MR Market

!
"#$% '(")*+
!, !-,.$/ 01$-.*
!"#"$%" '(()*"+,-(. /$*0
March 2000
Birinyi Associates, Inc.
PO Box 711
Westport, CT 06881
Copyright 2000, Birinyi Associates, Inc.
The inIormation herein was obtained Irom sources which Birinyi
Associates, Inc. believes reliable, but we do not guarantee its accuracy.
Neither the inIormation, nor any opinion expressed, constitutes a
solicitation oI the purchase or sale oI any securities or commodities.
Topical Studies...
#1 Transaction Costs. A Traders Perspective - July 1989
#2 Portfolio Management. The Cost of Trading - March 1990
#3 Bear Markets 1945 - 1990 - December 1990
#4 Bull Markets 1945 - 1991 - October 1991
#5 The Failure of Technical Analvsis - April 1996
#6 The Buvback Paradox - August 1996
#7 Whv Institutions Underperform - September 1997
#8 Sixteenths. Onlv One Month, But... - October 1997
#9 The Case Against Indexing - September 1998
#10 Internet Stocks. More Soap, Less Bubble - March 1999
#11 Market Breadth - May 1999
#12 Monev Flows. Mr Market Speaks - March 2000
#13 Jolatiltiv 2000 - August 2000
#14 Decimals, ECNs and 24/7 - December 2000
#15 FRB 1981-2001. Stock Market Impact - April 2001
!"#$% '( )'*+%*+, -".%
Part One: Overview 3
Part Two: Money Flows - An Introduction 9
Part Three: Money Flows - The Background 13
Part Four: The Best and (Only) Lead Market Indicator 21
Part Five: Money Flows in the Investment Process 29
Part Six: Analyzing Money Flows 41
Part Seven: The Record 47
Part Eight: International Money Flows 51
Part Nine: Money Flows - Q&A 55
1 Birinyi Associates, nc. Monev Flows. Mr Market Speaks
.Mr Market appears dailv and names a price at which he will either buv vour interest
or sell vou his. At times he feels euphoric and can see onlv the favorable factors
affecting the business. When in that mood, he names a verv high buv-sell price
because he fears that vou will snap up his interest and rob him of imminent gains. At
other times he is depressed and can see nothing but trouble ahead for both the busi-
ness and the world. On these occasions he will name a verv low price, since he is
terrified that vou will unload vour interest on him...
Mr Market has another endearing characteristic. he doesnt mind being ignored. If
his quotation is uninteresting to vou todav, he will be back with a new one tomorrow.
Transactions are strictlv at vour opinion. Under these circumstances, the more manic-
depressive his behavior, the better for vou...
Indeed, if vou arent certain that vou understand and can value vour business far
better than Mr Market, vou dont belong in the game. As thev sav in poker, "If vouve
been in the game 30 minutes and vou dont know who the patsv is, voure the patsv."
...Bens Mr Market allegorv mav seem out-of-date in todavs investment world, in
which most professionals and academicians talk of efficient markets, dvnamic hedg-
ing and betas. Their interest in such matters is understandable, since techniques
shrouded in mvsterv clearlv have value to the purvevor of investment advice.
Warren Buffet
The market reflects all that the fobber knows about the condition of the textile trade, all
that the banker knows about the monev market, all that the best-informed president
knows of his own business, together with his knowledge of all other businesses, it sees
the general condition of transportation in a wav that the president of no single railroad
can ever see, it is better informed on crops than the farmer or even the Department of
Agriculture. In fact, the market reduces to a bloodless verdict all knowledge bearing
on finance, both domestic and foreign.
The price movements, therefore, represent evervthing evervbodv knows, hopes, be-
lieves and anticipates. Hence, there is no need to supplement the price movements, as
some statisticians do, with elaborate compilations of commoditv price index numbers,
bank clearings, fluctuations in exchange or anvthing else. The price movements them-
selves reflect all these things, and therefore an understanding of the price movements
of the market.
Charles Dow
Part One: Overview
1
The Failure Of Technical Analvsis. June 1996. Birinyi Asso-
ciates.
Mark Twain once deIined a classic as a book with
which everyone was Iamiliar, but no one had actu-
ally read. Reminiscences of a Stock Operator might
be considered a near classic in Iinance. It is a book
that most investors have read (especially so since
some brokerage Iirms have historically used it as a
stocking stuIIer) but Iew have taken to heart. Remi-
niscences, which is widely accepted as Jesse
Livermore`s autobiography, has a simple and Iorce-
Iul message: the market knows and to the astute
observer shares that knowledge with us.
Livermore and his contemporaries realized that it
was not the opinion oI economists, analysts, or
investors that mattered. What mattered was their
actions. John Maynard Keynes, who was to make
large amounts oI money Ior himselI and Cambridge,
said that he became successIul in the markets only
when he recognized that the economic cycle was
not as critical as the psychological cycle.
But how does one interpret the psychology oI the
moment or assess the actions oI the market? Obvi-
ously this is the preoccupation oI many oI those
who work on Wall Street and, increasingly, the avo-
cation oI what oIten seems the rest oI the country.
Technicians contend that chart patterns Iorecast
the Iuture but the record oI that community is less
than reassuring.
1
Other methods oI market Iore-
casting abound. They utilize indicators oI any num-
ber, variable, or data sets, and complex mathemati-
cal principles. Still other approaches include: as-
tronomy, Iootball games and even the shape oI Alan
Greenspan`s brieIcase.
2
In Iact, Hamlet might have
had these in mind when he commented to Horatio
about the scope oI things.
2
We are not just reIerring solely to the Super Bowl. The Grid
Iron method oI Iorecasting (1920 1940) incorporated the scores
oI Yale - Harvard; Army - Navy; StanIord - CaliIornia. New
Methods for Profit in the Stock Market; GarIield Drew; Fraser
Publishing, 1955, p.12.
Truth of the Stock Tape and Wall Street Stock
Selector
William D. Gann
How to Trade in Stocks. The Livermore Formula
for Combining Time Element and Price
Jesse L. Livermore
Tape Reading and Market Tactics
Humphrey B. Neill
Studies in Tape Reading
Richard Demile WyckoII
Figure 1. Books on Ticker Tape Analysis
Livermore and his generation had little use Ior out-
side opinion and commentary. Their tool, their
guru, their research source was the ticker tape or
the action oI the market itselI. By careIul analysis
oI the tape, they Ielt they could discern trends in
the embryonic stage and capitalize on moves even
though the rationale (i.e., Iundamentals) oI those
moves might not have been known at the time.
In addition to Reminiscences, a number oI other
books were written about the art (iI not the sci-
ence) oI ticker tape reading:
But, Reminiscences, in our view, is ironic. While it
is as well known as any book ever written about
the market, and while it is probably in more inves-
tors` libraries than any other, it is ironic that most
investors do not recognize that the lessons and
methods oI that writing are probably more useIul
and more applicable now than halI a century ago.
As Iundamentals become even more accessible, as
data becomes less costly, as analysis is Iaster and
analytic opinion is shared with ever increasing num-
bers oI investors, the greatest ineIIiciency becomes
the action oI the market itselI. The market is creat-
ing more opportunities Ior what we might term
'antique approaches and methods.
It is also ironic that Wall Streeters talk about the
stock market's discounting mechanism and the Iact
that the market anticipates. (The bond market is a
thermometer, the stock market is a barometer; it`s
in the stock and so Iorth.) They then illustrate the
market`s views oI the future by looking at the prices
oI todav. Today`s prices do not, however, provide
any insight into tomorrow. A rally in oil stocks
might be viewed as anticipation oI higher crude
prices or maybe oI a colder winter. Or, as Freud
might have said, it might just be a rally in oil stocks.
Figure 2. Price Chart: Sample Chart
29
30
31
32
33
34
Jun Jul Aug Sep Oct Nov Dec
$
One example might be the simple price chart be-
low. We believe there is little, iI any, insight regard-
ing the subsequent course oI that stock.
There can be no question that one oI the character-
istics oI the last several decades has been the growth
oI institutional investing. Beginning with ERISA
and other structural changes (including selI-directed
pensions such as IRA`s) the institutional element
dominates the capital markets. Along with this
change has been the growth oI institutional ser-
vices to the point today that an old-Iashioned stock-
broker is a dinosaur. Instead we have account ex-
ecutives and salesmen who Iocus on gathering as-
sets Ior wrap accounts or other institutional um-
brellas.
While institutions provide all manner oI services
and market inputs, there is no traditional indi-
cator which tells investors what institutions are
actually doing. Surveys, cash levels, sentiment
indicators, or whatever, provide, at best, only pe-
ripheral guidance.
Or, to change the metaphor slightly, proIessional investment may be likened to those newspaper
competitions in which the competitors have to pick out the six prettiest Iaces Irom a hundred photo-
graphs, the prize being awarded to the competitor whose choice most nearly corresponds to the average
preIerences oI the competitors as a whole; so that each competitor has to pick, not those Iaces which he
Iinds the prettiest, but those which he thinks likeliest to catch the Iancy oI the other competitors, all oI
whom are looking at the problem Irom the same point oI view. It is not a case oI choosing those, which
to the best oI anyone`s judgement are really the prettiest.
John Mavnard Kevnes, The General Theorv
Figure 3. Average Monthly Mutual Fund Activity as Percent of NYSE Dollar Volume: 1980 - 1999
Change
Today mutual Iunds alone are responsible Ior bil-
lions oI dollars oI trading every day. But investors
have no quantitative, real-time insights into what
Iunds (oI all types) are really doing.
Allied to the growth oI institutions is the rise oI
monitoring mutual Iund cash Ilows and levels.
Knowing the activity or intentions oI mutual Iunds
is critical, as they account Ior almost one - halI oI
all NYSE activity (Figure 3).
However, the estimates oI Ilow oI Iunds are oIten
oI dubious value. The record oI preliminary esti-
mates to the actual results shows major diIIerences
(Figure 4). Ironically, investors and the press seem
to be more interested in how much money is going
to institutions, rather than in what those institu-
tions are going to do with the IRA, 401k, and other
monies.
Mutual Iund Ilows are Ilow oI Iunds and not money
Ilows. A Main Street merchant might be delighted
that his customers are receiving large paychecks or
tax rebates. But he must know what they are going
to do with those paychecks in order to properly
stock his shelves and maintain inventory.
Tolkien: It does not do to leave a live dragon out
oI your calculations, iI you live near him.
9.9 10.1 9.9
11.8
13.1
14.9
17.4
19.0
17.0
17.9
22.8
28.4
36.3
40.4
44.2
46.1
47.3
45.9 46.2
47.8
0
10
20
30
40
50
60
-20
-10
0
10
20
30
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
J
u
l
A
u
g
S
e
p
O
c
t
N
o
v
D
e
c
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
O
c
t
N
o
v
D
e
c
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
O
c
t
N
o
v
D
e
c
Est imat e Act ual
1996
Jul $731 $10, 014 -$9, 283 -93
Aug 10, 388 16, 310 -5, 922 -36
Sep 15, 340 14, 422 918 6
Oct 7,185 13, 637 -6, 452 -47
Nov 15, 933 15, 463 470 3
Dec 12, 438 14, 581 -2, 143 -15
1997
Jan 16, 224 25, 514 -9, 290 -36
Feb 15, 954 18, 823 -2, 869 -15
Mar 14, 267 13, 886 381 3
Apr 6,933 15, 431 -8, 498 -55
Mav 10, 962 17, 704 -6, 742 -38
Jun 10, 398 16, 058 -5, 660 -35
Jul 11, 806 22, 716 -10, 910 -48
Aug 8,083 16, 502 -8, 419 -51
Sep 16, 288 21, 928 -5, 640 -26
Oct 11, 468 18, 536 -7, 068 -38
Nov 17, 294 17, 852 -558 -3
Dec 17, 863 15, 491 2,373 15
1998
Jan 9,485 16, 575 -7, 090 -43
Feb 19, 156 21, 932 -2, 776 -13
Mar 17, 116 21, 957 -4, 841 -22
Apr 13, 977 24, 879 -10, 902 -44
Mav 12, 539 21, 831 -9, 292 -43
Jun 29, 149 16, 676 12, 473 75
Jul 13, 367 19, 448 -6, 081 -31
Aug 5,050 -11, 202 16, 252 -145
Sep 18, 407 7,947 10, 460 132
Oct 5,867 2,466 3,401 138
Nov 19, 029 12, 977 6,052 47
Dec 4,968 3,438 1,530 45
Figure 4. Estimated vs Actual Flow of Funds: 1uly 1996 - December 1998
3
1996 1997 1998
(
$
,

