutely think applies. And you can safely use that. Where that tools work doesn’t work is where you have companies that are growing revenue at 30% 40%. And they’re positive profit margins. And there’s no end in sight because they can expand globally, or they can add new products that increase their total revenue per subscriber or, and then the fundamental work does not work anymore. Because there’s like it, the growth trajectory could be 10 years, and it could end up being a business that’s, you know, $100 billion, that we’ve just never seen, because the internet didn’t exist. So in that kind of case, you you really, really need to turn to technical analysis, which shows you what the Support Resistance and what’s happening with hitting new, you know, the lows are higher and the highs are higher, you can tell it’s gonna keep going up. So that’s where you really need that because by the way, the key point to be made here is fundamental analysis is inherently a reversion to the mean analysis. CMT is not it is a momentum analysis. So it gives you the opposite framework, so that in your mind, you can come to an impartial conclusion about what’s going to happen for that equity, is it going to be a momentum idea where the or the growth trajectory just keeps accelerating? Which is what’s happened at Facebook and Google and Apple for a long time? Or is it going to be a reversion to the mean story, which is the only story that fundamental analysis gives you. And if that transition is, by the way, today, Netflix is transitioning from momentum, to fundamental, and now it will start having to abide by the rules of the Walt Disney Company and Paramount and Warner Brothers discovery, it will change the rules against which we base it, and its valuation. Now,

David Lundgren, CMT, CFA 21:52
do you use relative performance? Like you have a coverage list? Probably you probably cover with 20 or 30 names?

Laura Martin, CMT, CFA 21:57
30

David Lundgren, CMT, CFA 21:58
Do you ever rank those from a relative performance perspective and say, Okay, this is at the top, I need to make sure that my if I don’t have a buy on it, I need to know, for sure why I don’t have a buyer on it in these rank at the bottom. And if I have a buyer on it, I need to like double down and make sure because the message of the market is contrary to what I’m saying, in my fundamental work, you have to do something like that.

Laura Martin, CMT, CFA 22:18
So it’s tricky, because really money money is managed by market cap. So let’s say you like Apple as a topic, that’s lovely. But there’s half your clients can’t talk to you because they can’t buy Apple, it’s too big. Right? So you can’t, I would argue you can’t really do it that way from a client service business. So you have to have a ranking for you know, less than 2 billion and then a 2 billion to like maybe 50 billion and then above 50 billion. That’s fair, because that’s how money is managed. So within those Yes, the other thing I would say is, is a long time equity analyst on both the buy and sell side, I would say another thing, that early on in my career, I would make very narrow distinctions between this radio guy is gonna go up more than that radio guy. And in point of fact, either radio works or it doesn’t work. So you know, I find it harder to justify, like I do 12 single line businesses called ad tech, it is super hard to say, as an analyst, of course, I do 12 I don’t cover 200 stocks. So I’m like, you know, I can say within these 12, but to call them, buy, sell hold, they all move together, they all get paid as a percent of advertising. So important fact, they all move together. So my advice to clients has to be look, I think people should be an ad tech. And if you manage small cap money, here’s four choices. If you manage Mid Cut money, here’s six choices. If you if you’re large cap money, there’s one choice, but I suggest you being the one choice. So and they don’t really move differently, like either they’re all going to work or they’re not going to work because it’s a percent of ad revenue. So you have to have ad revenue. that’s healthy.

Tyler Wood 23:53
Yeah. Right. Right. And is that the point at which your fundamental understanding of the strategic side how their business model is working? Or maybe advancements that they have in the in the technology versus others? Is that where there’s there’s really a difference to be made on the fundamental side versus looking just at the charts of stocks in that group?

