Point and Figure

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Apr 15, 2008 11:14 pm

Has anyone used this with any success?

Apr 16, 2008 8:50 pm

Go to www.fool.com. Then go to the discussion board entitled "Mechanical Investing" and check the postings of author "nyua". She and some others have extensive experience with PnF and would be willing to answer your questions, as well as, offer some limited realtime backtests of this stock selection procedure going back several years.

 
I'm a charter member of Motley Fool and there are some smart people on those boards, (me excluded).
Apr 16, 2008 9:11 pm

Everyday

Apr 17, 2008 7:45 pm

Quite a few guys in my office use it as a basis of their investment approach.  They have had great success.  I personally think the advantage is this is something they believe in and can deliver to clients.

Apr 17, 2008 9:46 pm

Bondo - Thats why I brought it up.  I went to an investing seminar hosted by a Morgan Stanley rep and she spoke about PnF with conviction.  Obviously, her ultimate motive was to gather new assets.  Interestingly, she called herself a "money manager", not an FA.

Apr 17, 2008 10:10 pm

PnF can be extremely powerful if you a) learn to use it properly in your practice, and b) can give a 30 second concise yet simple desciption to a client.  This process can help you keep your clients in the right areas of the market, and it shows them you have a process.  Now, you can use any process you want, the important concept is you HAVE a process and can convey in simple terms to the client you have a process.

Apr 17, 2008 10:37 pm

Primo - by utilizing a techinical analysis tool like PnF, would you say you're spending most of your time managing client assets via stocks and bonds rather than using mutual funds?  One critical point the advisor brought up was the high expenses an investor incurs with mutual funds versus having an individual advisor manage their money.

Apr 17, 2008 10:50 pm

That is the beauty of PnF, you can use it for virtually any listed investment.  I do very little ind stock business.  I am almost exclusively a managed money MF/ETF asset allocator (with some futures business on the side).  Lets say you have need a fund from AF to fill your large cap allocation.  Which do you use?  Domestic or intl?  Growth or value?  I do not believe in looking at past returns as you cannot  buy them no matter how hard you try.  I need to know what is working now, not what worked in the past.  Relative strength (PnF one investment vs. another investment) answers these questions quickly.

Apr 18, 2008 7:11 am

Primo,

Can you give us your 30 second, concise "what you do"?
 
Icecold - I've used PnF - don't dismiss it. Like any Tech Analysis tool, it isnt right all the time, and is not the tool to pick tops and bottoms (if you're into that sort of thing), but it will usually save you and your clients an awful lot of angst.
Also, what originally attracted me, is Dorsey Wright Associates, sort of the "Godfather" of PnF. Read some of their stuff - they relate to the advisor, and their stuf fis written for teh advisor- not the individual investor. They talk alot about using the methodology to prospect, and hwo to use it to show clients you have a process. Thats what Primo is talking about.
Apr 18, 2008 7:37 am
lambda:

Primo - by utilizing a techinical analysis tool like PnF, would you say you're spending most of your time managing client assets via stocks and bonds rather than using mutual funds? 

 
The guys I know use it different ways.  Some us it to help them with the big picture, especially when talking about getting into and out of the market as a whole.  Others use it on a more micro level as a basis to how they are buying individual stocks.  I do know Dorsey has their own PnF mutual funds.
Apr 18, 2008 7:02 pm

I am familiar with DWA and have been curious about them for a while BUT I recently put some feelers out regarding their performance (they manage money too) and what I heard is that they've had a tough time lately (last few years) and advisors/clients have not been happy. When the "godfather" of PnF can't really use it well then I question the value of using it. From what I've read & seen there's still a lot of judgment call making programs like this difficult to follow because too much is left to the interpretation of the person reading the chart and people will see different things out of the same chart.

 
I know it makes for a great prospecting message but does it really deliver CONSITENTLY? If it truly works then why don't we see more professional money mangers using this technique to manage money & deliver exceptional returns over and above traditional fundamentals money managers?
 
 
Apr 18, 2008 7:02 pm
pratoman:

Primo,

Can you give us your 30 second, concise "what you do"?
 