M
i
l
)
Estimate Actual
Percent
Di fference
Estimate -
Actual
($, Mil)
3
Bloomberg Financial Markets.
The Price Was Right
The most arresting detail about this vears Kentuckv Derbv was the short price on
Sunnvs Halo. At least, this is the detail that anv professor of finance worth his or her
salt would fasten on. Professors of finance tend to be fascinated bv pari-mutuel betting
because it keeps on proving a certain proposition that is central to their concerns and
possiblv even fustifies their existence. The proposition. markets are smarter than
people. Or, as the case was put bv Peter Asch of Rutgers, Burton G. Malkiel of Yale
(formerlv a member of the Council of Economic Advisors), and Richard E. Quandt of
Princeton, collectivelv writing in the Journal of Financial Economics a vear ago.
"How well do betting odds predict the order of finish in a race? The answer is - verv
well indeed." Actuallv, that answer has been delivered quite a few times before this
article came along, as evidenced bv the various scholarlv papers on pari-mutuel
betting cited in an appendix to the article, and at that the profs didnt mention the
ground-breaking contribution of vours trulv, which was as scholarlv as anv of those
cited, if not scholarlier. It appeared in our Personal Investing department in Septem-
ber 1975, and triggered quite a lot of mail from subscribers who did not believe that
plaving the horses is "investing," proving vet again that vou cant please evervbodv.
But what about the short price? Here was a 20-horse race about which the prevailing
and boringlv repeated wisdom was that almost anvone could win. "The most wide-
open Derbv in a decade" is what the New York Times called the race. And vet that crowd
of 134,444 fulep-soaked inebriates at Churchill Downs somehow sent off Sunnvs Halo
at onlv 5 to 2 (meaning that winners onlv collected $7 for a $2 bet.) Once again, in
other words, the market turned out to be smarter than the individuals it comprised, and
we do not doubt that this collective stroke of genius fullv fustifies the high-powered
analvsis that is undoubtedlv being organi:ed even now bv additional triads in the
professoriat.
Fortune 7/13/83
It is thereIore ironic that Wall Street`s most popu-
lar book details an analytic approach that is seldom
used today and that investors contend that the mar-
ket discounts the Iuture, but they then Iocus on the
present.
It is also ironic that although institutional investors
dominate the market, there are no approaches which
can segregate and tell us what institutions are do-
ing, and, that although investors pay so much at-
tention to Ilows into mutual Iunds, what truly mat-
ters are Ilows from Iunds. Lastly, and perhaps
most ironic oI all, there is no more accepted axiom
than 'don`t Iight the tape, but Iew investors have
any insight or clue as to what the market or the
tape is really saying.
4
When the NYSE expanded into the Blue Room, that area was
what we might term architecturally correct as there were acoustic
tiles, padded Iloors, and other state oI the art elements. The Blue
Room, however, was a Iailure as traders Iound they lacked the
input oI the market - in this case, the noise. Now changes in
mood, intraday shiIts, and the beginning oI rallies and declines
were no longer available. The designers and engineers then
solved or alleviated the problem by importing noise Irom other
trading areas.
Part Two: Money FIows - An Introduction
Figure 5. AT&T
Figure 6. Eastman Kodak
EK
500 72 1/4...
EK
1,500 72 1/2...
EK
250,000 70 1/2...
EK
2,000 70 1/8...
EK
1,500 70 1/4...
EK
2,700 70 1/8...
T
500s 62 1/4...
T
200 62 3/8...
T
500 62 3/8...
T
700 62 3/8...800 62 1/2...
Today the idea oI not Iighting the market, going
with the Ilow and similar cliches is ignored more
oIten than practiced. Historically, managers and
traders understood and incorporated the tape and
the input oI the market largely because they were
in touch with and understood the market, although
perhaps more by intuition than by a strict disci-
pline.
4
Tape reading, as practiced and detailed in books
cited earlier, had several components including:
To note changes in the course oI the market during
the day. Consider the Iollowing sequence oI trades
in AT&T. The most interesting is the last where
700 shares trade at
3
/8 and then 800 shares at
1
/2.
This is a market order to buy 1,500 shares, which
is the type oI trade that one sees as a rally devel-
ops.
In Figure 6, 250,000 shares oI EK trade down $2
Iollowed by a variety oI trades at or around the
print price. In all probability the broker is long and
is trying to liquidate his long position as quickly as
possible so every order is immediately Iilled.
A seller should realize that there were more sellers
than buyers and today might not be the best occa-
sion to distribute yet another large block.
Our interest, however, is in another area oI tape
analysis: the detection oI those instances where
the stock market is telling us long-term accumula-
tion or distribution is underway. There are, to be
sure, any number oI approaches which Iocus on
the same goal, but they are shortcuts and abbrevia-
tions. To understand what the tape is saying, one
has to read the tape and do so in its entirety. To
take snapshots, i.e., closing prices or high-low-
close, is akin to reviewing a movie based on snap-
shots or the last Irame oI the eleventh reel oI a
twelve reel movie.
Money flows are the market`s mechanism for
advising investors that it is discounting some
future, significant event. The event may be in-
terest rates, commodity prices, earnings expecta-
tions, Iuture sales, or takeover activity. But in
every instance the market is providing its views on
a fundamental event. Since Ilows are usually
graphic, the contention is oIten made that this is a
technical eIIort, which is not the case.
Thus, two more ironies:
The trading environment provides investment in-
puts.
Graphs - usually associated with technical analy-
sis - are actually providing Iundamental assistance.
And when Salomon Brothers expanded their trading operations
in the early 1980's a signiIicant alteration was required almost
immediately. Equity traders no longer had access to what was
once considered the world's largest ticker tape. In the new arena,
the tape proved to be too short so that the changes in market
trends were not easily discernible. Thus within weeks oI a multi-
million dollar upgrade, thousands more were spent merely to
provide a longer tape.
Figure 8. Winning Percentage: Tom vs Bill
But what exactly are money Ilows and how do
they work? One example might be Iound in an-
other "exchange".
Two "investors", Tom and Bill, attend a conven-
tion in Las Vegas and aIter a series oI meetings head
to the tables. Tom being somewhat rash and ag-
gressive decides to play roulette and bets $10 on
the red (or even numbers or the Iirst 18). He wins
and 'invests another $10 on the red and is again
successIul. AIter a third success with the red he
increases his exposure and bets $100, which, oI
course, he promptly loses. AIter Iour bets he has a
win loss ratio oI 3:1 (75) but is losing money:
Tom`s Iriend Bill aIter watching Tom decides to
take the opposite tack. So when Tom, properly
chastised, again bets $10 on the red, Bill bets on the
black. Once again Tom is correct and wins, bets
$10 and wins again and does so Ior a third time.
Forgetting what happened a Iew minutes ago, Tom
then bets $100 and once again with higher stakes,
loses. Bill, mirroring Tom`s move's, loses $10 three
times in a row but then wins $100.
So aIter several rounds we Iind that Tom has won
75 oI the time but has lost money while Bill who
is apparently much less Iortunate has only won
one out oI Iour rounds. But Bill is, in reality, the
winner.
Figure 9. Money Won / Lost: Tom vs Bill
0
10
20
30
40
50
60
70
80
Tom Bill
Figure 7. Tom's Las Vegas Results: Round 1

Bet 1 $10 W $10
Bet 2 10 W 20
Bet 3 10 W 30
Bet 4 100 L -70
Amount Cumulative
Bet Result Record
$
Figure 10. Tom and Bill's Las Vegas Results: Subsequent Rounds
Bet 5 $10 W -$60 $10 L -$10
Bet 6 10 W -50 10 L -20
Bet 7 10 W -40 10 L -30
Bet 8 100 L -140 100 W 70
Bet 9 10 W -130 10 L 60
Bet 10 10 W -120 10 L 50
Bet 11 10 W -110 10 L 40
Bet 12 100 L -210 100 W 140
Bet 13 10 W -200 10 L 130
Bet 14 10 W -190 10 L 120
Bet 15 10 W -180 10 L 110
Bet 16 100 L -280 100 W 210
Amount Cumulative
Bet Result Record
Amount Cumulative
Bet Result Record
Tom Bill
-400
-300
-200
-100
0
100
200
300
Tom Bill
Regarding money Ilows our thesis is that an uptick
reIlects buying interest while a downtick reIlects
selling interest. (II a stock trades at the last sale,
we view it as neutral and - in eIIect - discard the
trade).
Trades are then weighted by the money involved in
the trade. For example, looking at the last two
trades in the table below, a 5,000 share trade at
$28.875 is considered to be a sell involving $144,375
(5,000 x $28.875). The next trade is 1,000 shares
at $29.00, an uptick and a net buy oI $29,000 (1,000
x $29). While the stock is now back to $29, there
has been an outIlow oI $115,375 in just these two
trades.
A stock closes at $29, the next dav the following occurs.
Our stock closes un-
changed for the dav but
there has been an outflow
of $993,823. If this hap-
pens dav after dav, we
would expect the stock to
decline.
Shares Price Tick Trade Value Cumul at i ve
Money Flow
Net
Figure 11. CaIcuIation Of Money FIows
500 $29.125 1/8 $14,565 14,565 14,565
500 29.125 0 14,565 0 14,565
1,500 29.000 - 1/8 43,500 -43,500 -28,935
2,500 28.750 - 1/4 71,875 -71,875 -100,810
5,000 28.500 - 1/4 142,500 -142,500 -243,310
500 28.500 0 14,250 0 -243,310
100 28.750 1/4 2,875 2,875 -240,435
500 28.750 0 14,375 0 -240,435
1,000 29.000 1/4 29,000 29,000 -211,435
500 29.000 0 14,500 0 -211,435
100 28.875 - 1/8 2,888 -2,888 -214,323
200 28.875 0 5,775 0 -214,323
1,500 28.750 - 1/8 43,125 -43,125 -257,448
100 28.875 1/8 2,888 2,888 -254,560
400 28.875 0 11,550 0 -254,560
100 29.000 1/8 2,900 2,900 -251,660
5,000 28.875 - 1/8 144,375 -144,375 -396,035
500 29.000 1/8 14,500 14,500 -381,535
500 29.000 0 14,500 0 -381,535
5,000 28.875 - 1/8 144,375 -144,375 -525,910
1,000 29.000 1/8 29,000 29,000 -496,910
100 29.000 0 2,900 0 -496,910
500 29.125 1/8 14,563 14,563 -482,348
500 29.125 0 14,563 0 -482,348
1,500 29.000 - 1/8 43,500 -43,500 -525,848
2,500 28.750 - 1/4 71,875 -71,875 -597,723
5,000 28.500 - 1/4 142,500 -142,500 -740,223
500 28.500 0 14,250 0 -740,223
100 28.750 1/4 2,875 2,875 -737,348
500 28.750 0 14,375 0 -737,348
1,000 29.000 1/4 29,000 29,000 -708,348
500 29.000 0 14,500 0 -708,348
100 28.875 - 1/8 2,888 -2,888 -711,235
200 28.875 0 5,775 0 -711,235
1,500 28.750 - 1/8 43,125 -43,125 -754,360
100 28.875 1/8 2,888 2,888 -751,473
400 28.875 0 11,550 0 -751,473
100 29.000 1/8 2,900 2,900 -748,573
5,000 28.875 - 1/8 144,375 -144,375 -892,948
500 29.000 1/8 14,500 14,500 -878,448
500 29.000 0 14,500 0 -878,448
5,000 28.875 - 1/8 144,375 -144,375 -1,022,823
1,000 29.000 1/8 29,000 29,000 -993,823
28 3/8
28 1/2
28 5/8
28 3/4
28 7/8
29
29 1/8
29 1/4
9
:3
0
1
0
:0
0
1
0
:4
4
1
0
:5
6
1
1
:0
6
1
1
:1
8
1
2
:0
8
1
2
:3
0
1
2
:4
2
1
2
:5
2
1
3
:3
8
1
4
:2
0
1
5
:0
0
1
5
:2
8
1
5
:5
5
-1,200
-1,000
-800
-600
-400
-200
0
200
Figure 12. SampIe Money FIow Chart
Money
Flow
Price
Figure 12 is a graphic representation oI the table
below.
We Iind it curious that the idea oI weighted and
dimensional results are not oIten grasped by many
investors. There is an abundance oI real world ex-
amples - especially in sports - where the critical
issue is not how many or how much but when:
In the 1993 Wimbledon ladies Iinal, Jana Novatna
actually scored more points than the winner, SteIIi
GraI.
In another Wimbledon example - 1975 - it was
said oI Jimmy Conners that 'he had a wonderIul
Iortnight, he only lost three sets. Arthur Ashe
during the same two weeks lost a total oI six sets.
But Ashe won the championship.
The greatest regular season baseball game ever
pitched was by Harvey Haddix. In 1959 he threw
12 perIect innings. And lost. How do you lose a
perIect game? UnIortunately Ior Haddix, games
are not won on hits, errors, or walks but on runs.
While the opposition did not have a hit, run, or
baserunner, his Pirates did not score any runs ei-
ther (even though they had hits and runners). In-
credibly, Haddix did not receive credit Ior a perIect
game.
In hockey, soccer, and even basketball, shots on
goal are measures oI oIIensive ability. But one
wins by actual goals.
5
See also Market Breadth. Birinyi Associates. May 1999.
Figure 13. Major League Baseball Perfect Games - Modern Era
Jack Nicklaus in one oI the Skins contests had
what was in eIIect the lowest score but won no
money.
Two Presidents, RutherIord Hayes in 1876 and
Benjamin Harrison in 1888 were elected even though
they captured less oI the popular vote than their
challengers.
1876 Rutherford Hayes 185 4,035,924
Samuel Tilden 184 4,287,670
1888 Benjamin Harrison 233 5,445,269
Grover Cleveland 168 5,540,365
These situations also exist in the stock market. A
portIolio, which has 15 advancing issues and 10
declining ones, may not only be underperIorming
but actually losing money. Without any special
knowledge or inIormation, we suspect that iI GE
goes down sharply, Jack Welch's portIolio will have
a losing day even iI every other stock he owns goes
up 2. Position traders on Wall Street likewise
know that the majority oI their trades make money
but that there is always one losing trade every month
that oIIsets almost all the eighths and quarters.
5
Figure 14. Presidential Elections
Electoral Popular
Cy Young 5/5/04 Boston 3 vs Philadelphia 0
Addie Joss 10/2/08 Cleveland 1 vs Chicago 0
Charlie Robertson 4/30/22 Chicago 2 at Detroit 0
Don Larsen 10/8/56 New York 2 vs Brooklyn 0 World Series
Jim Bunning 6/21/64 Philadelphia 6 at New York 0
Sandy KouIax 9/9/65 Los Angeles 1 vs Chicago 0
CatIish Hunter 5/8/68 Oakland 4 vs Minnesota 0
Len Barker 5/15/81 Cleveland 3 vs Toronto 0
Mike Witt 9/30/84 CaliIornia 1 vs Texas 0
Tom Browning 9/16/88 Cincinnati 1 vs Los Angeles 0
Dennis Martinez 7/28/91 Montreal 2 at Los Angeles 0
Kenny Rogers 7/29/94 Texas 4 vs CaliIornia 0
David Wells 5/17/98 New York 4 vs Minnesota 0
David Cone 7/18/99 New York 6 vs Montreal 0
Part Three: Money FIows - The Background
Figure 15. Barron's Large Block 1ransactions: September 7, 1981
6
Trustv Market Indicator. Barron's. 1/24/83.
The Iirst generation oI modern money Ilow analy-
sis was the examination oI block trades (10,000
shares and above). The Iact that block trades im-
parted useIul Iuture inIormation was well estab-
lished and there was even a Large Block Indicator,
which was part oI the technical arsenal.
6
Not only
was this apparently useIul, it was also available as
Barrons published a listing oI every single 25,000
share trade with its associated tick. UnIortunately,
at the beginning oI the 1982 bull market the Ieature
was dropped probably because trades oI that size
were no longer interesting or unusual.
In 1978, Salomon Brothers introduced the Block
Trading Monitor, which was an evaluation oI the
ticker tape that detailed every single block and cre-
ated a database oI blocks Ior every stock. Thus, a
tape oI block trades was available which enabled
analysts and traders to monitor institutional activ-
ity and sentiment in a manner that had never beIore
been possible and which even today is not acces-
sible to most observers. Almost Irom its incep-
tion, the idea proved to be useIul.
Page 14 is the summary page Irom a later version oI
the monitor. Here volume and block activity are
broken down by hour and then
summarized. The direction
(tick) oI every block is captured
and discounts and premiums
presented. (The same inIorma-
tion was also detailed Ior groups
and individual issues).
All non-block activity was also
presented, although to lesser de-
tail.
Previous
Company Price Vol ume Sal e
Ashland Oil $39 50,000 O.T.
Duke Pwr 20 3/8 100,000 20 1/4
Texas Utilities 20 5/8 50,000 20 1/2
American Standard 34 58,900 34
Alleghany Pwr Systems 15 3/8 50,000 15 5/8
Mobil 28 5/8 50,000 28 7/8
Kansas G & E 15 3/8 60,000 15
Potomac Electric Pwr 14 1/2 80,000 14 3/8
Richardson - Vicks 28 133,000 28
Atlantic City Elec 17 1/4 59,000 17 1/8
Honeywell 87 55,000 87 1/8
Continental Telephone 16 93,500 16
American Elec Pwr 16 7/8 50,000 16 7/8
Imperial Corp oI Amer 19 47,500 18 7/8
PaciIic P & L 18 7/8 100,000 18 3/8
Con Edison 21 92,900 20 7/8
Dresser Ind 41 61,000 41 1/8
Crocker National 41 1/2 78,000 41 1/2
San Diego Gas & Elec 12 3/8 50,000 12 1/4
American Home Prod 30 1/4 50,000 30 3/8
Dupont 41 5/8 64,500 41 1/8
In short, the two players with powerIul hands have not bet in order to disguise their strength, then
they both raised in order to claim it. In other words, money has and is its own language in poker.
The way you use it supplements and qualiIies the inIormation your opponents glean Irom your
cards.
Herbert Yardlev, Education of a Poker Plaver
1
4
B
i
r
i
n
y
i

A
s
s
o
c
i
a
t
e
s
,

n
c
.
M
o
n
e
v

F
l
o
w
s
.