Laura Martin, CMT, CFA 24:11
I think so. Because I think you have to have a point of view about what’s happening to earnings for the group. And is it being disintermediated by walled gardens like Facebook and Google? Or are right now Facebook is losing some of its advertising? Because thanks to the Apple changes and privacy regs, and so that Facebook revenue is coming into the open internet, which benefits all nine of 12 of the guys in the open air net. So that kind of fundamental, might not be caught in the chart fast enough. Like when you see, you know, Facebook saying we’re gonna lose $10 billion this year, because Apple’s a bad guy, you’re like, well, where’s that going? It’s gonna get spent, guess what? It’s gonna ban that trade desk and magnate and violence and so you know that right away before the charts start showing it?

Tyler Wood 24:54
Sure. Fantastic. Yeah.

David Lundgren, CMT, CFA 24:55
Laura what about a situation where you have a stock that you have strong fundamental view on but across every timeframe of trend. It’s in a downtrend. What do you do with that situation? And how do you counsel investors as to what to do with that by rated stock? Knowing what you know about trend and how until you start to see higher highs and higher lows? It’s really it’s in a downtrend. So there’s risk, etc. How do you counsel investors with that type of conflict between fundamentals and technicals?

Laura Martin, CMT, CFA 25:21
You know, one of the things I would say is, I think technical analysis continues to have brand issues. I have several very large institution, we only handle institutional money at Needham. We don’t do any retail money that will not talk technical, will not talk, I have zero clients that call me and say I won’t discuss fundamentals. So sometimes you try to you you figure out who care. You know, by the way, I have clients that won’t use return on capital, either, which I think is far more ridiculous than not using charting techniques. So no, you’re dealing with 2000 clients, and there’s a bell curve, some don’t believe in return on capital, you’re like, Okay, I’m lost on that conclusion. But okay, we won’t talk about EDA, or return on capital, or asset allocation or free cash flow yield, we just won’t talk about anything. So the clients loss. So I would say that my job is as a communicator, as a seller of ideas, is to figure out a way to get the information that I think the CMT gives me and figure out a way to put it into words that a fundamental investor can digest. Leave the charting verbiage. So it’s like we all in CMT lab, we understand Greek. If the other guy only understands Latin, it’s our job to translate from Greek to Latin in a way he can input the data so that he still has our best advice, but that using the language he doesn’t respect, no believe in whatever. Yeah,

David Lundgren, CMT, CFA 26:51
interestingly enough, you know, Tyler, and I talk about this all the time. We’ve mentioned it on past episodes, but I’m in a fairly good sized room right here. And you could fill this room with all of the documents and papers that have been written in the community, from empirical evidence of the validation of technical analysis trend following momentum. I mean, it works. It’s undeniable, it’s like to say that trend doesn’t work as like, as my old my old boss in Wellington fact, XR used to say, if you don’t believe in trend, that’s like saying you don’t believe in oxygen. You know, it’s real, right? But my question to you is, given that you’re so well embedded on both sides, fundamental and technical, and you obviously speak to people on the fundamental side about technicals, what do you think is the prevailing reason for why fundamentally minded investors struggle to embrace oxygen?

Laura Martin, CMT, CFA 27:33
Honest opinion!

David Lundgren, CMT, CFA 27:34
Please?

Tyler Wood 27:36
The customer is always right, except when they’re wrong, is that what we’re about to hear?

Laura Martin, CMT, CFA 27:39
Not what you’re about to hear. Here’s what I would say. There is a lot. Here’s one of the things I learned in studying for the CMT, third party academic literature, especially if it’s won a Nobel, or it’s a refereed journal, or it’s won something internationally prestigious, even if it’s 50 years old, really does carry weight, I’m gonna call it forever. But what I really mean by that is, the guys who are the best money managers, the ones that didn’t get fired in your 10 didn’t get fired and your 20. And they’re all trained in fundamental analysis, because CMT is a little more new. So what has to happen here is I think the CMT needs a lot more money, put to academic resources to get third parties to vet our stuff, find examples where it did a better job than fundamental analysis standalone, you know, it works because traders use it, and I use it to make better calls. So you know, it works, but people would stop using it. But in terms of its brand and getting it adopted quicker, I think you really, really need to have third party, impartial, academic and decades of this not like for years, like decades of this without the noise where it’s really clear, and preferably when some very prestigious global award, which takes decades.

