THE NATIONAL SCENE

The Profit Prophets

ALEXANDER ROSS February 1 1970
THE NATIONAL SCENE

The Profit Prophets

ALEXANDER ROSS February 1 1970

The Profit Prophets

ALEXANDER ROSS

WHAT'S THE MARKET going to do? For the more than two million Canadians who invest in stocks and mutual funds, the question is almost mundane: they’ll either make a few bucks or lose a few. But for the people on these pages the question has an almost cosmic significance. They make their livings predicting the market in a variety of ways; some orthodox, some really kooky. To them, the market isn’t just about money. It’s about Life. All those numbers on the ticker tape are the results of millions of individual decisions, each based on memory, pain, accident, fantasy, love, dreams, greed, faith. Here’s how they try to turn all those things into money.

Michael Pym, an upper-class Irishman straight out of J. P. Donleavy, has a stock-market system that is really bizarre. Only an eccentric Irishman with a Cambridge education in higher mathematics could have devised it. The system rests on the notion that not just the market, but everything, is expanding at a rate that fluctuates in accordance with discoverable laws.

By means too abstruse to dwell upon here, Pym was able to express this universal growth rate in a single number. Then he borrowed a computer in Montreal — he won’t say whose — and had it compute a set of logarithmic tables, based on his magic number instead of the usual base of 10. With these tables in hand, he looks at the ups and downs of the market, which he says are actually minor fluctuations that accompany the overall upward trend of his universal curve. “By converting these relative fluctuations with my logs,” he explains, “I get a pattern that corresponds to the market.”

There are many refinements, however, for Pym is an eclectic. He is concerned, for instance, with the ionization level and the effect of magnetic storms on market behavior.

Pym says his system accurately predicted last May’s market break. And for 1970? A declining market most of the year, then a dramatic turnaround in November or December. The Dow Jones, says Pym, will probably break 1,000 by January 1971.

GURSTON ROSENFELD, an analyst-partner in the team that manages Guardian Growth, generally conceded to be the grooviest mutual fund in the country, attributes his success to his background as a Method actor. “Before we buy a stock,” he says, “I interview the management. Because I've played a lot of roles, I know when they’re playing roles. I can feel what’s going to happen with every part of me.

“For example, I was looking at this company whose stock was $17. It looked like it was going to $28. So I interviewed the president. He had a good story — but it didn’t feel right. In Stanislavsky terms, this guy didn’t really believe in his role.

“So I did some checking and, sure enough, I found this company didn’t have anything like the markets it said it did. The stock did go up — but now it’s $1.50."

This kind of investment analysis, he says, depends almost wholly on his own assessment of people. And that depends on who Gurston Rosenfeld is, and who he thinks he is. The son of the Canadian head of Columbia Pictures, his own business ventures (theatres, vending machines, shopping centres, hotels) made him a near-millionaire before he was 35. Then, about the time his first marriage was breaking up, he sold out and went to England for a year to study acting. He played medium-sized roles in British TV dramas, then returned to Toronto to work on Bay Street, and to study its actors. “I’m very peopleoriented,” says Rosenfeld. “I love to hear people talk.”

THE TRUEST, PUREST scholars of the market are the technical analysts, who chart trends in the price and volume of the shares traded on the world’s stock exchanges, then draw little graphs to illustrate these trends, and then, on the basis of the charts, predict if the market will go up or down. There are about a dozen hard-core chartists in the country, and one of the solidest is a 22-year-old American named Jim Alphier, in the Canadian research department of Bache & Co.

Alphier is a capitalist prodigy. He bought his first stocks when he was 12; he had his own market letter when he was 17. “I didn’t charge people for a subscription,” he says. “I was too young to register with the SEC.”

Now he writes the “technical letter" for Bache, which is a weekly report for Bache's customers on what Alphier thinks the numbers are saying. His opinion is an amalgam of the various indicators he uses — every chartist has his own pet indicators, and usually keeps his favorites a secret. One Alphier will talk about, however, is called the “emotional index” — he measures the difference between the number of stocks that advanced or declined on any given day on the New York Stock Exchange, then plots this figure on a “moving-average” basis. When the average goes down, the market is about to go up.

And what are all the little numbers saying these days? “The bear market should continue until as late as February,” says Alphier. “Then we might see some buying.”

THE PROFIT PROPHETS continued

Louis AND MURIEL. HASBROUCK are a nice old couple in Manhattan who have finally succeeded in figuring out the hidden laws of the universe. These laws, among other things, make the stock market behave the way it does. They call their prediction system “Space-Time Forecasting.” If you want to buy their market letter — and a number of eminently hard-headed securities analysts are among their clients — it will cost you $300 per year.