M
r

M
a
r
k
e
t

S
p
e
a
k
s
F
i
g
u
r
e

1
6
.

B
l
o
c
k

1
r
a
d
i
n
g

M
o
n
i
t
o
r
Hourly Summary
Daily NYSE Market Summary
Time DJII Total Volume Block Volume MKT Blocks UP : DN Total Value Total Net Money Block Net Money
10:00 - 11:00 1,191 70,044,000 47,174,600 67.3 1,430 46 : 11 2,300,031,469 989,267,452 918,262,100
11:00 - 12:00 1,185 46,358,700 24,042,000 51.8 907 26 : 26 1,541,812,275 66,467,199 101,874,519
12:00 - 13:00 1,193 30,941,500 17,119,900 55.3 631 33 : 15 1,046,572,924 107,181,500 70,756,012
13:00 - 14:00 1,193 26,420,400 14,742,300 55.7 550 32 : 17 848,998,304 85,551,861 58,653,887
14:00 - 15:00 1,198 24,234,000 12,188,200 50.2 527 33 : 17 818,872,592 101,259,049 64,587,075
15:00 - 16:00 1,202 35,843,300 19,499,000 54.4 739 36 : 15 1,168,144,195 143,840,527 100,077,662
Up Down Up Down Total
Volume 84,248,300 45,033,800 36.02 19.25 233,841,900
Amount $ 2,944,710,900 1,451,143,310 38.12 18.75 7,724,431,761
Shares Up Down Unchanged oI Total Volume Count
100 22.1 20.1 57.6 0.7 1,785,200
200 - 400 22.4 21.5 56.0 2.8 6,549,100
500 - 900 23.8 21.7 54.4 4.6 10,779,400
1000 - 4900 24.7 19.9 55.2 21.5 50,375,400
5000 - 9900 27.6 17.9 54.3 13.6 31,901,000
Total 50.8 32.0 10.8 0.5 1,390,100
Shares Up Down Unchanged Count
100 22.1 20.1 57.6 17,852
200 - 400 22.5 21.2 56.1 24,622
500 - 900 24.2 21.5 54.2 18,134
1000 - 4900 24.9 19.9 55.0 28,093
5000 - 9900 27.4 17.9 54.5 5,287
Total 23.8 20.5 55.6 93,988
Shares Up Down Total Total $ Net $ Mkt NT / TOT Vs. Mkt
100 3,956 3,604 17,852 54,292,027 784,309 0.70 1.44 0.07
200 - 400 5,558 5,237 24,622 195,451,837 479,224 2.80 0.24 0.01
500 - 900 4,389 3,913 18,134 333,199,980 9,662,075 4.60 2.89 0.15
1000 - 4900 7,017 5,602 28,093 1,669,635,232 87,582,226 21.50 5.24 0.27
5000 - 9900 1,453 948 5,287 1,099,315,345 117,157,698 13.60 10.65 0.55
Blocks 1,751 803 4,784 4,453,372,813 1,314,211,256 57.63 29.51 1.52
Total 24,124 20,107 98,669 7,724,431,761 1,493,567,590
Block Discounts 1/8 1/4 3/8 1/2 1 / 2 - 1 ~1
Number 542 206 23 19 10 3
Percent 67.50 25.65 2.86 2.37 1.25 0.37
Block Premiums
Number 1060 351 76 80 93 91
Percent 60.54 20.05 4.34 4.57 5.31 5.20
Up Down Flat Total
Number oI Blocks 1,751 803 2,230 4,784
Percent 36.60 16.00 46.60
Value oI Blocks 2,128,811,825 814,600,568 1,509,960,420 4,453,372,813
Percent oI Blocks 47.80 18.20 33.90
Block Volume 59,856,600 25,414,900 49,494,500 134,766,000
Percent oI Block Volume 44.40 18.80 36.70
Avg. Block Size 28,170
# 100,000 Blocks 125 56 65 246
Stocks UP : DN ~ $1 579 44 623
Daily Non-Block Activity Summary
Figure 17. Woolworth Block Trades: September 29, 1978 - April 30, 1979
Date Time Volume Price Change
7
4/30 10:52 10,000 28.000 -0.125
15:49 17,600 26.625 -0.125
4/26 10:20 13,000 29.000 0.125
4/14 10:01 14,300 23.625 0.250
11:04 20,000 23.625 0.000
11:31 105,000 24.000 0.375
3/29 15:47 13,500 23.000 0.125
3/28 10:30 50,000 23.000 0.125
3/27 15:59 143,000 22.750 0.375
16:00 15,000 23.000 0.250
3/22 10:06 14,000 22.000 0.250
3/20 15:55 25,000 21.875 0.125
3/19 11:18 27,300 22.000 0.125
3/16 15:45 10,000 22.000 0.125
3/13 11:53 22,000 22.000 0.125
3/12 10:51 15,000 21.750 0.000
3/9 10:26 12,700 21.875 0.250
12:02 20,000 21.875 0.125
3/8 11:23 25,000 21.375 0.250
14:05 10,000 21.500 0.125
15:30 16,700 21.500 0.000
3/7 12:30 10,000 21.250 0.125
13:59 10,000 21.250 0.125
15:59 10,000 21.250 0.125
3/5 14:18 10,000 20.125 0.000
2/27 12:23 27,000 19.375 -0.125
2/21 14:57 12,300 20.125 0.125
1/24 11:41 20,000 20.625 -0.250
1/23 14:45 10,000 20.875 0.250
1/18 14:48 19,500 21.000 0.250
1/12 14:03 22,200 20.250 0.125
15:52 14,300 20.125 0.000
1978
12/15 15:53 10,000 19.250 0.000
12/14 10:23 13,300 19.000 0.000
15:30 10,000 19.250 0.125
12/13 14:50 10,000 19.000 -0.125
11/6 14:35 10,000 19.000 0.000
10/31 10:26 12,000 19.000 0.000
10/26 10:17 11,500 20.000 -0.125
15:14 10,000 19.625 0.000
10/18 13:42 16,300 20.500 0.000
10/16 12:29 10,000 21.500 -0.250
15:28 25,000 21.500 0.000
9/29 12:41 14,500 22.000 0.000
NYSE Block 1rade Monitor
Salomon Brothers
TKR ISSUER
Z Woolworth
Block Trades
7
Change Irom the last sale, not change Irom the last block trade.
1979
By having a history oI every block trade, Salomon
traders could segregate the noise Irom the trend, as
illustrated in the case oI Woolworth.
Until 1978 this stock was averaging less than two
block trades per month or not even one a week.
But in October oI that year there was a notable
increase. Woolworth was suddenly becoming ac-
tive; and the activity was most pronounced in the
large trades.
Additionally, the blocks showed signiIicant accu-
mulation. In the Iirst quarter oI 1979 the greater
majority oI large trades were upticks including a
143,000 share trade on March 27, where the block
traded up $.375.
Volume, while increasing, was doing so at a much
slower rate than the increase in the number oI
blocks:
As shown, there was no apparent increase in total
trading until March 27, 1979.
In early April, the Canadian company, Brascan, an-
nounced a hostile takeover bid Ior the retailer and
also announced that they had already accumulated
4.9. Now not only was the rationale Ior the buy-
ing in evidence, but the buyer was also.
Figure 18. Woolworth Block Volume as a Percent of Total Volume:
September 29, 1978 - April 30, 1979
0
10
20
30
40
50
60
70
80
90
100
Sep-78 Oct-78 Nov-78 Dec-78 Jan-79 Feb-79 Mar-79 Apr-79
Figure 19. Woolworth Total Volume:
September 29, 1978 - April 30, 1979
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Jun-78 Sep-78 Dec-78 Mar-79
TKR ISSUER TOTAL VOLUME CLOSE CHANGE
ACY AMERICAN CYANAMID 920,800 31.625 2.125
NYSE BIock Trade Monitor
Salomon Brothers
Figure 20. American Cyanamid Block Trades:
December 10, 1979
Date of Run 12/11/79 Tuesday
Date of Trades 12/10/79 Monday
_________Block Trades
Time Volume Price Change From
Last Sale
1004 14,200 27.500 0.000
1050 15,000 30.125 0.000
1106 15,200 30.125 -0.125
1114 10,000 30.250 -0.125
1123 10,000 30.375 -0.125
1128 20,000 30.375 -0.125
1152 10,000 30.375 -0.125
1210 10,000 30.375 -0.125
1213 10,000 30.375 -0.125
1246 10,000 30.250 -0.125
1248 10,000 30.375 0.000
1303 30,000 30.375 0.000
1311 10,000 30.375 0.000
1315 16,400 30.250 0.000
1315 10,000 30.500 0.000
1316 20,200 30.500 0.000
1322 15,000 30.500 0.000
1326 15,000 30.500 -0.125
1331 18,600 30.625 -0.250
1358 10,000 30.750 -0.250
1412 10,000 30.875 -0.125
1416 10,000 30.875 0.000
1422 10,000 31.000 0.000
1424 10,000 31.000 0.000
1443 15,000 31.125 0.000
1445 10,000 31.125 -0.250
1452 10,000 31.125 -0.125
1524 25,000 31.000 -0.250
1539 10,000 31.125 -0.125
1545 15,000 31.125 -0.125
1545 10,000 31.125 0.000
Later that year, another classic example presented
itselI when a rumor circulated regarding American
Cyanamid. The company, the story went, was in
play and most indicators would have strongly sup-
ported that assertion: volume increased to 920,000
shares (2.8 oI the NYSE volume that day), the
stock rose 7.2, and the January 30 call options
rose 32. Clearly a positive picture existed.
On December 10, the stock's block trades totaled
414,600 (45 oI ACY`s volume) but oI the blocks
not a single one took place on an uptick. Because
every block was either at the last sale or a downtick,
the market was oI the opinion that this was a rumor
and just that. Furthermore, all the blocks were oI
the smaller variety. We would conclude that insti-
tutions were willing to let the story run and not
dump large positions, which might distort the pre-
vailing wind. SpeciIically, institutions were prob-
ably selling into strength by asking the amount
wanted. II the bid was Ior 25,000 shares, someone
sold 15 or 20,000. II 20,000 shares was bid Ior, the
seller sold 12 or 16,000.
By not taking out the bid, institutions allowed the
price to rise to higher levels. They continued to
sell into those higher levels. Had someone sold the
entire 40,000 (or whatever) that was bid Ior, the
buyers might have reassessed their views. But smart
selling allowed the stock to rise and sellers scaled
into the rise.
The market said no bid was likely at this time or
that the bid would be at or around $30.
With the success oI the Block Trading Monitor,
Salomon Brothers expanded the eIIort to analyze
every trade and developed the idea oI money Ilows.
As with block trades, the working
thesis was that upticks were a Iunc-
tion oI buying pressure and repre-
sented money coming in, while
downticks exhibited selling pres-
sure, and money coming out. Trades
done at the last sale were not con-
sidered money Ilow. Since the re-
sult was money, it could be used to
compare stocks, calculate index
Ilows, and perIorm other analytics.
While the calculation and process
oI money Ilows (as illustrated on
page 11, Figures 11 and 12) are
simple and much more oI a data pro-
cessing exercise than one in pro-
gramming, we should provide a
warning label. We have Iound that
many investors are of the opin-
ion that since they understand
the calculation of money flows,
they also, therefore, understand
the process and use thereof.
We caution that while most individu-
als could learn the rules oI poker in
a very short time, that would not
make them poker players. Further-
more, many individuals own French
cookbooks but Lutece and Jean-
Georges are still crowded most
nights.
Figure 22. IBM Total Money Flow:
2:31 to 2:46 on 1anuary 11, 1982
$ $, Mil
57 3/4
57 7/8
58
58 1/8
58 1/4
58 3/8
58 1/2
2
:
3
1
2
:
3
1
2
:
3
2
2
:
3
2
2
:
3
3
2
:
3
3
2
:
3
4
2
:
3
4
2
:
3
5
2
:
3
5
2
:
3
5
2
:
4
2
2
:
4
2
2
:
4
2
2
:
4
6
2
:
4
6
2
:
4
6
-5
-4
-3
-2
-1
0
Price
Total Money Flow($, Mil)
A Iurther example oI the pro-
cess that we experienced oc-
curred on January 11, 1982,
when we were showing a
trainee the nuances oI the
ticker tape. During this brieI
window IBM was trading at
$58 1/4. FiIteen minutes later
it was at 58
1
/8. This 1/8th oI
a point drop does not present
a lot oI inIormation. However,
all oI the large trades were ex-
ecuted on downticks and all
the upticks were executed in
small trades. While the stock
was only down an
1
/8, $3.8
million Ilowed out oI the stock
in this 15-minute period.
Creating a money Ilow oI the
stock and comparing it to the
price movement shows a much
larger deterioration than that
given by price alone. The
stock that day - just more than an hour later - closed
down another $1
1
/4 at $56
7
/8.
We could not predict that it would go down in the
last hour or so oI trading, but there was no doubt
Irom our experience that the stock would be con-
siderably lower.
2:31 800 58
1
/4 0 0
2:31 200 58
3
/8
1
/8 11,675
2:31 300 58
1
/4 -
1
/8 -5,800
2:32 200 58
3
/8
1
/8 5,875
2:32 17,800 58
1
/4 -
1
/8 -1,030,975
2:32 1000 58
1
/4 0 -1,030,975
2:32 6,000 58
1
/4 0 -1,030,975
2:33 300 58
1
/4 0 -1,030,975
2:33 500 58
1
/4 0 -1,030,975
2:33 300 58
3
/8
1
/8 -1,013,463
2:33 8,100 58
1
/4 -
1
/8 -1,485,288
2:33 1,000 58
1
/4 0 -1,485,288
2:34 500 58
3
/8
1
/8 -1,456,100
2:34 100 58
3
/8 0 -1,456,100
2:34 16,100 58
1
/4 -
1
/8 -2,393,925
2:34 6200 58
1
/4 0 -2,393,925
2:35 400 58
1
/8 -
1
/8 -2,417,175
2:35 4,000 58
1
/8 0 -2,417,175
2:35 2,000 58
1
/4
1
/8 -2,300,675
2:35 1,000 58
1
/8 -
1
/8 -2,358,800
2:35 2,000 58
1
/8 0 -2,358,800
2:36 1,000 58
1
/8 0 -2,358,800
2:36 200 58
1
/8 0 -2,358,800
2:36 500 58
1
/8 0 -2,358,800
2:37 600 58
1
/8 0 -2,358,800
2:37 100 58
1
/8 0 -2,358,800
2:37 200 58
1
/8 0 -2,358,800
2:37 1,900 58
1
/8 0 -2,358,800
2:37 500 58
1
/8 0 -2,358,800
2:38 500 58
1
/8 0 -2,358,800
Time Price Tick
Money
Flow $ Volume Time Price Tick
Money
Flow $ Volume
2:38 1,000 58
1
/8 0 -2,358,800
2:38 500 58
1
/8 0 -2,358,800
2:38 1,500 58
1
/8 0 -2,358,800
2:39 100 58
1
/8 0 -2,358,800
2:39 100 58
1
/8 0 -2,358,800
2:39 1,400 58
1
/8 0 -2,358,800
2:40 1,800 58
1
/8 0 -2,358,800
2:41 100 58
1
/8 0 -2,358,800
2:42 17,500 58 -
1
/8 -3,373,800
2:42 3,200 58 0 -3,373,800
2:42 200 58
1
/8
1
/8 -3,362,175
2:42 7,800 58 -
1
/8 -3,814,575
2:42 500 58 0 -3,814,575
2:43 300 58 0 -3,814,575
2:43 700 58 0 -3,814,575
2:43 100 58 0 -3,814,575
2:43 500 58 0 -3,814,575
2:43 100 58 0 -3,814,575
2:44 2,500 58 0 -3,814,575
2:44 1,100 58 0 -3,814,575
2:44 2,300 58 0 -3,814,575
2:44 10,100 58 0 -3,814,575
2:44 10,000 58 0 -3,814,575
2:44 200 58 0 -3,814,575
2:45 300 58 0 -3,814,575
2:45 400 58 0 -3,814,575
2:45 500 58 0 -3,814,575
2:46 100 58
1
/8
1
/8 -3,808,763
2:46 100 58 -
1
/8 -3,814,563
2:46 200 58
1
/8
1
/8 -3,802,938
Figure 21. IBM Time and Sales 2:31 to 2:46 on 1anuary 11, 1982
Figure 23. IBM Up / Down Volume:
2:31 to 2:46 on 1anuary 11, 1982
-60,000
-50,000
-40,000
-30,000
-20,000
-10,000
0
10,000
Up Down
Up / Down Ratio: 1/14
Stock price movements actually begin to reIlect
new developments beIore it is generally recog-
nized that they have taken place. changes in
earnings generally Iollow changes in stock price.
Arthur Ziekel, Financial Analvsts Journal, Nov
1983
Figure 24. Plus Tick Blocks
8
Institutional Investor Study, Securities and Exchange Commis-
sion, March 1971.
Figure 25. Minus Tick Blocks
TIME
P
R
I
C
E