David Lundgren, CMT, CFA 28:58
Yeah, I think one of maybe Tyler, one of the things we can do is perhaps on our website, do a better job of aggregating that academic research, because the research is out there. And it is goes all the way back to 1990. I think maybe 1989 on the momentum factor. So it’s out there. It’s just all over the place. And maybe we just need to do a better job of aggregating it on behalf of the investment community so they can see the value of it. But that’s perhaps for another another discussion,

Laura Martin, CMT, CFA 29:20
I would aggregate it and then I would hire a summer intern at $25 An hour and I would have them do one page summaries of everyone. So here’s the one page executive summary. This is why you should read this, click here. And that will get people to like it would soften their entry path to get CMT. It would make them more interested, I think, more credible. When I first started the CMT, one of my best friends said, Are you going to do tarot cards next? And I said if there’s an external credential, and it’s a hard exam, yes,

David Lundgren, CMT, CFA 29:47
it may help to make money.

Laura Martin, CMT, CFA 29:51
I didn’t say that to him. But yes, of course.

Tyler Wood 29:53
I think we’ve had a brand issue for a very long time. We’ve talked to several guests on this show. Their original thesis was had something to do with market timing. And then they learn that, you know, quantitative methodology was was really the key word that needed to be on there. And I think if you told people you were serving them snails for dinner, they would, you know, turn their nose up. But if you deliver

Laura Martin, CMT, CFA 30:12
Yummy yummy, not me

Tyler Wood 30:14
Escargot to the table, right like that there’s there’s just some nomenclature that I think technical analysis has been associated with pieces that are perhaps less objective fiable there’s, there’s more subjective noise. But to your point, I see all of the Nobel literature and behavioral finance is basically taking the concepts that have been well vetted by Charles Dow and Munehisa Homma and you know, investor behavior has been observed in the technical community for hundreds of years, even though in the psychological community, it’s been, you know, the last 50,

Laura Martin, CMT, CFA 30:46
I would make one other point. Yeah, this is something, this is something I think we could fix. Like you want to say, this is why we’re gonna add skills for you and make you better at what you already think you’re good at.

Tyler Wood 30:58
I think that’s been a big shift in the last 10 years. And it’s been folks like Dave Lundgren and Frank to share who start almost every presentation with trends only exist because there are strong fundamental reasons for them to persist, right. And bringing in that sentiment component is very complementary. So Laura, let’s shift gears a little bit because we are sort of at an inflection point, and you touched on this in another interview, just about not losing sight of the forest for the trees, and specifically in the TMT sector. What do you see playing out for web 3.0? And how the business models are going to change drastically in content production and ownership in communications and generally for technology related stocks?