 
"Mr. Prospect, I use a process that compares investments to each other to determine what investments we need to be in.  I am going to invest your money in the areas of the market that are working.  As market conditions change, I will be calling you to adjust your portfolio according to what the market dictates that we do.  Different investments work at different times and we will need to adjust from time to time.  Does that make sense?" (I then turn my computer screen so they can see it, I have a chart of the S&P on my screen with a line drawn from Oct 98 to Nov 00 (up) another drawn from Nov 00 to May 03 (down) and another drawn from May 03 to Mar 08 (up).  "Mr. Prospect, these are the times that stock have outperformed cash and bonds big picture (up lines) and the times when stocks underperformed cash and bonds (down line).  Would you have liked your broker to call you in Nov 00 and take money out of stocks and put more into bonds and cash?"  This is the type of service I provide my clients."
 
 
Apr 18, 2008 7:29 pm

Sounds like an interesting approach from prospecting standpoint.  However, anyone who says it can predict when to get in and out of the market  (i.e bondo's buddies) is only fooling themselves and their clients.

Apr 18, 2008 7:42 pm
Dark Knight:

Sounds like an interesting approach from prospecting standpoint.  However, anyone who says it can predict when to get in and out of the market  (i.e bondo's buddies) is only fooling themselves and their clients.

 
Who said anything about getting in and out of the market.  Small caps did just fine in the bear market.  Think of it like this.  If you drive 90 mph on the freeway, do you continue at this speed when it starts snowing?  Most brokers tell clients you can't time the market, 3 out of 4 years are good and to get the good years you have to sit through the bad one, blah blah blah.  When the roads are clear, we are going to drive at your desired speed.  The difference between me and "set it and forget it"  broker you have is we are going to slow down when the weather gets bad.  The financial sector broke down in Feb 07 according to PnF.  Kinda nice to know.  Real Estate followed in March 07.  Bear Stearn gave its first sell signal at $88 I believe.  But you are right you cannot time the market, I mean BS was well off its highs at $88 and you probably thought it was on sale.
Apr 18, 2008 7:42 pm
Primo:
"Mr. Prospect, I use a process that compares investments to each other to determine what investments we need to be in.  I am going to invest your money in the areas of the market that are working.  As market conditions change, I will be calling you to adjust your portfolio according to what the market dictates that we do.  Different investments work at different times and we will need to adjust from time to time.  Does that make sense?" (I then turn my computer screen so they can see it, I have a chart of the S&P on my screen with a line drawn from Oct 98 to Nov 00 (up) another drawn from Nov 00 to May 03 (down) and another drawn from May 03 to Mar 08 (up).  "Mr. Prospect, these are the times that stock have outperformed cash and bonds big picture (up lines) and the times when stocks underperformed cash and bonds (down line).  Would you have liked your broker to call you in Nov 00 and take money out of stocks and put more into bonds and cash?"  This is the type of service I provide my clients."


You actually tell prospects that the service you provide is to make market calls such as a move from all stocks to all bonds at market peaks and/or valleys?! 

Really?! 

Three questions:
1. What do your clients say when your charts and crystal balls miss a market peak?  If that is the exact service they expect from you - because that's what you just told them you do -  how do they react when you miss a call?
2. Have you asked your compliance folks how comfortable they are with your pitch?
3. If you really can successfully do this, why do you waste your time managing money for pesky clients?  Why not take your huge winnings from your own account and retire on your own private tropical island somewhere? 

Apr 18, 2008 8:02 pm
Morphius:
Primo:
"Mr. Prospect, I use a process that compares investments to each other to determine what investments we need to be in.  I am going to invest your money in the areas of the market that are working.  As market conditions change, I will be calling you to adjust your portfolio according to what the market dictates that we do.  Different investments work at different times and we will need to adjust from time to time.  Does that make sense?" (I then turn my computer screen so they can see it, I have a chart of the S&P on my screen with a line drawn from Oct 98 to Nov 00 (up) another drawn from Nov 00 to May 03 (down) and another drawn from May 03 to Mar 08 (up).  "Mr. Prospect, these are the times that stock have outperformed cash and bonds big picture (up lines) and the times when stocks underperformed cash and bonds (down line).  Would you have liked your broker to call you in Nov 00 and take money out of stocks and put more into bonds and cash?"  This is the type of service I provide my clients."