(
l
o
g
a
r
i
t
h
m
i
c
)
End oI
Day -1
End oI
Day 0
.7478 (E
3
)
Closing (P
-1
)
Price
Price Prior
to Block
(PPB)
Block Price
(PB)
Closing
Price (P
0
)
Predicted
Closing
Price *
1.5014
(E
1
)
End oI
Day -1
End oI
Day 0
TIME
P
R
I
C
E

(
l
o
g
a
r
i
t
h
m
i
c
)
Closing (P
-1
)
Price
Price Prior
to Block
(PPB)
Block Price
(PB)
Closing
Price (P
0
)
.7130
(E
2
)
Predicted
Closing
Price *
The examples presented above and elsewhere are
evidence oI the valuable approach we call money
Ilows. Anecdotal and selected items oI evidence
are - and should be - viewed with caution. Are
there not more compelling and convincing argu-
ments that one can Iorward? For those who re-
quire it, we would point out that the SEC in its
1971 opus, The Institutional Investor Studv, moni-
tored more than 8,000 blocks in an 18-month pe-
riod.
From the analvsis of all minus-tick blocks, a
new, lower level of prices appears to be estab-
lished after the block trade. On the average,
prices come back slightlv (about .25) within
10 trading davs after the block, but are still
below the original level of prices bv more than
1.50. Converselv, plus-tick blocks tend to
establish a new, higher level of stock prices.
Furthermore,.(stocks traded in blocks) seem
to set a persistent, higher or lower level of
prices, depending on whether the block was
purchased or sold. Thus, the results seem to
indicate that the price changes arise from
changes in the underlving values of stock.
8
In short, the Commission Iound that block trades
on upticks tend not only to trade higher pre print,
but considerably higher aIter the actual trade. Not
surprisingly, it also Iound that downtick blocks
showed a reverse situation.
The SEC had the authority to trace trades to their
source and Iound that uptick blocks are indeed buy
orders, while downtick blocks originated as sell
orders Irom the institution which entered the order.
We should also highlight that Ior money Ilows to
be successIul we must know and have conIidence
in the reporting mechanism. That is, every trade
must be reported in sequence. Whether 100 shares
trades beIore or aIter a 100,000 share trade is criti-
cal. Hence, in the over the counter market, the
approach is sometimes less useful than in the
listed market.
Part Four: The Best and (OnIy) !"#$ Market Indicator
Figure 26. D1IA Intra Day Volatility:
1uly 16, 1996
5,150
5,205
5,260
5,315
5,370
5,425
9
:
3
0
1
0
:
0
0
1
0
:
3
0
1
1
:
0
0
1
1
:
3
0
1
2
:
0
0
1
2
:
3
0
1
3
:
0
0
1
3
:
3
0
1
4
:
0
0
1
4
:
3
0
1
5
:
0
0
1
5
:
3
0
1
6
:
0
0
Today one might wonder why this approach would
have any applicability. Given the proliIeration oI
theories, approaches, databases, analytics, and per-
sonnel, what value could the oldest Iorm oI stock
market analysis provide? By looking at every single
transaction, representing every single visible mani-
Iestation oI attitude in the market place itselI, we
can better evaluate the expectations oI investors
and the underlying sentiment oI the market. Un-
Iortunately, in a time when the number oI transac-
tions as well as the number oI issues are unprec-
edented, even the most skillIul tape reader would
be overwhelmed.
In addition, the longer trading day also limits the
human capacity to track events. While that is the
bad news, the good news is that computers today
provide more detailed tracking and analysis oI the
actual tape than pool operators could have ever
imagined.
This still does not, however, Iully respond to the
question oI why? Why this approach and not
graphs or more sophisticated charts? Why go
through all the trouble oI examining hundreds oI
thousands oI trades to develop an additional iota oI
inIormation?
The answers are simple:
Charts and historical databases detail where the
stock closed but not where the stock actually traded
that day, at what level volume took place, and how
much buying or selling there actually was. We have
all seen days where the market has been up 50,
down 50 and closes up or down a Iew points. Years
hence, market historians may view those days as
boring or uneventIul although witnesses at the time
would reIute that assertion.
On July 16, 1999 the FRB was expected to take a
positive stance and the market rallied 100 points.
However, a tightening bias emanated Irom the meet-
ing and the market went Irom 100 to 100 beIore
recovering to close up 17 bps. On a point-to-point
comparison, the market was up only 9.25 points
on the day, but an astute trader could have made
large proIits while a less nimble one might have lost
considerable sums. Clearly the usual perspective
(U.S. Stocks Mixed, Dow Industrials Rebound From
Drop) did not reIlect the reality oI the day.
Tape reading enables us to ascertain what and
where as it presents not so much a snapshot, but
an x-ray, or a three-dimensional view.
Investors can become better aware oI what other
investors are doing in the market, based on their
actual trading. Since investors are hesitant to detail
what they are buying, (although they readily share
the stocks that they own), the tape can provide
input as to the next idea, not the last.
Money flows are the only future indicator of
stock prices. Long beIore an event they make us
aware that something will happen. Unlike many
approaches which must change beIore the change
is captured (volume must materialize, prices must
oscillate, insider selling must increase, etc.) money
Ilows suggest something is going to happen.
9
II the
market does discount Iundamental events such as
earnings, interest rates, commodity prices, and cor-
porate prospects, money Ilows will anticipate the
Iundamental events. While, the market does not
always articulate which Iundamental event it is dis-
counting or when the event might occur, this is
actually a positive as it helps managers examine
and explore developments that might be undergo-
ing change beIore the actual change.
9
Fire the Computer' And Bring Back the Ticker Tape. Barron's.
October 28, 1985.
1,150
1,160
1,170
1,180
1,190
1,200
1,210
1,220
1,230
1,240
1,250
Sep Oct Nov Dec
-100
0
100
200
300
400
500
600
700
800
DJA
Non Block Money ($, Mil)
Figure 27. D1IA Non-Block Money Flow:
September - December 1984
This is especially true when we look Ior clues as to
the direction oI the stock market. Here we have
Iound that by looking at smaller trades in the aggre-
gate, we are provided with a wonderIul lead indica-
tor oI Iuture market direction. Specialists, market
makers, brokers, corporate executives, and Ilexible
institutions usually trade in bits and pieces and do
not totally commit their Iunds in one daring move.
Hence, in looking at the market as a whole we have
Iound that looking at non-block trades is the most
useIul approach.
Furthermore, it is most useIul to look at a subsec-
tion oI the market such as the Dow 30 stocks. II
we look at the broad market or a large segment oI it
such as the S&P (which approximates 70 oI the
value oI all domestic issues) we Iind that the
crosscurrents create distortions. Even on the worst
days there will be some stocks that are going up or
there may be arbitrage in a major situation which
gives us misleading inIormation. Or a sector may
provide unreliable inIormation (such as the oils on
a day crude prices are rising strongly) on the over-
all market.
Although we have sought an abundance oI other
approaches we continue to assert: the best lead-
ing indicator of the stock market is non-block
flows in the D1IA.
Over the past 20 years we have Iound the Iorecast-
ing record oI non-block Ilows to have been extraor-
dinarily useIul at inIlection points. Unlike most
indicators which demand that some change take
place beIore they are maniIested, money Ilows tell
the analyst that some change will take place, or in
the case oI the corrections oI the last 20 years
that no signiIicant change was about to ensue and
that the dip in price was only temporary.
September to December 1984
Although the economy was slowing in the Iourth
quarter oI 1984 most economists did not look Ior a
recession (Economists Dont See Threats to
Economv Portending Depression, WSJ), but a cut
in oil prices by OPEC caused some investors to
worry about deIlation. The Street was also con-
cerned about slowing corporate proIits and a slump
in IPO`s.
Volatility was acute: on October 12 a drop in the
money supply and oil prices ignited a 2.47 rally.
Technology was soIt because oI a chip glut and
two large pension plans went Irom stocks to bonds.
The budget deIicit was a large concern and there
were questions about Ronald Reagan who was
elected in November. While the market rallied to a
near high aIter the election, aIterwards the market
was concerned about Reagan`s tax plan. In Decem-
ber banks took a harder stance on LBO`s while
stories about the technical state oI the market were
decidedly negative.
10
The most critical day was probably December 13
when the market reacted to several cuts in the prime
rate. ManuIacturers Hanover was the Iirst to de-
crease its prime to 10
3
/4 Irom 11
1
/4.
While 1985 started poorly, there was a shiIt in eco-
nomic sentiment. A New York Times article on Janu-
ary 15 said 'Optimism Takes Hold for 85 as ral-
lying rates, positive consumer sentiment, and a Io-
cus by the FRB on strengthening the dollar rather
than curbing inIlation were considered positives.
Finally on January 28, the Times wrote: The Bears
Turn Bullish.
But as seen in Figure 27, buying was present
throughout the downturn.
10
1984 Anecdotal Historv. Birinyi Associates.
1uly 1985 - March 1996
The summer oI 1985 was probably one oI the least
interesting in history or so it would appear. At
the beginning oI June the Dow was at 1,310 and at
the end oI August it was 1,334. But then the mar-
ket driIted lower. When it traded through 1,300, a
Times column reported that a number oI analysts
(mostly technical) thought it was the beginning oI
an even more ominous decline. There was concern
that summer that Congress had not cut more spend-
ing to Iight the deIicit, and the Fed supported the
dollar rather than cut rates. The utility index lagged
the industrials, which some technicians noted, and
cyclicals (especially steels) had earnings diIIicul-
ties.
Technicians were also concerned when the market
breached the 50-day moving average on September
10 and was about to penetrate the 200-day as well
(Figure 29).
Money Ilows painted a diIIerent picture and ap-
parently anticipated the upcoming Plaza Accord.
1anuary - October 1985
The late 1985 rally was one oI the strongest in
market history as the back-to-back gains oI the
Iourth quarter oI 1985 and the Iirst quarter oI 1986
both ranked in the top ten quarterly returns oI the
last 50 years.
Figure 30. D1IA Top Ten Quarterly Returns
Return
1) 1975 Q1 24. 65
2) 1987 Q1 21.56
3) 1986 Q1 17.58
4) 1998 Q4 17.07
5) 1982 Q4 16.77
6) 1997 Q2 16.54
7) 1985 Q4 16.41
8) 1976 Q1 16.39
9) 1975 Q2 14.43
10) 1962 Q4 12.63
1,150
1,200
1,250
1,300
1,350
1,400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
-200
0
200
400
600
800
1,000
1,200
1,400
DJIA
Non-Block Money Flow($, Mil)
.at the beginning oI a campaign, the syndicate
borrows all the money available at the exchange
and makes it apparent that it wishes to buy
shares with this money. AIterwards, however,
large sales are executed.
Confusion de Confusiones, 1688
Sep 9, 85 1,339.27 3.58 0.27 0.37% 4.76% 41 36 -54,989 86,140
Sep 10, 85 1,333.45 -5.82 -0.43 -0.07 4.26 -629 -651 -55,618 100,720
Sep 11, 85 1,319.44 -14.01 -1.05 -1.09 3.12 -877 -1,779 -56,495 94,540
Sep 12, 85 1,312.39 -7.05 -0.53 -1.59 2.53 -718 -2,722 -57,213 104,030
Sep 13, 85 1,307.68 -4.71 -0.36 -28.01 -2.10 -1.91 2.12 -585 -3,432 -57,798 108,070
Sep 16, 85 1,309.14 1.46 0.11 -1.76 2.19 -47 -3,539 -57,845 63,610
Sep 17, 85 1,298.16 -10.98 -0.84 -2.54 1.29 -724 -3,720 -58,569 107,520
Sep 18, 85 1,300.40 2.24 0.17 -2.34 1.42 -214 -3,628 -58,783 100,560
Sep 19, 85 1,306.79 6.39 0.49 -1.83 1.87 646 -2,856 -58,137 96,640
Sep 20, 85 1,297.94 -8.85 -0.68 -9.74 -0.74 -2.43 1.13 -63 -3,170 -58,200 99,260
Advance / DecIine Spread % WeekIy DaiIy
Date DJIA Chg % Chg Chg % Chg 50-Day 200-Day DaiIy 10-Day CumuIative VoIume
Figure 29. Book of the Dow
In addition to anticipating the 40 gain Irom late
September through the end oI the Iirst quarter oI
1986, the market was also kind enough to detail
many oI the winners. At that time, Salomon Broth-
ers was publishing a bi-weekly list highlighting di-
vergences in money Ilow.
11
Both the September 6
and September 20 editions were populated with
Iinancial stocks including Bank oI Boston, Texas
Commerce Bank, Mellon, JP Morgan, First Chi-
cago, American Express, and a number oI utilities
and insurers.
1anuary - March 1990
2,400
2,450
2,500
2,550
2,600
2,650
2,700
2,750
2,800
2,850
Jan Feb Mar
0
50
100
150
200
250
300
350
Price
Figure 31. Bank of Boston Total Money Flow:
August - September 1985
Figure 32. 1P Morgan Total Money Flow:
Figure 33. First Chicago Total Money Flow:
The buying was not only prescient, but also proI-
itable. The two quarters (4q 85 and 1q 86) showed
some oI the largest gains in Iinancial stocks ever:
1anuary 1990 and 1uly 1990 - 1anuary 1991
As 1990 dawned, the state oI the industry was a
major hurdle Iacing the market (Drexel was about
to go under). In addition, the technical state oI the
market was troublesome. In late January one noted
technician anticipated a twenty to twenty-Iive per-
cent Iall. Ironically, that week the market began a
20 rally.
12
Thus, while there were apparent concerns, the
market reIlected optimism and the early January
correction oI 9.50 was coincidental with buving.
Figure 34. Index and Group Performance:
September 1985 - March 1986
DJIA 35.62
S&P 500 29.08
Money Center Banks 58.74
Multi-Line Insurance 44.91
American Express 61.76
Return
11
Market Indicators. Salomon Brothers. September 6 and 20,
1985.
12
... Guru Sees Stocks Off 20 To 25. Investors Business
Daily. January 29, 1990.
The 1990 rally was terminated by the invasion oI
Kuwait. The market, not surprisingly, responded
to an external event by selling oII. In what should
be a virtual case study, money bottomed Iourteen
days beIore the market did (September 27 vs Octo-
ber 11) and 34 days beIore the advance / decline
line turned on October 31.
September - October 1990
Figure 37. D1IA vs Cumulative NYSE A/D Line:
September - November 1990
At this juncture bulls were a distinctly extinct breed
and investors' attitudes were overwhelmingly pes-
simistic.
The pessimism existed through the Iourth quarter
oI 1990:
2,350
2,400
2,450
2,500
2,550
2,600
2,650
9/4 9/24 10/12
-80
-60
-40
-20
0
20
40
60
80
100
120
Price
2,350
2,400
2,450
2,500
2,550
2,600
2,650
9/4 9/24 10/12 11/1 11/21
-9,000
-8,000
-7,000
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
DJIA
NYSE Cumulat ive A/D
September 6, 1990 WSJ Bottoming Out A Bearish Strategist Says It Isn`t Happening Yet
September 12, 1990 WSJ Dividend Drought Is Ominous Sign Ior Stocks
September 24, 1990 WSJ The Good Stock-Bad Stock Chasm Gets Ugly
September 24, 1990 WSJ Analysts` ProIit Estimates Grow Gloomier
September 25, 1990 NYT Banks Stocks Emit Ominous Signals
September 27, 1990 NYT Debt Service Burden Grows
September 27, 1990 WSJ II It Looks Like a Bear and Walks Like a Bear, Chances Are That
the Bear Market Has Arrived
September 28, 1990 NYT AIter Eight Years, the Bear Is Back
September 29, 1990 WSJ More U.S. Economists Expect a Recession, .