Laura Martin, CMT, CFA 31:42
Okay, so I love this topic. Oh, my God, it is the most interesting thinking we are doing having nothing to do with either fundamentals or technicals because we have a track record for neither. So what I liked the most, is it everybody listen to this breakout the metaverse versus web three and define them differently. Yep, web three is harder. It comes after the metaverse idea. So the metaverse idea is where we’re spending time. And I would say, look, I can definitely see both sides. The Metaverse as I define it is basically this integration of the digital world and the physical world. And I think it is is adopted fastest by the 15 year old boy that got stuck locked at home. And he brought all of his socializing to fortnight and to his gaming hours. And now he’s back at school. But his relationships actually online that he’s developed globally are actually stronger relationships for that kid after two years of COVID than they are in the real world. So to him his world is, you know, 10 hours in the real physical world plus five hours of screen time to him. It’s just his world. So the metaverse is bringing the same kinds of use cases that we have in the physical world like Nike shoes into the digital world. I want to have my Nike shoes I want to wear my W W E T shirt. Well, people are license holders and they want to make money from that. Of course WWE is happy to sell you its gear, but you don’t get it for free. You have to buy it. What do you buy it with? Well, you could buy it with real currency, but the go to backbone of funding the metaverse that’s called this, the metaverse is hooked up. That’s interesting, too. So they put the funding layer in first. Now you’ve got this use case where a lot of these young men are really they really want to create their own avatars, their own personalities, and they want to be able to carry a Gucci purse. Okay, that might be women and have Nike shoes and have their W you know, their wrestling t shirt on as they run around their digital world. But that world is as as real to them as the physical world because they’re 15. And for two of the years, like a third of their life, they’ve been locked at home on a screen. Okay, yep. That’s the metaverse that is super interesting. I think it’s incremental. And I think at the margin and helps the biggest brands that are already the biggest brands. Right. So Nike makes money because there’s early adopters, they’re very cutting edge, very clever. They will prove this out. And then they’ll be late followers, like Pepsi will sell you a Pepsi. You can walk around within coke. And so all of these, like this first step of Metaverse, I think is about existing brands that you want to bring into the metaverse and then of course, some cool influencer and we’ve seen it in NF T’s for artists, where people pay a lot of money for really clever digital only artists. They don’t exist in the physical world, some of these people, but you’ll get new brands like Tyler, you can create a new drum set for the fifth for the MMA. Like you don’t make drugs in the physical world. But you can make drums in the digital world and sell those because you’re a pictures cooler. So there’ll be like let me call it digital only or Metaverse, only participants but it will come later. The ones who will break originally or like the existing brands, I think web three web three is way more radical, because what it does then threat threatens everything that is centralized today because it’s distributed, right? So the people that have the most to lose are Apple, Google, Facebook. Anyone who has centralization is there you say Netflix. Just so much opportunity. I was thinking anybody who benefits from aggregation, but the biggest beneficiaries of the trillion dollar market caps, not the 100 billion dollar market cap. So it’s the big four, Amazon, Apple, Google, Facebook, they’re all over a trillion dollars, owing to their centralization, web, three, decentralizes everything. So the guys were the most to lose are the guys that benefited the most from reaggregating the internet in web two. Now, but I got it, you know, A company’s just don’t let you take their business away. Those companies and web two are gonna fight like hell not to lose their $3 trillion of market cap in web three. So they won’t stand still, they will try to find a way to not you know, to defend their value. And then web three also is going to have regulatory issues, you know, that’s coming cryptos got to be regulated, because right now, there’s a lot of dark money going there and governments don’t like that. So there’s got to be a lot of regulatory stuff that happens that I think create friction and the adoption of web three, even though I do not see friction in adoption of the metaverse because I think it’s additive to the biggest players

Tyler Wood 36:21
Interested

David Lundgren, CMT, CFA 36:22
On the on the metaverse, I’m just thinking about a similar analogy, you know, back 100 plus years ago when we when we went from horse and buggy to automobile. And now today we have no physical life to digital life in the metaverse what I see today where we just have basically Nike trying to sell shoes and the metaverse is comparable to the buggy whip manufacturer when it knows it’s being completely disrupted, trying to figure out, you know, trying to tell the the new autumn owner where to store the buggy whip in the auto a completely missing the point, like the automobile was way bigger than where to put your buggy, buggy whip because of why you would have horse and buggies over right? So is there not something that’s bigger than like selling Nike and Pepsi on the better versus the metaverse? Not something bigger than that? Isn’t it more meaningful than? It’s not?

Laura Martin, CMT, CFA 37:08
Well, sorry. I would say the look, I think the metaverse is emergent, and it will be determined by 18 year old men. I do not think that this is going to be our generation. We don’t know what the metaverse has for value, it will be the 18 year old man who spent five hours a day on screen time, I believe. They think their reality is 10 hours of physical seven hours of screen time or some and then sleep like that’s it. So whatever they think is the valid use case. That’s who’s going to determine what the metaverse means not us. And in the near term. What I think that means is if the kid in the real world is wearing Nike Air Jordans, I believe that when he gets to the digital world, in the beginning, he’s gonna be able to wear he’s gonna want to wear Nike Air Jordans, unless he wants to spend two bucks to buy your new shoe that’s even cooler. But he’s not going to buy something less cool. And he’s not going to want something less cool in the digital world than in the physical world. Because to him, it’s just his world. We’re making these arbitrary distinctions about whether it’s on a screen or in real life, because most of our time because we’re old has been spent in real life. I do not think the 18 year old does that. I think to him and his reality. My opinion is if he’s paying up a premium for brands in the physical world, He will also pay for that brand or better in the digital world.