Muriel Flasbrouck, born in Toronto, wrote for the Star Weekly before Ernest Hemingway did. Her husband “did very well” on the bond market prior to 1929. He spent the next 10 years figuring out what hit him.

The result was their Space-Time theory. The method, they say, consists of measuring changes in the electromagnetic field of the solar system, which tells them what the economy is going to do.

There is at least one orthodox analyst who believes their track record is “unbelievably good.” But most laymen will find their predictions hopelessly ambiguous. They do, however, clearly predict “chaos generated by human behavior” for the next three years at least, and probably until the year 2001.

Although the positions of the planets do figure in their calculations, Space-Time Forecasting is not astrology. It is, says Muriel Hasbrouck. “a pearl recovered from the farmyard rubbish that is astrology, logically correlated with the findings of modern physics.”

Russ MORRISON, who at the moment is the hottest mutualfund manager in the country, comes on like a hick. He shuffles around his office on the 30th floor of Montreal’s Place Victoria, saying things like, “My goodness! Fuji Photo’s gone above 400 yen. Can we still believe in it?” Beneath that Saskatchewan farm-boy façade, needless to say, pulses the brain of a canny economist. As vice-president, investment management, Canadian Channing Corporation, he’s now responsible for investing about $ 185million of other people’s money. Over the long term there are other Canadian fund managers who have turned in hotter performances. But most of the go-go funds have dropped at least 20 percent since last May’s market break, while Morrison’s Canadian Channing Venture Fund has increased by about 12 percent.

People keep asking him how he does it. The short answer is that Canadian Channing Venture last fall had 43 percent of its money in Japanese stocks, which alone defied last year’s bearish trend. The true answer is something Morrison can’t, or cannily won’t, explain. He works in a large office area with four colleagues who never hold formal meetings. But in a sort of continuous groupthink process, the five of them arrive at decisions about which stocks they can “identify with.”

“Our only system,” he says, “is that we have no system. I guess you could call it a matter of educated instinct. You’ve got to feel it here." Morrison pats his stomach.

IF YOU'RE AN incurable pessimist, if you feel in your bones that after a quarter century of rising stock prices there’s got to be a day of reckoning and retribution, then Donald Storey and Anthony Boeckh are your men. They’re editors of The Bank Credit Analyst, a Montreal-based publication of private circulation and wide influence. Storey and Boeckh analyze the market by measuring changes in liquidity — meaning, roughly, how much money and credit are around. The charts Storey and Boeckh have constructed are enough to scare hell out of anybody. They show that the liquidity situation is the worst it’s been since — heh, heh — 1929. “Liquidity is at rock-bottom levels,” says Boeckh. “The situation is quite threatening.”

On St. James St. they’re considered mavericks — but respected ones. Not all economists agree with their basic contention that “the most effective gauge of economic expansion is the flow of money, the lifeblood of the economy.” But some of the most revered U.S. fund managers are among their subscribers; and Boeckh has put his money where his charts are by refusing to invest in any equities but gold stocks, which in hard times tend to increase in value.

“There’s going to be a lot of pain,” he says. “The only way liquidity can be restored is by reducing liabilities. People are going to have to stop buying houses they can’t afford. I think we’re going to see the biggest stock-market drop in recent history.”

WELL, IT WAS just slightly embarrassing, that’s all. Here is the huge investment house, McLeod, Young, Weir & Co., which employs dozens of highly trained people to figure out market trends. And then they hire these two kids, practically, Adrian Browne and his wife Sandy, who have special skills with computers, give them a tiny room with a computer terminal and tell them to play around with it and see what they can come up with. Well, they fiddle around for a few months until they’ve built a mathematical model — “A very crude one, actually,” says Adrian — that will tell them when to buy and sell 42 stocks listed on the Toronto Stock Exchange. Then they run this program through the computer. It tells them that, if they’d applied their formula for four years, 1965 to 1969, they would have gained 13 percent on their investment every year! That’s twice as fast as the market as a whole appreciated; a better performance record than some of the biggest mutual funds.

“Everybody around the office looked at the print-out,” says Sandy, “and they said, ‘Well, the market’s just not that simple.’ They’re right, of course.” But if the Brownes can do that well with a crude program, what happens when they come up with a sophisticated one?

Already, on Wall Street, computers are recommending which trades to make. They’re even programmed to try to outguess other computers. On Bay Street, the machines are still mostly for paperwork. But most big firms are starting to hire or train people like the Brownes. □