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Posted to the Gilder forum - May 10, 2001

Worry Free Charts

When the big three started making "sports" cars, the Javelin from AMC (later Chrysler) launched a very interesting TV ad campaign. On stage, they would dismantle one of their own Javelins and a car from the competition, I believe, it was the Camaro from Chevrolet (GM). At each stage they would show and explain why the Javelin was the better car. Of course, the people at GM complained bitterly and threatened to sue to have this scandalous ad campaign stopped. The funny thing was that Camaro sales did not drop, as a matter of fact, they started to outpace the third sports car, the Mustang. All of a sudden, Ford was asking AMC to have Mustangs dismantled on stage instead of Camaros!!! (It's possible that I have the names of the cars mixed up but otherwise the story is essentially correct.)

First of all, I want to thank certain posters for keeping the Worry Free Portfolio in the spotlight. Thank You!

Second, I have built a tool to better track the Worry Free Portfolio, a set of Worry Free Charts produced by the Yahoo! engine and available at Software Times.

Third, I want to explain once again the purpose of the Worry Free Portfolio for the newcomers. The Worry Free Portfolio is not a portfolio at all, just like page 8 is not a portfolio for most people. The original essay explained one way to assemble a long term buy and hold Telecosmic portfolio. The suggested method is what I use to create my own portfolio.

And last, I want to explain how to use the Worry Free Portfolio. To build a good portfolio you need to pick the right stocks and buy them at the right time. You need to do research all the time. There are eight or ten thousand stocks out there and you need to pare that number down to a manageable size. The GTR is a big help in this direction for those interested in high tech stocks. Page 8 is a good starting point. You should be able to find maybe a half dozen winners right there. Following the news (Telecosm News) and the forum and certain other sources like The McKinsey Quarterly and Louis Navellier's MPT Review should provide lots of leads. For example, I found Micromuse at The McKinsey Quarterly, RF Microdevices in Louis Navellier's MPT Review and ARM Holdings and Portal Software right here in the forum.

When I was selling insurance I was taught that you need to have an "inventory" of candidates to approach and you need to replenish that inventory on a constant basis. First you collect names from friends, family and business acquaintances. Next you qualify them as potential buyers by answering certain questions: Does he have money? Does he need insurance? Do I have access to him? This was the very simple DD that you had to do to sell insurance and not waste your time. Investing is very similar, you have to have an "inventory" of investment candidates. But that does not mean that you invest in them as soon as you find them. No, you wait for the opportune moment. You might be waiting for earnings to kick in. You might be waiting for the tornado to form. You might be waiting for the right price. Whatever it is, this is the second shoe that has to drop to trigger an investment. Of course, the first shoe was the basic research that you did on the company based on whatever methods are right for you. I typically use the method described in the Worry Free Portfolio essay.

The reason I am presenting the charts is because buying season is approaching. The Worry Free Portfolio should have helped you select stocks for your "inventory" of investment candidates. If you don't have such an inventory then building one should be your first priority. Once you have this inventory, following the price movements with the help of charts is a good way to find a good entry point. I don't do any complicated TA but I do watch the charts and I do use moving averages to smooth out the daily noise. At this time, I find that the 20 day moving average is a good trigger, when a stock moves 5% or more above its 20 day MA then it's probably time to buy.

You might notice that Global Crossing (GX) is included in the Worry Free Charts but it and all other carriers were absent from the Worry Free Portfolio. At the time I wrote the original essay, GX did not meet all my investing criteria: it sells commodities and building rival networks was only a question of money. That was the strike against it. Since then, the financial environment has changed. Financing is no longer easily forthcoming and GX is the only long distance carrier that has most of its optical network in place and has financing for all of it. GX has placed itself in the enviable position of being the low cost carrier at the time when the likelyhood of deep pocketed competitors building rival networks is at a minimum.

If you did your homework based on the Worry Free Portfolio, now is the time to start placing your bets based on the Worry Free Charts. I added some RFMD at 16 1/8 and some GX at 17.15 (that was a bit early :-).

Denny
"Demand creates queues. Supply gets rid of them."
Software Times

Link to the Charts

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