THE TIME FRAME ON TOOLS, RISKY BIZ, & ADRS

I got this letter from Garza recently and thought I’d post it because some of you have been submitting questions that echo his.  Read on:

There are some things that are not suficient explicit in your book:

1. you did not mentioned what is the time range to use in the graphs related to technical analysis; 4 months, 6, a year or more.
2. It seems to me that if the three indicators do not go ahead you should not go, however this is not true.
3. In obtaining the 10 years of the big five you have a lot of difficulties due to lack of information, besides you do not exlain what are the lesat number oy years that you should use in order to make aplicable your theory.
4. You did not mention if your system works in ADR or ADS of the different countries who have shares in USA, Also if you wanted to use this technique for shares of markets abroad.

It seems to me after a trial and error method that it is possible to eliminate several steps of the rule and still have a good result.

I would appreciate your comments at your earliest convenience, since I have been ask to give my investor opinion to an investor club intergrated by non finacial people who likes the pragamtic solution to investment analyisis.

Garza

My responses:

1. The time frame isn’t important.  The inputs to the tools are what
   matters.  Set the inputs and then use whatever time frame you want.  I
   use 3 months, 1 year, 5 yr and 10 yr. depending on what I’m looking
   at.   But just to watch the tools, I use 3 months.
2. 
   If the three indicators don’t say go, I don’t go.  And yes, the
   stock could go up before they all say go. Happens all the time.  If you
   try to guess the bottoms you’re going to lose.  And only use the tools
   after you do the 4Ms.  Otherwise you can get burned.  Hey, you can get
   burned even after the 4M’s, but at least not terribly.
3. I show how to get the ten years on free sites… so unless the
   business doesn’t have ten years of data, you shouldn’t have a problem.
   If a business like Google hasn’t been around long enough, that
   automatically puts it in the risky biz portfolio to a max of 10% of my
   capital.  So you can do a few of these but not many.  Ten years is the
   mimimum amount of data to do a good Rule #1 analysis.
4. ADRs are great since to list on the US markets they have to provide
   all the same data as US stocks.  There are about 1000 ADR listings,
   plenty to choose from in countries all over the world.  But if you want to
   invest in stocks that are listed other places, no problem… just be
   sure you do the full 4Ms and really really know the business well.  Oh
   and make sure you’re looking at real numbers.  At least in the US when
   they cheat on the numbers they can go to jail.  In most other stock
   markets around the world, that isn’t the case.

Regarding skipping steps:  Let me know what steps you can leave out.  Love to shorten things.

Now go play,

Phil