You actually tell prospects that the service you provide is to make market calls such as a move from all stocks to all bonds at market peaks and/or valleys?! 

Really?! 

Three questions:
1. What do your clients say when your charts and crystal balls miss a market peak?  If that is the exact service they expect from you - because that's what you just told them you do -  how do they react when you miss a call?
2. Have you asked your compliance folks how comfortable they are with your pitch?
3. If you really can successfully do this, why do you waste your time managing money for pesky clients?  Why not take your huge winnings from your own account and retire on your own private tropical island somewhere? 

 
See previous post.  Accounts are slowed down during negative market cycles, and sped back up to desired speed (risk tolerance) during positve market cycles.  I'm not calling tops are bottoms.  In fact Relative Strength, is a lagging indicator.  I will tell you for a fact I am going to miss them everytime.  We are still going to get bumps and bruises, we are trying to avoid broken bones.  RS on stocks did not turn positve until May 03, 7 months after the bottom.  Missed the top also.  What RS allows you to do is catch most of the up, and protect during most of the down.  Let me give you an example of RS in action without changing allocation.  Lets compare AF Growth F of A to New Perspective. (Both large cap growth, both approx same EQ/BOND ratio. One domestic, one intl.)   Lets say it is 1997.  Which is better.  "Can't time the market" (CTTM) looks at 3,5,10 year returns and says GFA.  He is right.  However, GFA went negative to NPERP in July of 02.  How would CTTM have known this? He would not have because the 3 yr returns were almost IDENTICAL and the 5 yr returns GFA was way ahead.  However if CTTM used RS, and made the change (not getting out, just paying attention to the weather) at NO COST TO THE CLIENT, todays account is worth $32300 instead of $28700.  There are many uses for RS, point is have a process. 
Apr 18, 2008 8:08 pm
Have you asked your compliance folks how comfortable they are with your pitch?
 
My firm pays for my DWA subscription.
Apr 18, 2008 8:29 pm

Morphius, I think that I may just let you do all of my posting going forward since you say what's on my mind.

Apr 18, 2008 8:53 pm

Relative strength is not a perfect process.  Relative does not give you 40%avg returns.  It helps you enhance returns while minimizing risk.  See previous GFA vs. New Perspective example.  The question asked has anyone used PnF with success?  I have.  Have my clients gotten statements that are down?  Yep.  Have my portfolios had periods of underperformance?  Yep, but these periods were short.  Do my clients call me and ask why CNBC is saying the sky is falling when their account is down 3% ytd (End 1st qtr, base portfolio, net of fees).  Yep and then we have a good laugh.  You can criticize all you want.  My preference is for you to keep believing what you believe.  If you would like to learn what your competition is doing, go to www.dorseywright.com and sign up for the free trial.  (I have no economic benefit from you doing so)  If you like it great, if you don't then use what you feel comfortable with.

Apr 18, 2008 9:02 pm
indywanab:

I am familiar with DWA and have been curious about them for a while BUT I recently put some feelers out regarding their performance (they manage money too) and what I heard is that they've had a tough time lately (last few years) and advisors/clients have not been happy. When the "godfather" of PnF can't really use it well then I question the value of using it. From what I've read & seen there's still a lot of judgment call making programs like this difficult to follow because too much is left to the interpretation of the person reading the chart and people will see different things out of the same chart.

 
I know it makes for a great prospecting message but does it really deliver CONSITENTLY? If it truly works then why don't we see more professional money mangers using this technique to manage money & deliver exceptional returns over and above traditional fundamentals money managers?
 
 
I have their balanced, aggressive, core, and international portfolios in my book and I would disagree.  Second half of 06 was unpleasant beyond that that have been very good.  DWA's primary source of revenue is tech analysis for institutional money managers.  Many are using it in some form or another.