October 1, 1990 WSJ Money Managers Learn Humility Amid the Bull Market`s Ashes
October 2, 1990 WSJ Why Cash Is King in the Current Climate
October 8, 1990 BW Analysts Are Reading Their Charts And Weeping
October 19, 1990 WSJ How Can You Tell a Bear Market Is Over?
October 20, 1990 Economist II You Had Been Cheered By The Thought That American Stocks Might
Soon Bottom Out, Here Are Some Reasons To Be Unhappy
October 24, 1990 WSJ Global Managers` Current Pets? Cash and Bonds
October 25, 1990 IBD Market Analyst Sees Trouble Ahead
November 5, 1990 WSJ Wall Street`s Slide Could Last Two More Years, .
November 12, 1990 WSJ As War Worries Grip the Market, Investors Plot DeIense Strategies
November 13, 1990 NYT Some Advice To the Jobless On Wall St.
November 21, 1990 WSJ A Bear-Market Rally? It Sure Looks Like One
November 28, 1990 WSJ Short Selling Sets Records, But It Isn`t a Bullish Sign
December 12, 1990 WSJ Foggy ProIit View Chills An Uneasy Stock Market
December 14, 1990 WSJ European Money Managers Give U.S. Stocks the Cold Shoulder
December 21, 1990 WSJ Prudential-Bache Projects $250 Million `90 Loss
Source Title
Source Title
The market was oI a diIIerent persuasion. In one
oI our Iiner moments we argued that not only was
the market suggesting that the worst was behind us
but also that many oI the negative arguments on
the characteristics oI a bear market were un-
Iounded.
13
13
Bear Markets. Birinyi Associates. 1990.
To the Rothschilds, her chieI Iinancial agents, Wa-
terloo brought a multimillion-dollar scoop. The
Iame oI that scoop has endowed it, in later years,
with carrier pigeons and other legendary appur-
tenances. But like most Iamily Ieats, it is based
on very hard work and very cold cunning.
By the dawn light oI June 20 Nathan Rothschild
stood at Folkstone Harbor and let his eye Ily
over the lead paragraphs. A moment later he was
on his way to London (beating Wellington`s en-
voy by many hours) to tell the government that
Napoleon had been crushed. Then he proceeded
to the stock exchanges.
Another man in his position would have sunk his
worth into consols. But this was Nathan
Rothschild. He leaned against his pillar. He did
not invest. He sold. He dumped consols.
The Rothschilds - Frederic Morton
Figure 39. 1his Bear Could Collapse Without Warning, Some Say: WS1 - December 10, 1990
Going into 1991 money Ilows continued to present
a bullish view. This was extraordinary given the
upcoming GulI War and concerns regarding the Re-
publican Guards, potential biological weapons, and
investors' Iears regarding the Iraqi Iorces. Our in-
terpretation at the time was that the market was
suggesting that there might not be a war and that
the conIlict would be avoided at the brink.
1uly 1990 - 1anuary 1991
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
Jul-90 Aug-90 Sep-90 Oct-90 Nov-90 Dec-90 Jan-91
-200
-100
0
100
200
300
400
500
600
700
Price
Apparently, however, the market recognized that
the war would be oI short duration and that most
political and combat Iears were inIlated. Incred-
ibly the market knew and while most citizens and
government oIIicials were surprised by the war's
brevity, the market was not.
1994
Late 1994 was a diIIicult time Ior the stock market.
The S&P had negative price perIormance, Mexico
was in the midst oI a crisis that would lead to de-
valuation and the yield on the long bond was ex-
pected to go much higher than the 7 / it then
provided. A New York Times survey oI seven in-
vestors on January 7, 1995 reIlected the Iears oI
the day, as the most optimistic outlook was Ior a
high oI 4,100 (7) at some time in 1995.
Once again, the view oI the stock market diIIered.
Investors were not selling, money was going in on
declines and while the market did not Iorecast the
30 gain that the S&P enjoyed, it did provide a
sunny rather than cloudy Iorecast.
Figure 41. 1995 W$W Panelists 1995 D1IA
Forecast
Laszlo Birinyi 4,800 3,800 4,300
Panelist 1 4,700 3,200 4,200
Panelist 2 4,500 3,600 4,050
Panelist 3 4,485 3,788 4,224
.
.
.
Panelist 20 3,945 2,885 3,165
Panelist 21 3,900 3,100 3,200
Panelist 22 3,900 3,350 3,800
Hi gh Low Cl os e
Prediction
Lest we be accused oI Iorecasting aIter the Iact, we
reIlected this optimism in our annual W$W out-
look. OI the twenty-two participants our guessti-
mate (and it was only that) was the closest to the
actual high, closest to the actual low, and closest to
the actual close oI any oI the group.
The Asian Crisis - 1998
When the market declined sharply in 1998, we were
oI the view that it was a severe correction, severe in
part because there were so many Ironts with which
the market had to contend.
But it was only a correction and while we did not
anticipate a recovery as sharp as what occurred
(our working hypothesis was that it would be akin
to the 1990`s), the critical point we made was that
the market was going higher and the bear market
would again just have to wait.
14
14
Bullish -- With Reason. Birinyi Associates. October 13, 1998.
1anuary - December 1994
3,400
3,500
3,600
3,700
3,800
3,900
4,000
4,100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0
100
200
300
400
500
600
700
800
900
Price
Non-Block Money Flows ($, Mil)
1anuary - 1uly 1996
4,600
4,800
5,000
5,200
5,400
5,600
5,800
6,000
Jan Feb Mar Apr May Jun Jul
-200
-100
0
100
200
300
400
500
600
Price
1une - October 1998
7,000
7,500
8,000
8,500
9,000
9,500
Jun Jul Aug Sep Oct
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Price
The question could be asked iI perhaps the indica-
tor is always positive and always pointing north?
In 1996 it turned down with the market which sug-
gested a sluggish, neutral market.
But by the end oI the year accumulation showed
that 1997 was - at the start - very promising.
Figure 45. International Oils Money Flow:
December 1982 - February 1983
Part Five: Money FIows in the Investment Process
When we analyze group and sector money Ilows
we Iind they tend not to be as consistent or as
useIul as Ilows Ior the market. Perhaps it is be-
cause groups are not necessarily deIined by the
market, but by analysts and commentators. To the
market, thereIore, they are arbitrary deIinitions.
However, one group where we have Iound the idea
to be helpIul is the oil stocks, which, like banks,
they are generally homogenous.
On February 22, 1983, OPEC cut oil prices. The
eIIect on the stocks was dramatic and the issues
dropped sharply. We were somewhat surprised to
Iind that aIter the initial shock rather than net sell-
ing, there was actually net buying suggesting the
market was taking a diIIerent view oI the situation
(Figure 44).
Over the next Iour years despite the vicissitudes in
crude oil, Wall Street's outlook, and other opinions,
we consistently noted buying (Appendix A, page
60). Over that time the international oils, repre-
senting over 6 oI the S&P gained 160 percent
while the 500 was up 97 percent. This illustrates a
point that we see over and over again: money flows
help investors in the critical situations where
there is a great deal of absolute money to be
made or lost. We might also put this in baseball
terms; while money Ilows have a very good batting
average, their slugging percentage is even more note-
worthy.
We have previously mentioned the banks` discount-
ing the strong rally in the Iourth quarter oI 1985 (p.
24). Another example in the same vein might be the
Iinancial stocks at the end oI 1994. At that time,
the Mexican Peso was being devalued and bonds
then yielding 7 / - 7 7/8 were expected to trade
appreciably higher. But GTE and other Iinancials
led to a diIIerent conclusion.
GTE spent most oI 1994`s Iourth quarter between
$30 and $31. And yet during those three months
there was net buying oI $178 million. We inter-
preted this as the market`s reIutation oI most ex-
pectations. Again the market showed its prescience:
in 1995 GTE went Irom $30 to $45 (and yielded
over 5 during the year) as the long bond went to
5 /.
Figure 44. International Oils Stock
Performance: February 23, 1983
Figure 46. GTE Total Money Flow:
1une - December 1994
$ $, Mil
GulI Oil -$2
1
/8 -$816 -$1
1
/4 $383
Mobil -1
3
/8 -668
1
/2 1,244
Texaco -1
1
/8 -813 -
3
/8 797
Exxon -1 -5, 246 -
1
/8 675
Price Money Price Money
Change Flow ($, M) Change Flow ($, M)
Daily Change After Opening
29
30
31
32
33
34
-50
0
50
100
150
200
250
Price
Figure 47. Top Ten S&P Group Money Flows
($, Mil): 1998
0 2,000 4,000 6,000 8,000 10,000 12,000
Comput er Syst ems
Semiconductors
Money Cent er Banks
Ut ilities
Telephone
Drugs
Oil - Int ernat ional
Financial Miscellaneous
Aut omobiles
Health Care -
DiversiIied
More recently in late 1998 we noted accumulation
in several technology areas as well as in the oil
stocks.
15
This was puzzling, until several weeks
later, when Exxon and Mobil announced a merger
and rekindled enthusiasm Ior the group.
Investors must (and are paid) to make decisions.
But iI they are aware oI the sentiment oI the mar-
ket, the areas oI interest, and embryonic buying,
those decisions are likely to have better results.
Money flows are useful, therefore, in provid-
ing intelligence on the direction of the overall
market, occasionally on significant group and
sector movements but probably most regularly
and consistently on individual stocks. BeIore
articulating how investors at every stage oI the pro-
cess might incorporate money Ilows, we should
stress that it has never been our objective to create
a stand-alone process but rather one which is used
in conjunction with other analytic methods.
We have long held that successIul investments are
the intersection oI two disciplines. The inclusion
oI other approaches is critical as it produces di-
mensionality and helps time the actual decision.
Money Ilows tend to be early and imprecise and
the use oI Iundamentals or technicals can help maxi-
mize returns.
In 1982, as one dramatic example, the Ierocity oI
the rally reIlected the Iact that the market had al-
ready taken a more positive stance. Stocks such as
Ford, IBM and Teledyne were already under accu-
mulation when several Iorecasters using more con-
ventional approaches introduced marginal buyers
into the market:
Figure 48. Ford Total Money Flow:
March 30 - 1une 9, 1982
1une 16 - August 25, 1982
15
Bullish -- With Reason. Birinyi Associates. October 13, 1998.
Figure 50. Teledyne Total Money Flow:
1une 23 - September 1, 1982
In our strategy eIIorts, we have included a matrix
that looks at stocks` Iundamentals and some tech-
nical indicators as a guide to the status oI a stock.
The Iirst example oI the combination appeared on
January 11, 1999, when Texas Instruments received
the highest score and subsequently rallied 17 over
the next three months, double that oI the S&P.
Some months later, we expanded the concept and
looked at the global banks. Our system showed
that one bank produced a higher total than any oI
the other 182 banks - Sakura Bank. Three weeks
later that stock was up 38.
Figure 51. First Stock Selection Matrix : 1anuary 11, 1999
Figure 52. Global Bank Stock Selection Matrix: September 24, 1999
Rising ~10 Above Lows 10 From Highs ~Index Increasing Technical Analysts Fundamental
Ticker Country Price Totals Score MF 50 DMA 200 DMA 200 DMA Lows Highs YTD Volume Score Recommendation Change Score
8314 JP 720 15 8 4,4 X X X X X X 6 3.50 0 1
ETEBK GA 98000 14 8 4,4 X X X X X 5 4.33 0 1
8317 JP 1231 14 8 4,4 X X X X X 5 4.10 0 1
DDBC DC 830 13 8 4,4 X X X X X X 6 3.44- 0 -1
DBK GR 62.03 13 8 4,4 X X X X 4 3.65 0 1
BNL IM 3.49 13 8 4,4 X X X X X X 6 3.80- 0 -1
PBK MK 3.2 13 8 4,4 X X X X 4 4.38 0 1
AA NA 21.8 13 8 4,4 X X X X 4 3.88 0 1
OUB SP 8.05 13 8 4,4 X X X X X 5 4.20 - 0
ETE GA 25450 12 8 4,4 X X X X X 5 4.15- 0 -1
CBK GR 35.31 12 8 4,4 X X X X X 5 3.43- 0 -1
HVM GR 59.04 12 8 4,4 X X X X X 5 3.39- 0 -1
ANL LN 1001 12 8 4,4 X X X 3 3.92 0 1
SGB AU 10.48 11 8 4,4 X X 2 3.98 0 1
Above MF
Stock Rising ~10 Above Lows 10 From Highs ~Index Increasing Technical Analysts Fundamental
Stocks Price 50 DMA 200 DMA 200 DMA Lows Highs YTD Volume Score MF Score Recommendation Change Score Totals
TXN 69.25 X X X X X 7 4,5 9 4.37 1 17
GTE 59.63 X X X X X X 7 5,4 9 4.22- 0 16
LU 83.38 X X X X X X 7 5,4 9 4.16- 0 0 16
BLS 79.88 X X X X X X X 8 4,4 8 3.56- 0 16
EMC 67.25 X X X X X X 7 4,4 8 4.93 1 16
IBM 156.38 X X X X X X 7 4,4 8 4.44 1 16
MO 54.13 X X X X X X 7 4,4 8 4.58 1 16
SCH 54.38 X X X X X X X 8 4,4 8 3.50- 0 0 16
SUNW 60.13 X X X X X X X 8 4,4 8 4.66 0 0 16
Above MF
Figure 56. Philip Morris Non-Block Money
Flow: October 1992 - May 1993
$, Mil
$
Figure 53. Citicorp Total Money Flow:
August 1 - October 23, 1990
April - October 1993
12
13
14
15
16
17
18
19
20
21
Aug Sep Oct
-10
0
10
20
30
40
50
60
70
80
90
100
Price
$ $, Mil
But how should or could an institution use money
Ilows in the investment process?
To find critical inflection points
One oI the great stocks oI the 1990`s was Citicorp.
As the stock was bottoming in 1990 there was ac-
cumulation in the stock, which persisted until the
company`s merger with Travelers in 1998.
IBM, as it was making 14 year lows in mid-1993,
showed very strong accumulation despite the ap-
parent lack oI interest. Over the next twelve months
the stock was to rally 54.
At the end oI 1997 we recommended Apple Com-
puter as an issue under accumulation. A Iriend said
only halIjokingly that we were 'crazy. Apple is
another illustration oI the Iact that money Ilows
isolate those situations where something is likely
to happen but not when or why.
Too many market approaches, we believe, try to
Iorecast the when or why. Good earnings will,
they say, propel the stock or changing demograph-
ics will bring investors to an issue. Money Ilows
require that investors believe in the ability oI the
10
11
12
13
14
Apr May Jun Jul Aug Sep Oct
-50
0
50
100
150
200
250
300
350
Price
Tot al Money Flow($, Mil)
Figure 55. Apple Computer Total Money Flow:
September 1, 1997 - 1anuary 6, 1998
$ $, Mil
14
16
18
20
22
24
26
28
30
Oct -92 Nov-92 Dec-92 Jan-93 Feb-93 Mar-93 Apr-93 May-93
-300
-250
-200
-150
-100
-50
0
Price
Non-Block money Flow ($, Mil)
$ $, Mil
10
12
14
16
18
20
22
24
26
Sep-97 Oct -97 Nov-97 Dec-97
-20
0
20
40
60
80
100
120
140
160
Price
market to truly discount and anticipate. At some
point an event will create or kindle the interest that
the stock market is already anticipating. Put more
crudely, money Ilows suggest that a stock will catch
Iire but do not predict what the match will be. Most
approaches Iocus on Iorecasting the nature oI the
match.
In the case oI Apple, our well-publicized recom-
mendation created a great deal oI interest and aware-
ness in the stock. In Iact, the stock was up $3 the
day oI our recommendation and has truly been one
oI the great turnarounds in American corporate his-
tory since then.
Money flows warn of changing fundamentals
In early 1993 we suggested to several oI our clients
that Philip Morris was being sold. This was not a
popular conclusion as many Iunds had huge posi-
tions and noted cash Ilow, market share and other
compelling Iactors. While it took several months,
the market anticipated 'Marlboro Friday.
Figure 58. Windsor Fund Performance vs the
S&P: 1anuary - 1une 1999
-6
-4
-2
0
2
4
6
8
10
12
14
Jan Feb Mar Apr May Jun
Figure 57. Boeing Total Money Flow:
1uly - December 1997
$ $, Mil
40
45
50
55
60
65
Jul Aug Sep Oct Nov Dec
-400
-350
-300
-250
-200
-150
-100
-50
0
50
Price
A negative circumstance was noted in Boeing in the
