For over fifty years, Harvey Baraban has been an active stock market investor. For over twenty-five years, he has been my mentor, friend and trading buddy. Drawn together by a mutual shared passion for the markets, I am grateful to Harvey on many fronts, not the least being that he was the one who encouraged me to start teaching the investment classes that I’ve now done at Bellevue College for over fifteen years. Harvey himself was an adjunct professor for many years at Golden Gate University in San Francisco.
By background, he is a Duke engineering graduate who partnered in the 1970s with billionaire investor, Gerald Tsai. Tsai was famous for starting the first publicly-sold Fidelity growth fund. He also started the legendary and highly profitable Manhattan Fund which was one of the earliest proponents of concentrated momentum investing when the prevailing wisdom of the day advocated extremely broad diversification. This entrepreneurial spirit rubbed off on Harvey Baraban as he, too, became a widely respected pioneer in the securities industry.
Before Charles Schwab started the discount brokerage business, Harvey Baraban’s full-service retail brokerage firm, Baraban Securities, employed over 1,500 brokers in offices all up and down the west coast. Harvey’s genius was in pioneering an innovative educational program that trained over 30,000 men and women for certification as full-service stockbrokers. Many of these individuals had full-time day jobs, but Harvey facilitated a second part-time career which allowed them to trade their own portfolios at a steep discount and assist family and friends as well. Many even went on to work full-time for the Dean Witters of the day.
What makes my friend Harvey such a precious commodity (besides his good looks) is that he is indeed a very rare breed. He is a Wall Street insider who now only manages his own portfolio but is still willing to share insider secrets with other individual investors and be truly candid about what works and what doesn’t work. Harvey is a sensational speaker, a gifted teacher and an extraordinary investor. I owe him a lot.
Now, let me present to you a guest blog in Harvey’s very own words:
After 50 years of active stock market investing, I have developed certain techniques and tools which I consider essential in achieving good investment results. The cornerstone of my methodology is the blending together of news, fundamental analysis and charts.
The KISS Approach (Keep it Simple Stupid) rings loud and clear as the umbrella for my investing thoughts. In choosing my favorite indicators, I would advocate the use of moving averages, including the 20-day, 50-day and 200-day. The moving averages act as both support and breakout indicators, depending, of course, on the market’s direction. My guidelines have changed very little in the last 50 years, as I continue to be a visual investor, using stock patterns as one of my guides. Equally important to success is understanding the history of how markets react to news and how investors manage their own greed and fear. It has often been said, if you don’t know history, you’re doomed to repeat it. Stock charts, of course, provide a visual history of investors’ reactions to specific events. Over time, it has been shown that while actual events may change, investors’ reactions exhibit very little change. There are many books that detail this premise. One of the best books on this subject is “Market Madness” by Blake Clayton.
Many of my better trades have come from “event trading.” Event trading capitalizes on a future date when a company will experience a headline event. A good example would be Apple, which recently announced exceptional earnings and sales. The event trade would have been to buy Apple two or three weeks ahead of the earnings news, which were relatively predictable, since they included holiday sales which had already been widely announced. Therefore, after owning Apple, one should have sold it on the event news of its earnings, which would have produced more than a 10% profit. Wall Street has tagged this type of trading as “buy the rumor and sell the news.”
Another tool that I have successfully deployed is the use of gap formations as a predictor of the stock’s future move. Gaps usually fall into the following categories: breakaway gap, measuring gap and island reversals. It is important to know what to expect from each type of gap (your homework is to take the time to understand these nuances). Trading the market requires knowledge, as learning is earning when applied to stock market success.
I am living proof of this axiom. As Gatis wrote in one of his recent blogs, you don’t need to be a young athlete with big biceps to trade the markets. The markets reward wisdom and experience, and investors can continue to improve their skills and profitability as long as the passion remains.
Trade well; trade with discipline!
-- Gatis Roze & Harvey Baraban