Editor’s note: Longtime readers might recognize today’s essay from Marc Chaikin…
We’ve published it a couple of times in the Chaikin PowerFeed over the past few years.
But as we believe you’ll see, the essay’s message is timeless…
In it, Marc explains how a period in his Wall Street career played a big role in the process of creating the Power Gauge. And importantly, this “magic key” is still as powerful as ever…
In the 1980s, I joined Drexel Burnham Lambert…
The investment bank was famous for its “junk bond” department. But it also had a quantitative-analysis department. That’s where I met George…
George was a “quant” with something truly special at the time – a quantitative database.
Now, longtime Chaikin PowerFeed readers know I learned about technical analysis all the way back in the late 1960s. That happened at Shearson, Hammill – the Wall Street firm where I started my decadeslong career.
So with my love for the technicals, you better believe I made a point to seek out George when I started at Drexel Burnham Lambert. And it paid off big time…
George mentored me in quantitative analysis. But that wasn’t all…
He also gave me access to his database.
It was the “magic key.”
And as I’ll explain today, his original research played a huge role in the development of the Power Gauge. The two factors he specialized in are now core components of the system…
At Drexel Burnham Lambert, I was the only retail stockbroker who could access George’s magic key.
Suddenly, I could combine my “relative strength” research with George’s database for “earnings surprise” and “earnings estimate revision” research. And there was more data, too. George also had highly valuable information like “insider trading” activity.
Amazingly, what George taught me back in the 1980s still works today…
Analysts’ estimate revisions are the single biggest short-term driver of stock-price movements. That’s still true even with high-frequency trading and all the information available to folks on the Internet these days.
In short, a virtuous circle exists for companies that exceed Wall Street estimates.
It works in the other direction, too. Disappointing earnings reports – and importantly, how analysts react to them – drive downward price action in the markets as well.
So I’m not exaggerating when I say that George gave me the magic key.
I was able to take my research to the next level with that key. It gave me the confidence to go off and start an institutional brokerage firm in 1989 with a partner from Philadelphia.
We had institutional clients like famous hedge-fund manager Steve Cohen. He used our research and analytics terminal to successfully build his multibillion-dollar hedge fund.
With George’s magic key, I went from burgeoning technical analyst to full-on quant. And I learned that multibillion-dollar hedge-fund managers would pay big money for my tools.
Now, after leaving retirement about a decade ago, my focus in life is sharing those tools with individual investors. And the summation of those tools is the Power Gauge.
In fact, the two factors that George specialized in – earnings surprise and earnings estimate revision – are core components of the Power Gauge today. At any time, investors can find out what these factors show for any of the more than 5,000 stocks in the system.
George shared the magic key with me all the way back in the 1980s. It doesn’t seem so long ago. But such is life.
Importantly, this magic key led me to build a powerhouse quantitative-analysis firm. Some of Wall Street’s most influential fund managers have relied on this data over the years.
And as crazy as it might seem, George’s magic key still works today.
Good investing,
Marc Chaikin
Editor’s note: The Power Gauge is an incredible tool…
As regular PowerFeed readers know, it breaks down more than 5,000 stocks using 20 of the most important factors on Wall Street. In the end, it gives a simple, actionable rating – ranging from “very bullish” to “very bearish.”
Right now, you can gain immediate access to the Power Gauge at a big discount…
You’ll get one year of Marc’s Power Gauge Report newsletter at 75% off the normal price. And it comes with a year of access to our one-of-a-kind system. Get started right here.