summer oI 1997, considerably beIore the company
announced a weaker than expected quarter. Flows
did not detail the amount, intensity, or the time
Irame oI the decline, but stocks which show buy-
ing or selling long beIore an event are anticipating a
signiIicant event or a series oI events.
Boeing, aIter its 1997 crack, had a number oI rallies
but in each oI them, selling persisted which labeled
those rallies as only trading opportunities or
bounces. The long-term downward trend was not
reversed despite the rallies.
Money flows help managers distinguish be-
tween secular and cyclical rallies
In April 1999, value stocks suddenly prospered
and rallied sharply. The abruptness or volatility oI
the move might best be reIlected in the Iollowing
graph oI the Windsor Fund long noted as a lead-
ing advocate oI the value approach.
In reality the real buying was taking place in the
growth names and we especially noted accumula-
tion in IBM. In Iact, oI the S&P`s total gain in the
quarter, 11 was Irom IBM alone.
16
Money flows help frame fundamental inputs
We have Iound money Ilows to be especially use-
Iul in assessing the prospects oI stocks that are
upgraded as well as downgraded. A positive rec-
ommendation on a stock that has negative or neu-
tral Ilows indicates that the analyst knows some-
thing that the market does not. Although that may
occasionally be the case it is certainly not so on a
regular basis. Positive recommendations with posi-
tive money Ilows provide more impetus to a stock
that is already likely to do very well indeed.
16
Is the Shift (Rotation) for Real? Birinyi Associates. 99-S-59.
4/19/99.
In the long run we are all dead. Economists set
themselves too easy, too useless a task iI in tem-
pestuous seasons they can only tell us that when
the storm is long past the ocean is Ilat again.
John Maynard Keynes
(1883 1946)
Figure 61. McDonnell Douglas Total Money
Flow: 1anuary - December 1991
One example oI this occurred in mid September
1998. Sheryl Zimmer, an analyst at Deutsche Banc
Securities, distributed a research report reiterating
a Buy recommendation on Perkin Elmer. Money
Ilows endorsed the conclusion and the stock gained
over 50 Ior the rest oI the year and another 40
over the next year.
Figure 56: Wells Fargo Total Money Flow:
April 10 - October 9, 1992
17
Bulletin Strategv October 5, 1992. Birinyi Associates.
In 1992, one oI our Iormer colleagues recommended
that investors buy Wells Fargo. This was a stock
that we had already highlighted.
17
Over the next
three years the stock was to rally 30 more than
the market (74 vs 44) and 16 more than other
major regional banks. While most investors would
credit him with a good call, our view is that he was
articulating what the market already knew.
Money flows help find stocks in which there
is no apparent interest, research or news
AIter the GulI War, deIense spending was reduced
and there was an economic slowdown. In this envi-
ronment deIense stocks were not in the IoreIront
oI investors` thinking. Nevertheless, McDonnell
Douglas had two great quarters. From the end oI
March 1991 to the end oI September, the stock
gained 72 vs 4 Ior the S&P.
(As is oIten the case, aIter such a rally, the Street
developed an interest and in early November 1991
there were three upgrades.)
Figure 60. Perkin EImer:
January - October 1998
50
55
60
65
70
75
80
85
90
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
-60
-40
-20
0
20
40
60
80
100
120
Price
$, Mil
$
Figure 59. Deutsche Banc Perkin Elmer
Recommendation
Figure 62. Electronic Data Systems Total
Money Flow: April 1998 - March 1999
$ $, Mil
Figure 63. Analyst Historical Rating
Changes For EDS
30
35
40
45
50
55
Apr-98 Jun-98 Aug-98 Oct-98 Dec-98 Mar-99
-100
0
100
200
300
400
500
600
700
800
Price
In 1998 we included the details oI Electronic Data
Systems in several marketing trips. In every stop,
at every institution, eyebrows were raised. No one
had any positive comments, no manager had any
good words to Iorward whatsoever. This was to be
the stock`s low and it closed around $50 at year-
end. After rallying well over 30, the stock was
upgraded Irom neutral to accumulate by at least
one Iirm.
18
Reminiscences. Birinyi Associates. January 1997.
We Iind over and over that there are Iew surprises,
that the market knows, and the market will oIten
share that inIormation with those who have an open
mind. And these situations are not short term trad-
ing opportunities. Instead they are investment win-
dows to large gains.
Money flows help investors stay in rewarding
situations
We became positive on IBM in January 1997 when
the stock was around $76 and trending lower.
18
Despite corrections, setbacks, and declines that may
not have been related to the market, our view re-
mained positive because in every instance buying
continued.
December 1996 - November 1998
60
80
100
120
140
160
180
Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98
0
2,000
4,000
6,000
8,000
10,000
Price
$
$, Mil
Figure 65. TXN Total Money Flow:
December 1994 - February 2000
We added Texas Instruments to our retail recom-
mendations in December 1994. Since then the is-
sue has appreciated over 1,000. Money Ilows
have kept us in the stock and have been positive
through market corrections, changes in sentiment,
earnings concerns and periods oI lassitude. We will
continue to hold it until such time as the market
tells us that it is time to move on.
$
$, Mil
0
20
40
60
80
100
120
140
160
180
'94 '95 '96 '97 '98 '99
-2,000
0
2,000
4,000
6,000
8,000
10,000
Price
Money flows can help with trading - some-
times
Throughout most oI 1983, PepsiCo showed con-
tinuous selling. One major state Iund Ielt the com-
pany had longer-term prospects and was willing to
take a multi-year outlook. They recognized that
over the next several quarters, gains were likely to
be limited.
As a result oI this work, they bought stock in a
Iortuitous manner. No stock was ever purchased
on an uptick, no stock was bought on days when
the market was strong and Pepsi participated. There
was no anxiety to Iill the position. Furthermore,
all blocks were bought - iI bought - at deep dis-
counts.
Figure 66. PepsiCo Money Flow: 1anuary 1983 - 1une 1985
Total
APR JUL OCT JAN APR JUL OCT JAN APR
84 85
1he Aew York 1imes
Saturday, May 24, 1997
The Arts
Disaster or Delight? Ask the Public
By Bernard Weinraub
Hollywood, May 23 In the summer oI 1959, Gregory Peck and Deborah Kerr were two
oI Hollywood`s biggest stars. Their movie, 'Beloved InIidel, about F. Scott Fitzgerald`s romance
with the columnist Sheilah Graham, was lavishly promoted by 20
th
Century Fox. And on the
morning the Iilm opened at the Roxy Theater in New York, two top executives showed up expecting
to see lines around the block, even though they harbored what they thought to be a disquieting
secret:
The movie was a dud.
As it turned out, this wasn`t much oI a secret. There was no line around the block. In Iact, there
was hardly anyone in the theater.
'How did they know? one oI the executives asked plaintively.
Studio executives have been asking the same question Ior decades. How do audiences know, even
beIore the Iirst reviews are out, that Ior all the star power and hype, a movie is simply unappealing
to them?
JAN
83
We have designed a variety oI applications Ior
Bloomberg that can help traders. One is an end oI
day Iunction, NH LBA, which screens money Ilows
Ior the day.
Figure 67. AH LBA from Bloomberg: AYSE Createst Money Flows - February 8, 2000
1) WLA 154. 54 599. 72 0.26 100 3/16 2 7/8 2.95
2) NT 85.23 677. 94 0.13 120 7/16 6 7/16 5.65
3) NOK 68.21 711. 52 0.10 204 11 3/8 5.91
4) IBM 63.98 512. 63 0.12 119 4 15/16 4.33
5) AHP 59.73 266. 11 0.22 50 2 4.17
6) INTC 59.11 2012. 77 0.03 108 13/16 7/8 0.81
7) AOL 56.86 832. 88 0.07 59 1/8 1 1/2 2.60
8) EMC 53.90 551. 30 0.10 118 1/2 3 7/8 3.38
9) TXN 52.83 451. 29 0.12 139 1/8 4 13/16 3.58
10) TWX 50.63 353. 29 0.14 85 3/16 15/16 1.11
PRICE, CHANGE, CHANGE
(PRIMARY EXCHANGE ONLY)
MONEY FLOW TOTAL DOLLAR INTENSITY
(BLK + NONBLK) VOLUME (NET/TOTAL)
Figure 68. 1PM Intra-day Non-Block Money
Flow: 1anuary 28, 2000
Figure 69. 1PM Intra-day Block Money
Flow: 1anuary 28, 2000
-$9.71 million
-$1.50 million
NH LBA and the Iunctions oI GIM (graph intra-day
money) and GIMB (graph intra-day block money)
can be useIul in the short term. In both instances
the net results oI activity are expressed in dollars.
We take that dollar amount and divide by the stock
price to see iI the decline is (given our trading expe-
rience) reasonable. In eIIect we are comparing the
price decline to the shares sold.
In the example below, JP Morgan lost 8 points on
net selling oI $11.21 million ($9.71 million in non-
block and $1.50 million in block). Dividing the net
selling by the closing price (or average price) the
net shares sold totaled 95,404 ($11.21 million/
$117.50). Very Iew traders would sell 95,000 shares
down $8. But the market did. Hence we would
expect a quick recovery.
The next day the stock was up over $5. Commen-
tators will note the turnaround in the stock or a
better interest rate outlook or whatever. We would
suggest that the stock recovered because it was un-
duly and too aggressively sold the day beIore.
7) CNTO -4.65 94.40 -0.05 52 -3 1/4 5.88
8) CHIR -4.41 54.92 -0.08 69 -3 1/2 4.83
9) SMLS -4.14 24.89 -0.17 91 1/2 2 1/2 2.81
10) CRAY -4.13 23.87 -0.17 18 1/4 1 1/2 8.96
11) BSMT -3.13 9.07 -0.35 22 1/2 1/4 1.12
12) SNPX -2.74 11.91 -0.23 22 1/4 unch unch
PRICE, CHANGE, CHANGE
(PRIMARY EXCHANGE ONLY)
MONEY FLOW TOTAL DOLLAR INTENSITY
(BLK + NONBLK) VOLUME (NET/TOTAL)
Figure 70. NH LBA for SMLS and CRAY: September 23, 1991
Figure 71a. Sci-Med Life Systems Total Money
Flow: May - September 23, 1991
Figure 72b. Sci-Med Life Systems Total Money
Flow: May - September 30, 1991
An old but vivid example oI this screen occurred
when we reviewed the results oI trading on Sep-
tember 23, 1991. Cray Research, which some
thought would be one oI the tech winners oI the
decade, was highlighted in the morning news (a West
Coast Iirm recommended Cray at their conIerence
with a price target oI $45). But investors sold the
issue that day despite the gain in price providing a
maniIestation oI the Iundamental advice, sell into
strength.
Another stock that investors sold that day was
SMLS. We looked at the trading in SMLS and
Iound signiIicant distribution (Figure 71a). The
very next day SMLS was downgraded and lost over
$29. Again we did not Iorecast or anticipate the
decline but the market was well aware oI the struc-
tural weakness in Sci-Med.
We also helped construct Bloombergs MF Iunc-
tion where one can search Ior investment ideas.
1) Buying on Weakness Block 17) Buying on Weakness Block
2) Buying on Weakness Non-Block 18) Buying on Weakness Non-Block
3) Selling on Strength Block 19) Selling on Strength Block
4) Selling on Strength Non-Block 20) Selling on Strength Non-Block
5) Better Buying Block 21) Better Buying Block
6) Better Selling Block 22) Better Selling Block
7) Better Buying Non-Block 23) Better Buying Non-Block
8) Better Selling Non-Block 24) Better Selling Non-Block
9) Better Buying Total 25) Better Buying Total
10) Better Selling Total 26) Better Selling Total
11) Better Buying Block 27) Better Buying Block
12) Better Selling Block 28) Better Selling Block
13) Better Buying Non-Block 29) Better Buying Non-Block
14) Better Selling Non-Block 30) Better Selling Non-Block
15) Better Buying Total 31) Better Buying Total
16) Better Selling Total 32) Better Selling Total
MONEY FLOW RECAP Ior US U.S.
WEEKLY MONTHLY
BIG CAP
CAP AD1USTED
BIG CAP
CAP AD1USTED
Figure 73. Bloomberg MF Function
The weaker the data available upon which to base
one`s conclusion, the greater the precision which
should be quoted in order to give the authenticity.
Norman R. Augusitne
Chairman, Martin
Marietta Corporation
Part Six: AnaIyzing Money FIows
Both tape reading and money Ilow analysis reveal
that most stocks show coincident movement be-
tween price and money. Most stocks go up be-
cause they are being bought or go down because
there is net selling. To us, these are usually oI little
interest as both the surIace measure (price) and the
in-depth examination (money Ilows) show no un-
usual interest Irom either the bulls or the bears.
Our interest is in those stocks where some diver-
gence between stock and price exist. To Iind these
issues and to provide some guidance, we have cre-
ated a coding system Irom 5 (best) to 1 (worst).
Issues coded '5 show consistent, persistent accu-
mulation through all sorts oI price vagaries. Most
stocks thus coded will have a virtual straight line
reIlecting money that begins in the lower leIt cor-
ner and goes to the upper right. AOL, a stock we
have long Iavored, showed such a pattern through-
out most oI 1997:
Figure 74. America Online Total Money Flow:
1une 1997 - 1anuary 1998
At the same time, US West, had a similar graphic:
Figure 75. US West Total Money Flow:
More recently a variety oI issues including
Teradyne and BJ Services were "5`s".
Figure 76. Examples of a "5"
Teradyne: 1une - November 1999
B1 Services: 1une - November 1999
These stocks will produce outstanding absolute and
relative returns and will do so longer than one could
imagine at the outset.
$ $, Mil
$ $, Mil
25
30
35
40
45
50
55
60
Jun Jul Aug Sep Oct Nov
0
50
100
150
200
250
300
350
400
450
500
Price
20
25
30
35
40
45
Jun Jul Aug Sep Oct Nov
-50
0
50
100
150
200
250
Price
30
32
34
36
38
40
42
44
46
48
0
100
200
300
400
500
600
Price
53
58
63
68
73
78
83
88
93
98
103
Jun-97 Jul-97 Aug-97 Oct-97 Oct-97 Dec-97 Jan-98
0
100
200
300
400
500
600
700
Price
Total Money Flow ($, Mil)
Stocks where the buying is not as continuous and
IorceIul, but where it is obviously dominant, are
rated 4 and the issues below are examples oI good,
albeit not great, buying.
Security analysts who recommend issues as strong
or aggressive buys or overweight, but in which the
money Ilows are only neutral (or worse), are in
eIIect saying that they have insights which are not
yet known to the market. This may occasionally
be true, but one cannot make a livelihood oI betting
against the market.
A "2" rating is one where there is price apprecia-
tion without buying. In eIIect, the stock is having
a rally or a dead cat bounce, but one that is unlikely
to persist. Generally these are issues we would
avoid, but they are not necessarily sell or short
ideas. Stocks that go up without buying will not
stay up. Some examples oI this pattern include:
60
65
70
75
80
85
90
Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99
-100
0
100
200
300
400
500
600
700
800
Price
Chase Manhattan: 1uly - December 1999
BellSouth: 1uly - December 1999
40
42
44
46
48
50
52
Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99
-50
0
50
100
150
200
250
300
350
400
450
500
Price
Stocks such as Bristol-Myers in the Iirst six months
oI 1999 are, in our view, "3's" or in the parlance oI
Iundamental analysts - holds. These stocks will
either trade in a range or perIorm more or less in
line with the market.
Figure 78. Bristol-Myers Total Money Flow:
1anuary - 1une 1999
CenturyTel: April - September 1999
Textron: September 1998 - February 1999
$ $, Mil
$ $, Mil
$ $, Mil
$ $, Mil
$ $, Mil
35
37
39
41
43
45
47
49
Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99
-100
-80
-60
-40
-20
0
20
Price
50
55
60
65
70
75
-200
-150
-100
-50
0
50
100
Price

