Molly Schilling [MS]: Hi Charlie. Tell me what motivated you to write this book, and have you written books before?
Charlie Kirkpatrick [CK]: No, I’ve never written a book on technical analysis. I did write one on hunting and fishing guides in NH and VT about 15 years ago. But a few years back, I was teaching a credit course here in Durango, Colorado at the local business school and there wasn’t a decent textbook that covered the material I thought should be covered. And so I decided to write one and asked Julie Dahlquist, a Professor at the University of Texas and MTA member, if she would like to join me.
MS: Was there anything in particular that you wanted your students to walk away knowing?
CK: Not especially. It was to be a comprehensive textbook that covered the entire subject of technical analysis, history and methods.
MS: Is there anything that particularly interests you about technical analysis?
CK: I’m a great believer in Relative Price Strength. I’m writing another book on that now; it will be out in the spring some time. I’m not fully convinced that many of the other tools are especially accurate.
MS: When you talk about Relative Strength, are you talking about RSI Indicators?
CK: No, that’s a momentum oscillator. No, this is the strength of individual stock prices vs. the strength of all other stock prices.
MS: How do you see that measured?
CK: I use the Levy method, which is the ratio of the current price to the 26-week moving average, ranked against the same ratio for all other stocks. You take the current price of one stock and divide it by its 26 week moving average. That gives you a ratio. Then you go to the next stock and calculate its ratio, and go to the next stock and calculate, and so forth. Then you compare the ratios for all of the stocks, to see which ones are the best and the worst.
MS: Very interesting. Do you do this by hand or by a computer?
CK: I’ve written FORTRAN programs to process all this stuff. Oh my god, if I had to do it by hand!
MS: So you’ve actually created the FORTRAN software for it?
CK: That’s the language I use, yes. I created it myself; it’s not “slick” software. It works for me, but I’d have to clean it up a lot, I guess, if I wanted to package it or let other people use it.
MS: So, you publish the results?
CK: I publish a newsletter, and it provides stock listings based on these calculations. But the ratio calculations are not the only criteria that I use. I also use relative reported earnings growth, and I use relative price to sales. All of that is cobbled together, and I pull the stocks out that are the best in all of them. I’ve been doing this since 1982, and I know from the success of the list that the system works.
MS: Do you have a website in case anyone is interested?
CK: The website is www.CharlesKirkpatrick.com. That’s a tongue-twister.
MS: So what is your average day like?
CK: Well, I do most of the stock market stuff at night. And I write and publish the letter once a week on the weekend. And that’s it for the week. I don’t care what happens until the next week. When I’m sitting in the office and have little else to do, I will trade E-minis. I use moving average crossovers for signals.
MS: Of the S&P?
CK: Yes, my method is to use a moving average crossover system, one that I designed for myself.
MS: What lengths of days do you use?
CK: It’s done by bar. And each bar is not time-related; it’s related to volume of trades. In other words, I’ll use, for example, a thousandtrade bar.
MS: Do you have a discipline that you try to live by?
CK: My discipline is, after all these years, that I do not believe anybody can predict the market, period. Therefore, the only way in which to profit from the market, this has been true for me, is to react rather than to predict. You react when something in the present occurs that you know in the past has had predictive value. But you don’t necessarily know how far the market will go or when you’re going to be stopped out, or any of that sort of thing. All you can do is react when certain circumstances occur and let the market run.
MS: Show me an example of that. Did you react to the market today?
CK: No, I didn’t do anything today other than to be on vacation with my grandchildren. The beauty of this discipline is that I don’t have to do anything, because I’m reacting. I don’t have to be in the market at all times, and I don’t have to make a prediction which is probably going to be wrong anyway and will maybe hurt my performance. So I can go fishing, I can go hunting, I can do whatever I want, and then, when I decide to play the market, I’ll sit there and wait for certain circumstances to set up, and if they do, I go for it. And if they don’t, I don’t do anything.
And, I never, ever buy or short a stock without having a stop order so that I know what the risk is, and I know if I walk away and something happens, I’m covered.
MS: I’m not familiar with E-minis…
CK: It’s the S&P futures. It’s traded on the CME. I think it’s probably the most traded future in the market now, because it’s so easily accessible. And it’s all electronic, an electronic market, it’s not like the S&P where you have the floor traders. Your bid or offer is thrown in the machine, wherever that is, along with everybody else’s.
MS: What’s your trading platform?