Tyler Wood 38:33
You said specifically young men and web three is gonna be more of a male dominated space than than female. Is there any evidence does

Laura Martin, CMT, CFA 38:43
Metaverse not web three, web three is the distributed destruction of everything that came before. But yeah, Metaverse, I agree with what you just said.

Tyler Wood 38:51
So So what is it that you feel is driving more male participation than female participation in the metaverse?

Laura Martin, CMT, CFA 38:58
Because I think what happened in you know, this is my conjecture, just my opinion. So, I mean, this stuff is so emergent. It’s so much fun to think about no answers, just all questions. But what I think happened in COVID, that was different by gender, is that the 18 year old boy went to the screen and started making friends and fortnight and he moved his whole social life into Minecraft, Minecraft, and into social venues globally, like he’s has global friends now, in these gaming, interactive environments. I think girls did that less. They played Scrabble and they played Tetris. But they kept their physical organ or they kept themselves on SNAP, and Facebook and they kept the social groups that they had before because they don’t game as much. They don’t do interactive gaming as much and it’s not substitutable you know, I think anyway, I’ll leave it there. I do think that men and as you know, men make more money than women. So the money is where the men that are 18 year old that are going to make more money every year until they turn 29. Where they want the use cases to go is where the money will be spent. And by the way, women will come along that they’ll come along at the 30% level of total, and manual they 70% of total

Tyler Wood 40:12
gotcha

David Lundgren, CMT, CFA 40:13
To bring this back to stocks, because this is definitely a conversation, we could run down the rabbit hole on. And I know you only have an hour with us today. So let’s, let’s maybe bring it back to stocks a little bit. And just curious within your ratings today. And you identify a couple names that made you see down the road or in the crosshairs of web 3.0. But that’s far enough out that you are still willing to keep a buy rating on at the charts still looks fine. Are there any stocks like that in your coverage today?

Laura Martin, CMT, CFA 40:39
So Web 3.0, which I think is if it happens at all, which is the decentralized area? I would be short. If web 3.0 happened even five years out? I believe that to be true. I would go short Facebook and Google immediately. Apple has hardware, so I might go to hold on them. And Amazon, I’m not sure I’d have to think about that. We cover all four of those stocks. But the biggest losers immediately would be Facebook and Google if web 3.0 is really going to decentralize everything.

David Lundgren, CMT, CFA 41:08
Right. And you’re not really pressing that that yet because it’s too far in the future. And you don’t even have concrete evidence that it’s going to really happen. I mean, there’s so many moving parts on that. Like, you don’t even know what the regulation looks like yet. So it’s hard to really, yeah. Interesting about on the other side, where you see names within your coverage, that probably smaller cap names that stand to benefit from at least the digitization trends that are taking place, whether it’s web three, three or not, that you have ready to buy that you’re particularly excited about today.

Laura Martin, CMT, CFA 41:36
I think companies that have the ability, so all the streaming companies are already I’m going to call it Metaverse, but there’s their digital, right. I don’t know if they’re Metaverse, but but the point if you have a streaming company, that’s already baby Yoda. Let’s just use that right? That’s a Mandalorian. It’s Disney plus streaming company only. There’s nothing in the like on the linear TV or in the movies or in the theme parks. It’s baby Yoda. Except they do make merchandise of course. But if you had baby Yoda that you could buy in the metaverse that ran around on your shoulder people. That’s a Metaverse idea, right, it would be something that sat around on your avatar, you could have baby Yoda on your T shirt or on your shoulder or following you around like he does the Mandalorian. And that little egg, like people would pay for that. And that is a digital asset. You know, and you can make them non transferable like they can make them NFT. So that the you have the authentic and other people have the copy like Picasso, but somebody can own the original and I paid a lot of money for the original. I see those is beneficial to the original IP owner in an incremental way. Yeah, if the metaverse evolves the way it looks right now, which is a very incremental idea. So I feel it’s going to be more radical, because, again, it’s been emergent by 18 year old boys that don’t have any of the biases that we do in terms of how things start. You know, they don’t have the anchors that we do to the physical world.