55
60
65
70
75
80
85
Sep-98 Oct-98
Figure 80. Example of a "1"
National City: 1anuary - 1une 1999
The lowest rating in our scheme is "1", that is con-
tinuous selling and especially selling as prices rise.
This is the market`s maniIestation oI the Iunda-
mental advisory 'sell into strength. Here, inves-
tors take advantage oI price gains to liquidate posi-
tions and it is the market advising investors that
some near-terminal developments are likely. For
example:
Two oI the most diIIicult, iI not the most diIIicult
patterns, are the "2" and "4", where there is a per-
sistent rally despite the lack oI buying.
On page 44, we present examples oI stocks with
strong Ilows whose total non-block and block scores
are eight or higher. These and the other examples are
issues which we actually recommended or which we
commented on at the time.
Page 45 presents stocks that are in the range oI seven
to Iive indicating a neutral stance. We might also
term these holds or market weights.
Page 46 details issues with distribution and, iI one
insists, sells. They are not necessarily shorts but
they are stocks that we suggested at the time
that investors not own.
$ $, Mil
28
29
30
31
32
33
34
35
36
37
38
39
-350
-300
-250
-200
-150
-100
-50
0
50
Price
Figure 81. Examples of Positive Money Flows
LSI Logic Total Money Flow:
1anuary 1999 - March 2000
19
24
25
26
27
28
29
30
31
-50
0
50
100
150
200
250
Price
Procter & Gamble Total Money Flow:
1anuary - 1une 1994
20
15
16
17
18
19
20
21
22
23
Apr May Jun Jul Aug Sep
-50
0
50
100
150
200
Price
Alcoa Total Money Flow:
April - September 1994
21
Disney Total Money Flow:
22
Motorola Total Money Flow:
August 1999 - 1anuary 2000
23
70
80
90
100
110
120
130
140
150
160
170
Aug-99 Sep-99 Oct -99 Nov-99 Dec-99 Jan-00
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Price
Hewlett-Packard Total Money Flow:
September 1998 - February 1999
24
$ $, Mil $ $, Mil
$ $, Mil $ $, Mil
$ $, Mil $ $, Mil
19
Wall $treet Week With Louis Rukevser. 12/31/98.
20
A Few Ideas. Bulletin Strategy 94-S-35. Birinyi Associates.
July 5, 1994.
21
Buv Ideas' Bulletin Strategy 94-S-53. Birinyi Associates.
October 6, 1994.
22
Wall $treet Week With Louis Rukevser. 12/31/99.
23
As Januarv Goes..... Birinyi Associates. February 18, 2000.
24
Life After Dell..... Birinyi Associates. March 5, 1999.
0
10
20
30
40
50
60
70
80
90
100
Jan-99 Feb-99 Apr-99 Jun-99 Aug-99 Oct -99 Dec-99 Jan-00
0
500
1,000
1,500
2,000
2,500
Price
Tot al Money Flow($, mil)
40
45
50
55
60
65
70
75
80
85
Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99
-100
0
100
200
300
400
500
600
700
800
900
Price
22
23
24
25
26
27
28
29
30
31
-200
0
200
400
600
800
1,000
Price
Figure 82. Examples of Neutral Money Flows
Lockheed Martin Total Money Flow:
April - August 1999
25
BellSouth Total Money Flow:
1anuary - 1une 1999
26
35
37
39
41
43
45
47
49
51
-50
0
50
100
150
200
250
300
Price
Eli Lilly Total Money Flow:
27
Bank of New York Total Money Flow:
May - October 1997
28
55
60
65
70
75
80
85
90
95
-250
-200
-150
-100
-50
0
50
100
150
Price
Alcoa Total Money Flow:
April - August 1998
29
Honeywell Total Money Flow:
1anuary - March 1999
30
$ $, Mil $ $, Mil
$ $, Mil $ $, Mil
$ $, Mil $ $, Mil
19
20
21
22
23
24
25
26
27
May Jun Jul Aug Sep Oct
-80
-60
-40
-20
0
20
40
60
Price
25
27
29
31
33
35
37
39
41
Apr May Jun Jul Aug
-50
0
50
100
150
200
250
Price
30
35
40
45
50
55
Jan Feb Mar
-60
-50
-40
-30
-20
-10
0
10
20
30
Price
25
The Cvrano Principle. Birinyi Associates. September 13, 1999.
26
Fiftv-Two Stocks to Buv (Todav). Birinyi Associates. June 9,
1999.
27
28
Not So Fast Russell Fans. Birinyi Associates. September 1997.
29
September Outlook. Birinyi Associates. September 1, 1998.
30
Life After Dell. Birinyi Associates. March 5, 1999.
30
32
34
36
38
40
42
44
46
Apr May Jun Jul Aug
0
10
20
30
40
50
60
70
80
90
100
Price
Figure 83. Examples of Negative Money Flows
Gap Stores Total Money Flow:
November 1991 - October 1992
31
AT&T Total Money Flow:
December 1992 - May 1993
32
20
21
22
23
24
25
26
27
28
29
30
Dec-92 Jan-93 Feb-93 Mar-93 Apr-93 May-93
-300
-250
-200
-150
-100
-50
0
50
Price
30
35
40
45
50
55
-700
-600
-500
-400
-300
-200
-100
0
100
Price
Amgen Total Money Flow:
May - October 1997
34
Chase Manhattan Total Money Flow:
1anuary - 1une 1990
33
30
35
40
45
50
55
Jan Feb Mar Apr May Jun Jul
-1,200
-1,000
-800
-600
-400
-200
0
200
Price
Total Money Flow ($, Mil)
Tyco International Total Money Flow:
36
Pfizer Total Money Flow:
1anuary - 1uly 1999
35
10
11
12
13
14
15
16
-40
-35
-30
-25
-20
-15
-10
-5
0
5
Price
$ $, Mil $ $, Mil
$ $, Mil $ $, Mil
$ $, Mil $ $, Mil
10
11
12
13
14
15
16
17
18
May Jun Jul Aug Sep Oct
-2,000
-1,500
-1,000
-500
0
500
Price
31
For Traders Onlv. Birinyi Associates. December 1, 1992.
32
For Traders Onlv. Birinyi Associates. June 17, 1993.
33
Birinyi Associates. October 11, 1990.
34
Not So Fast Russell Fans. Birinyi Associates. September 1997.
35
1999. Mid-Year Outlook. Birinyi Associates. July 15, 1999.
36
4
5
6
7
8
9
Dec-91 Feb-92 Apr-92 Jun-92 Aug-92 Oct-92
-140
-120
-100
-80
-60
-40
-20
0
20
Price
It is not unreasonable Ior investors to ask about the
results oI our approach. We should again reiterate
that money Ilows should be a supporting element -
one that highlights, screens, reinIorces, and illumi-
nates other investment approaches. We are not
necessarily in conIlict with other approaches,
whether they be quantitative, Iundamental, or tech-
nical. As value managers have painIully learned
over the course oI the 1990 bull market, their pro-
cess has not been in sync with the market Ior most
oI the decade. We would hope to reIlect what the
sentiment oI the market truly is.
And while we have some sympathy Ior value dis-
ciples, we would dispute their contentions that the
market is myopic, irrational, or misinIormed. Value
investors may be uncomIortable with a 1.5 yield
on the DJIA or a 30 times multiple Ior the S&P, but
the market is the market.
Our hope would be that investors not abandon those
approaches with which they are comIortable, but
rather that they incorporate the market into those
approaches. The manager value, growth, or mo-
mentum who is buying a stock that is under dis-
tribution should realize:
His analysis might be Iaulty as everyone else
is selling and (or)
It is unlikely that this position will be proI-
itable on either an absolute or relative measure
over the next three to six months.
We are oI the opinion, as we noted earlier, that the
most proIitable transactions are those where there
is an intersection oI two disciplines. Money Ilows
provide one oI the disciplines upon which one can
impose another discipline. One example oI this
was an analysis we perIormed aIter the Crash. In
this study, we analyzed stocks where traditional
security analysis was positive, where quantitative
approaches were likewise positive and where there
was positive money Ilow. We Iurther subdivided
the results into both a conservative and an aggres-
sive portIolio.
Part Seven: The Record
Both groups soundly outperIormed over the bal-
ance oI 1987:
Figure 84. Salomon Brothers Analysis
Groups Equally Weighted
Percent Change 8.65
S&P 500 -1.87
Groups Equally Weighted
Percent Change 0.23
S&P 500 -1.87
Aggressive Investor
Conservative Investor
Figure 85. October 19, 1987 Recommendation
Performance to the End of 1987
But what about the process on a stand-alone basis,
is there a record and does the idea or approach
really work? We have been asked this on occasions
too numerous to recount. Every time we have done
tests or reviews, skeptics have argued that 5 years
is not long enough; that we should have examined
10 years oI data; that the S&P 500 was an inad-
equate sample and the 5000 index should have been
used; and so on and so Iorth.
One oI the Iirst instances oI the predictive value oI
reading the ticker tape was in 1985. At the begin-
ning oI that year, we produced a list oI positive
stocks as well as another list oI stocks that we
would have avoided.
Figure 86. Performance of December 1984
Equity Summary Portfolio
Return
NYN 31.64
AC 19.70
AIT 42.23
ANR 70.39
BEL 34.81
BT 27.82
C 48.60
CHV 25.51
EK 5.83
XON 22.50
GAF 134.82
PAC 22.20
RJR 9.70
SMF 33.59
SBC 24.36
SQB 53.84
SHP -4.84
SCI 98.93
TGT 6.35
USW 27.14
Z 56.86
Portfolio 32.72
Return
Buys
Sells
Return
Return
AVP 35.58
BAX 20.00
BES 30.10
CHE 22.79
COA -18.93
GLW 77.38
FDX 75.09
FOE 24.75
GEN -19.23
GRL 0.71
HIA 27.95
HWP 2.43
IFC -2.35
MOT 11.87
MA 51.97
NCR 51.17
NLC 5.41
OCR -16.90
PRD 66.34
PDN -5.45
TRN 26.92
SMP -11.71
SAA 4.16
TER -12.73
TXO -10.86
UCC 13.16
UH -11.53
UNP 27.51
VAR -23.92
WPM 14.90
Portfolio 15.22
S&P 500 25.83
By the end oI 1985, the positive situations strongly
outperIormed the market, while the negative names
were well under the S&P 500. Overall, the positive
issues outperIormed the negative by 2,250 bps.
37
More recently and thereIore more available, any
number oI other examples oI money Ilows might
be presented as evidence oI their value in the in-
vestment process:
As a panelist on Wall Street Week With Louis
Rukevser, Laszlo Birinyi compiles a portIolio oI
up to twelve issues every year. The 'portIolio
cannot be altered, mitigated, or reIined through the
course oI the calendar year. Over the eight years
ending the decade, the record oI those picks is, we
believe, impressive:
Figure 87. Laszlo Birinyi's W$W Eight Year
Record: 1992 - 1999
Laszl o Panel
Bi ri nyi Average D1IA S&P 500
1999 54.9 18.5 25.2 19.5
1998 23.2 18.5 16.1 26.7
1997 74.8 24.4 22.7 30.3
1996 54.8 16.9 26.9 22.7
1995 42.0 37.2 34.5 37.1
1994 17.7 2. 2 3. 6 1. 3
1993 32.3 16.8 15.1 10.0
1992 49.2 12.7 5. 7 7. 6
Average
Ret urn 43.6 18.4 18.7 19.4
Cumul at i ve
Ret urn 1, 604. 2 272.2 283.6 297.8
37
Equitv Summarv. Salomon Brothers. December 1984.
38
Bloomberg.com.
Figure 88. Ten Recommended Issues
American Online $11.53 $40.00 236.31
Apple 38.75 40.94 5.65
Bank oI America 53.94 60.13 11.47
Bristol Myers 48.56 66.91 37.77
Charles Schwab 13.94 28.09 101.57
General Electric 76.19 102.06 33.96
Merrill Lynch 44.94 66.75 48.54
Philip Morris 47.88 53.50 11.46
Time Warner 40.50 62.06 53.24
Wal-Mart 29.94 40.72 35.87
Average 57.58
S&P 23.57
Nasdaq 45.26
10/13/98 12/31/98 Return
Figure 89. Internet Stock Performance from
Only A Correction
America Online $56.75 $75.88 33.70
CNET 58.13 56.75 -2.37
CMGI 100.44 276.88 175.67
Network Solutions 94.00 217.56 131.45
eBay 141.19 125.19 -11.33
Yahoo 173.31 432.69 149.66
Average 79.46
S&P 500 12.90
Nasdaq 45.35
10/5/99 12/31/99 Return
On October 13, 1998, as the market was strug-
gling with Russia, LTC, and the diIIiculties oI the
President, that month`s strategy commentary, Bull-
ish With Reason, commented:
If we were limited to ten names thev would be SCH,
TWX, AAPL, GE, BMY, AOL, BAC, MER, MO and
WMT.
Money Avearge
Flow Monthly
Rank Return ST Dev
Figure 90. Money Flow Coding Performance
2 1.389 6.628
.
.
.
10 3.144 9.598
Figure 91. Bloomberg Money Flow Analysis:
May 6, 1999 - 1anuary 10, 2000
Bloomberg 11.41
S&P 500 3.76
Bloomberg 0.24
S&P 500 3.76
Buying on Weakness
Selling on Strength
A year later (10/6/99) our strategy piece, Onlv A
Correction, displayed graphs oI Iorty-two posi-
tive issues. OI that group, six were Internet stocks.
In the aggregate, those names outperIormed and
several oI the stocks had very strong gains.
We could detail numerous other instances but ex-
perience has taught us that regardless oI the results
and the examples, the skeptical will continue skep-
tical, while the converted need no Iurther evidence.
Money Flows - The World Outside Birinyi
In the last year, we have had a number oI institu-
tions analyze our approach. One major investor
told us that nothing they had ever analyzed showed
greater predictive results, while another produced
the Iollowing table, although they declined to detail
their methods.
And Bloomberg television has incorporated money
Ilow into their news, including Iinding issues with
both positive and negative divergence. They pro-
duced the Iollowing results:
38
Figure 92. Up-tick Block Trade
.96
.98
1.00
1.02
1.04
1.06
-20 -15 -10 -5 0 5 10 15 20
Over One Million Dollars
A 0, B 1
Plus Ticks
A
V
E
R
A
G
E

