My stock market mentor.
Consider that stock-market analysis and investing are both an art and a science. Yet nearly all investors, analysts, experts and 'gurus' use more creative thinking making a bowl of instant noodles than they do for the stock market.
Joseph Ensign Granville was a financial writer (The Granville Market Letter) and stock-market seminar speaker who died in 2013 at the ripe age of 90. He started in 1963 and became popular in the 1970s when I became a professional Wall Street stockbroker.
Joe became famous for developing the technical indicator 'On-Balance Volume,' which all Tech Analysts are familiar. OBV was a big breakthrough because until Granville, no one cared anything about volume as a potential predictor of future price movement. Many investors still ignore volume.
Joe was my mentor and I learned about tech analysis from him. He also helped shape me to become what I am today, even as an old man.
He taught me discipline in the stock market by giving example after example of when his lack of discipline-and ignoring his own 'rules'-cost him money. He took his business very seriously and was completely 'unserious' about himself. He always had fun trading the market, win or lose. He was humble with the attitude that Socrates
described: 'The wise man is he who knows he knows nothing.'
He enjoyed being called out for a wrong market forecast by saying, 'Well, you always said I didn't know what I was doing and I'm sure you made a fortune betting against me.'
The greatest gift Joe gave me was challenging me to challenge everything he taught me.
Joe said that OBV was valuable because when volume went up sharply without a significant change in a stock's price, the price will eventually increase rapidly or drop dramatically. He was partially wrong. OBV needed a better predictive interpretation to back up the 'numbers' and I told him so.
After a price run-up, high volume without price movement is almost always 'distribution' before a fall. After a declining price trend, high volume without price movement is almost always 'accumulation' before a significant upside trend change. Joe saw OBV as a 'momentum' indicator-low momentum preceding a strong price movement-and not as a good predictor of future price movement, which it is.
With a 100 plus year history of 'modern stock analysis,' the analysis is treated as if it came from a heavenly roundtable and cast in stone. Tech analysts use the same parameters for their indicators as the 'stones' were used when Moses came down the mountain.
Fundamental analysts use the same valuation formulas as when accountants did the numbers using a quill pen and ink made from burned animal bones.
For example, corporate revenues and corporate profits tell two different important stories. Simply, revenues reflect the 'health' of the business itself, while profits reflect management performance. Therefore, a company with flat revenues and low profits can become a great turnaround situation if a couple of key executives are fired. But knowing that takes creative thinking.
You will never see Joe Granville quoted by any of the social-media stock-market gurus or experts. But he did start some of his seminars by rising out of a coffin. Does that count for creative thinking? I may have to try that sometime.
E-mail me at [email protected] Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
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|Publication:||Business Mirror (Makati City, Philippines)|
|Date:||May 2, 2019|
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