David Lundgren, CMT, CFA 43:00
Yeah, they’re way smarter than us because they don’t know as much as we do.

Laura Martin, CMT, CFA 43:03
They don’t have habits that we all made for 30 years that just got disrupted for two years. They didn’t have any of those habits, and then they got disrupted for two years.

Tyler Wood 43:11
Just to conclude the earlier point. I don’t know if gender is going to exist in the same way in the metaverse in the sense that we don’t have the same social norms in a digital avatar that we would have at, say the hallways of a middle school. Right.

Laura Martin, CMT, CFA 43:24
Hopefully, I don’t know. Let’s see. So a lot of bullying goes on in both worlds. Seems to me,

Tyler Wood 43:29
Yes equal opportunity bullying now, right?

David Lundgren, CMT, CFA 43:31
Yeah. I’m gonna paraphrase something that Ian McMillan said, and I think it was episode 15. Tyler, he basically said this, like, such a simple statement, but it’s undeniably true. He said, again, I’m paraphrasing. And so it’s going to be approximately right. But he said, it’s very, very, very difficult to beat a benchmark, if you don’t own things that are beating the benchmark. And so that was a topic in a concept that I used to talk to when I was Wellington and fidelity, dealing with fundamentally minded investors. That’s a concept that I would bring to them constantly, because it’s just the hard, hard fact truth. So one of the ways that I would get to that is I would go through our internal analyst coverage. And I’d say this analyst has a buy rating on the stock, and it’s got a great looking trend. And so that’s how I would source ideas for portfolio managers, both at Wellington and fidelity. And so I kind of went through your coverage and I, I went through and I said, Well, let’s let’s see if we can find some, you know, are already well established trends that Laura has ready to buy, or maybe even something better, that’s just starting possibly starting to get going technically that Laura has ready to buy. So do you mind if we just it’s almost like a what comes to mind when I say this word type of exercise, but it’s actually not your coverage. So you should be shouldn’t be too taken to by too much of a surprise but okay to do that. So, so let’s say paramount, you have a binary on it chart looks like it’s just getting started to get going. What’s the fundamental catalyst here to own that stock?

Laura Martin, CMT, CFA 44:50
The fundamental catalyst is that they have more value, their fundamental value has more value in streaming than the entire market cap. So you’re getting the set that 4 billion of EBITDA that come was from their core linear TV business for free.

David Lundgren, CMT, CFA 45:02
Love it. Okay, how about Perion Network? I’ve even heard of this one. Chart looks fantastic. Oh, PERI is the symbol.

Laura Martin, CMT, CFA 45:08
Yep. So Israeli based ad tech company, they’re doing really innovative things with interactive advertising. Remember that Superbowl commercial where there was just like a you you know those the what is the UGC code for those

Tyler Wood 45:21
QR Codes

Laura Martin, CMT, CFA 45:22
Yeah, so they’re putting those into TV because everybody has always has their phone or their tablet on when they’re watching TV now. Yeah. So you have a commercial, there’s a QR code, if you hold it up, it gives you like a $10 discount by now they go straight to buy now. So it makes it really easy. This notion of interruptive shopping, which we’ve been hearing about for 20 years, makes it really easy to do that. And they’re getting $100 CPM cost per 1000. They’re an ad agency ish, $100 Cost Per 1000 for these interactive ads, very innovative Israeli company.