CK: I use Interactive Brokers, only because they’re really inexpensive. It’s a brokerage firm, and you get a good price round trip. Well, sometimes I use Trade Station too, but with either one you get an almost nonexistent commission and immediate execution. You can see your execution right on the chart almost instantly, you can see the blip.
MS: That’s great.
CK: I wish they’d had it when I was a lot younger.
MS: You have grandchildren?
CK: One daughter and two granddaughters. Ellie, my wife and I lived here for five years, up until last June, basically to watch the grandchildren grow up. Then we moved back to New England, back to Maine, in June. We have a nice little house on an island in Maine, but we came out here for Christmas. We have two sons who live in Maine also.
MS: Do you love the winter weather out there?
CK: We like it out here, but we much prefer the ocean. We have a deep-water dock, and I fish from my boat out on the salt water. And I like to go hunting in northern Maine.
MS: What kind of fishing?
CK: Deep sea fishing, salt water fishing, like striped bass, blue fish, and some bottom fishing like cod fish and haddock, that kind of thing. I used to do some commercial fishing, and I was on the board of a Cape Code Commercial Hook Fisherman’s Association for a number of years down in Chatham, where I grew up. So I’ve always been involved in the commercial fishing industry, and am still an advisor of sorts. I just love that whole thing, the salt water, just being out on the water, the independence. It’s a great place to think.
MS: What got you involved in technical analysis originally?
CK: My father was one of the first portfolio managers for Fidelity back in the ‘50s. In those days, Ed Johnson, the senior Mr. Johnson, was a technician. He was first a lawyer, but his philosophy was technical. He and two or three other guys sat around in a small office in Boston, and they made stock selections for the funds. They used fundamental information they received from their brokerage firms, but also a lot of technical analysis.
So that’s how I learned it. I used to do my father’s charts when I was about fourteen years old. I got excited about it, and then I did it in the Army. And when I got out of service in Vietnam, I went back to Wall Street, and worked for Brown Brother Harriman and then Tony Tabell & Bob Simpkins, both former presidents of the MTA, because they were good close contacts of my father’s. My father was a real believer in Point and Figure charting.
MS: So, you really grew up in this world.
CK: I did. And I’ve seen just about everything.
MS: Do you enjoy teaching?
CK: Now that I’m back East, I do go around to universities for the MTA Educational Foundation. I give day lectures and courses in investments, primarily covering technical analysis.
MS: What do you like to read on the market?
CK: I don’t read market letters. I don’t read articles in the newspapers. I might read a newspaper just for interest or entertainment, but I learned a long time ago that you never learn anything really useful from doing that. What I read is more for intellectual curiosity.
I read many books in psychology and philosophy. The last one I read was The Black Swan, for instance, since it’s related to the stock market. It was an interesting book about why linear mathematics doesn’t work in the market.
I read books on behavioral finance, and offshoots of that. The most recent was by Terry Burnham. He’s an ex-professor at Harvard –his book is called The Lizard Brain. That was interesting. And, I read a lot of academic papers, trying to keep up to date on studies on market related psychology and finance theory. There are people in the market who treat the market like a physics project, and its not. It’s a very inexact realm, and represents a non-linear kind of a problem.
MS: What do you think of the market right now?
CK: Well I don’t. As I told you, I just react. I know markets trend, I know that they oscillate, and a trend can be up or down or whatever, and you can make money on the up or down, but to try to anticipate what is going to happen six weeks out, well, I don’t want to have anything imprinted on my mind. I just want to react. So that’s what I do. Many people ask me, what do you think of the market, and I honestly don’t know, and I don’t care, because I’m going to react whichever way it goes.
MS: Anything else you’d like to include here, anything that means something to you in your experience in the market over the years?
CK: Well, the one thing I really do have a passion for is for the MTA itself. I’ve done a lot of work for them, mostly behind the scenes. I’ve been in various positions over the years, and I’ve always been a great lover of the idea of gathering people who are professionally connected, so they can discuss different theories with each other, and learn from each other. And I’m really quite happy with the way things are going in the organization today, with all the changes that have been made.
MS: I’m glad you said all that.
CK: Well, it’s how I feel. There has been a lot to work out, but we’ve managed to work our way through.
MS: Thank you Charlie, it’s been a pleasure to talk with you.
CK: It has been nice to talk to you, too.
As Directors of the MTA Educational Foundation, Charlie and Julie understand the importance of teaching technical analysis at the college level. Putting that...