David Lundgren, CMT, CFA 45:54
You know that that sounds a lot like Steve Forbes, Forbes magazine, years ago, this crash might have been 20 years ago, maybe 15 years ago, prior to us having our smartphone where we could click with a colleague in that to code, QR codes, a QR code before we could do that. He would he would put similar codes in a magazine, but you had to have the Forbes magazine provided device to do it. And what if you did that it would take you right to the web was way ahead of his time. And so this is basically doing what Steve Forbes was thinking of some 15 odd years ago. Okay, how about how about names where the chart is a table pounding hold, and you have a hold on it? And you’ve come across a PM, who owns it and loves it? What would you tell somebody like Disney, Disney is a big kind of range bound mess, totally agree with the whole rating? What’s your thoughts there?

Laura Martin, CMT, CFA 46:40
So Disney, Disney is a tough one, because it’s a tough one. It’s a tough one, because it’s a conglomerate, and theme parks are on a tear, like I’ve never seen margins is high and theme parks. And they’re only at 80% capacity, because they still have COVID restrictions. So it’s like crazy to think that they could get another 30% of revenue on top of these massive margins. So that’s sort of interesting. But on the other side, we still have cruise ships that keep getting canceled, and they still have a lot of physical assets. And so of course, returns on capital are way better if you have more digital assets, you don’t have the physical world assets that can be shut down by COVID. Or come somebody can shoot somebody or suddenly have mosquitoes where you have to shut the org, China can shut down your park against your will when they shut down Shanghai. So physical assets have higher risks as proven by the epidemic. And Disney has really good upside momentum in terms of its streaming. And because of its theme parks. But then it has downside because it also has ESPN and the linear TV ecosystem is under siege. So as always with Disney, it’s a conglomerate, so you’re trying to prioritize what’s going to affect earnings in the near term.

David Lundgren, CMT, CFA 47:49
Like a sum of the parts type of analysis, sort of like yeah, what’s gonna,

Laura Martin, CMT, CFA 47:53
you know, have that are streaming losses and the downdraft in linear TV versus how fast is theme parks trajectory going up? And what does that do into the net earnings per share? And therefore the PE?

David Lundgren, CMT, CFA 48:04
Yeah,

Tyler Wood 48:04
Laura, I wanted to ask you just to stick on Disney for a second, the timeframe that you’re working with in client services, right, you’re talking to other PMS, on a monthly chart, Disney looks like it’s, you know, right back at support, potentially an awesome buying opportunity. On the daily and the weekly, it kind of looks destroyed. Right, right. As Dave said, range bound invest, but we’ve been we’ve been drifting lower for a while. So for your clients, do you have to adjust your time horizon based on on their parameters? Do you qualify a lot of these things based on the time horizon that you’re looking at? And if so, what’s that?

Laura Martin, CMT, CFA 48:38
So I would say that for safety, you sort of stick to fundamentals. And then if somebody brings up the chart and says, Well, this looks like a really good buying opportunity, that sort of gives you a fast pass into talking about the chart, but I would say it still remains dangerous to start with chart. So for example, if somebody says, Laura, I’m thinking of buying Disney, what do you think, and therefore I want to support that, I’d say, Well, here’s the great things about Disney, and I might put the chart forth. I have three key takeaways on the fundamental side, and I might put the chart forth, but it’s dangerous. You know, the guy might either, you know, say, Don’t talk to me about the chart, or I might say, Oh, the charts interesting, but it would not be one, two or three, I would do fundamentals for safety. So if he’s gonna throw away when maybe it keeps the chart point, but he throws away point number two, because he thinks he disagrees or he doesn’t think it’s important.

Tyler Wood 49:26
As it relates to time horizon, would you be talking to them about it’s a buy, eventually, we need to see momentum pickup in this, you know, would you hold waiting for momentum to confirm that that trend move? Do you lean on your charts in that way to help make your calls more timely?

Laura Martin, CMT, CFA 49:43
So I would say that differently? I would say generally, we change ratings once a year or once every two years. So my hold on Disney so the way a guy will frame it is I’m thinking of going into Disney. And I can say well today it’s a support. So if you’re thinking of going in great or it’s up against the top of its bowl and are banned, I would wait till it hits this price, which is the bottom and I would enter there. So I can use it that way say, here’s this fundamental reasons I support your point of view, even though we have a one year hold up, because it’s worth doing. But here’s what the Bollinger band tell is telling me or price and volume is telling me is a better entry point.

David Lundgren, CMT, CFA 50:17
Perfect. Tyler, kudos to you for stepping out to that monthly chart. That’s a conversation we have with JC last time. Of course, we’ve talked about it a lot as well, you know, I think you’re correct to say that it looks like it could be a long term support, you know, to Laura’s credit, I mean, from a relative performance perspective, this stock, Disney peaked relative to the market back in 2016. And it’s recently hitting the lowest relative performance so that that monthly trend on the relative performance chart is completely shattered. So monthly trends are driven by fundamentals, at least from a relative perspective, this trend is in a clear fundamental downtrend from a relative perspective. So that was kind of what got me to highlight this one actually publish sell rating. So it’s too bad that you didn’t have a cell rating on Netflix and Facebook. But as that far as a biocide is concerned, having been there myself, whenever I saw hold, I think that was the analysts way of just really, truly saying cell. You had a great call on Netflix as a whole. Facebook is a hold as well. The charts were terrible already to begin with. So you had that kind of going together where you had the fundamental in the chart, looking terrible. Is there some combination of bad fundamentals and bad chart that would get you to just say, sell as opposed to just hold?

Laura Martin, CMT, CFA 51:22
To clarify, we did have a sell on Netflix till this morning for the last two years.

David Lundgren, CMT, CFA 51:26
So we’ve overhauled so. Oh, fantastic. Even better on Netflix

Laura Martin, CMT, CFA 51:30
for a whole 100% fundamentals. Nothing having to do the chart didn’t support a sell? Yeah, yeah, they just kept going up. Right? And then you got COVID. And then that was bad for our call. But no, we I was, you know, when it comes to conviction charts are fickle. Charts are sentiment, they’re fickle. So rarely to put a sell on something and then sit there during COVID. While the stock moves up against you for six months and still sit there, I have to have really strong fundamental reasons about why I am not moving. And I don’t think charting allows you to do that charting is sentiment based. So if the sentiment shifts on you, you have to cave, you’re like okay, didn’t see this coming. But sentiment has shifted today. Sentiment shifted. Whatever I thought yesterday based on the chart is today wrong, because it’s down 37%. So it might get oversold. That’s possible. But again, that goes back to fundamentals. So now to have a controversial call, where we have 40 analysts at strong Buy and buy and I am the sell, you have to have real conviction in the fundamentals playing out your way. Because charts are sentiment based and sentiments can change on you in a heartbeat for interest rates, or macro or oil prices or something has nothing to do with the fundamentals of your particular stock.

David Lundgren, CMT, CFA 52:41
Yeah, exactly how to micro fundamental jump in respect for your time, Laura, I know you said you have an hour this has been a great deep dive on your process your understanding of the value of technicals, I think our community could not have heard of that a message and could not have heard it from a better user of technical analysis and fundamentals and yourself, Laura. So really, truly appreciate you taking the time to meet with me and Tyler today. Very thankful for your time and your your input in the conversation.

Laura Martin, CMT, CFA 53:04
Thank you very much. I really enjoyed being with you guys. Have a wonderful day. Thank you.

Tyler Wood 53:09
Thanks so much, Laura. We’ll see you soon. Bye bye. Bye.

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Contributor(s)

Laura Martin 7 29 2020 1

Laura Martin, CMT, CFA

Laura Martin is Managing Director, Internet and Entertainment at Needham & Company, LLC & President of Capital Knowledge, LLC Laura Martin received her BA from Stanford and her MBA from Harvard Business School, and she is a CFA (fundamental analyst) and CMT...