I
M
P
A
C
T

I
N
D
E
X
DAYS
PRICE IMPACT OF BLOCK TRADES
Figure 93. Down-tick Block Trade
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
-20 -16 -12 -8 -4 0 4 8 12 16 20
A
V
E
R
A
G
E

I
M
P
A
C
T

I
N
D
E
X
DAYS
Over One Million Dollars
A 0, B 1
Minus Ticks
PRICE IMPACT OF BLOCK TRADES
Lastly we turn again to the SEC`s study. While the
Committee was more concerned about short-term
impact, they tracked the blocks Ior 20 days and
concluded that block trades on up-ticks continue
to outperform over the next 20 days, while those
on down-ticks underperIorm over the same period.
Part Eight: InternationaI Money FIows
In 1996, we expanded the money Ilow approach to
Ioreign markets beginning with London. To most
oI the world, the concept oI ticker tape analysis is
alien. In Iact, ticker tapes as we know them Irom
TV and trading rooms are virtually non-existent.
Not surprisingly, the initial reaction to the idea was
one oI suspicion, skepticism, and hesitation. Brit-
ish investors, like many Americans, viewed the
approach as one that would create more turnover
and thereIore more commissions Ior the sell side,
but prove to have little, iI any, beneIit Ior the buyer.
In our initial meetings we detailed the process and
showed the various elements including the
Bloomberg MF Iunction (see page 39).
Shortly aIter our return, one oI our London con-
tacts called to advise us that the list oI stocks under
accumulation included Mercury Asset Manage-
ment, which was being purchased by Merrill Lynch
at a price that was 29 higher than when it ap-
peared on our screen.
Subsequently, as we have progressed we have been
surprised to Iind that money Ilows might actually
work better and be more useIul in many interna-
tional markets than they are in the US. The reason
Ior this might be because in many markets, the idea
oI trade analysis or volume analysis has never been
used. We have, however, Iound that money Ilows
are increasingly useIul in nonUS markets.
Figure 94. MF Screen as of November 18, 1997
Better Buying: Positive TotaI MF
Symbol Company Price Wk Change Total MF
1) GREW GREENALLS GROUP 376 1. 5 28259. 05
2) MAM MERCURY ASST MGT 1295 -90 27359. 73
3) BATS BAT INDS 537 -52 15176. 98
4) ANL ABBEY NATL 966 -11.5 11015. 04
5) NU/ NORWICH UNION 364 15 10862. 42
6) BTR BIR PLC 205 -25 10031. 87
7) BT/A BRIT TELECOM PLC 459 -13 8820. 73
8) SBRY SAINSBURY 494 18 7860. 75
9) ALLD ALLIED DOMECQ 520 10.5 5531. 53
10) NRK NOTHERN ROCK 478.5 -10 5396. 39
11) MVS MENVIER-SWAIN GR 305 90 5187. 52
12) BS/ BRIT STEEL 145 -30 4872. 95
Page 1 of 3
In the summer oI 1997, there was a strong rally in
Hong Kong as the colony was preparing to become
part oI Mainland China. Strategists were unani-
mous in concluding that this would be a major posi-
tive Ior HK as a window to billions oI consumers
was about to be opened, etc. We were disappointed
to see that while there was some net buying, that
buying was not especially strong and there was no
buying beIore the rally. A market, which by most
measures should have been a 5 on our rating sys-
tem, was a 3 or maybe a 4.
Figure 95. Hang Seng Total Money Flow:
February - September 1997
8,500
9,500
10,500
11,500
12,500
13,500
14,500
15,500
16,500
17,500
Feb Mar Apr May Jun Jul Aug Sep
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
Price
Total Money Flow(HK$, Mil)
In August, not surprisingly given the gains in price,
the market consolidated. But in September, as the
market recovered, there was net selling Why were
investors selling a strong market as it moved higher?
In October, as we now know, the Asian crisis de-
veloped and investors now knew what the market
had clearly reIlected by its actions oI the prior
month.
0
50
100
150
200
250
300
350
Mar Apr May Jun Jul Aug Sep Oct Nov Dec
-20
0
20
40
60
80
100
120
140
160
180
Money Flow(M)
Price
Figure 99. Sony ADR Total Money Flow:
March - December 1999
Figure 98. Deutsche Telekom Total Money
Flow: 1une - December 1999
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
0
50,000
100,000
150,000
200,000
250,000
300,000
Price
Total Money Flow(Mil)
Figure 100. British Telecom Total Money Flow:
70
90
110
130
150
170
190
210
230
Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00
-100
0
100
200
300
400
500
600
700
800
Total Money Flow(M)
Price
Figure 97. Nokia ADR Total Money Flow:
August 1999 - February 2000
Figure 96. EAFE Positive Impact: 1999
Nokia Oyj Finland $155, 081 5.33 5
NTT Corp Japan 136, 079 4.67 10
Deutsche Telekom Germany 130, 751 4.49 14
Sony Corp Japan 89, 184 3.06 18
Ericsson Lm-B Sweden 77, 370 2.66 20
Mannesmann Ag Germany 70, 857 2.43 23
Toyota Motor Japan 69, 077 2.37 25
British Telecom UK 63, 851 2.19 27
France Telecom France 63, 524 2.18 29
China Telecom Hong Kong 62, 097 2.13 32
Market Value Cumul at i ve
Count ry Change ($, Mil) Impact Impact
39
Global Equitv Markets. Birinyi Associates.
Our end oI 1999 analysis might illustrate the ex-
traordinary value oI money Ilows. For the year,
the global index added $2.9 trillion in value, 32 oI
which was a Iunction oI ten stocks (Figure 96). Six
oI those issues appeared on our list oI stocks under
accumulation.
39
30
35
40
45
50
55
60
65
70
75
0
50
100
150
200
250
300
350
400
450
500
Price
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
Aug Sep Oct Nov Dec
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
Price
Tot al Money Flow(HK$, Mil)
Figure 103. Old Mutual Total Money Flow:
Figure 104. Hang Seng Total Money Flow:
August - December 1999
And even in less Iamiliar markets such as South
AIrica, money Ilows have anticipated many sig-
niIicant price changes in major issues.
10
15
20
25
30
35
40
45
50
55
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Price
Figure 102. China Telecom Total Money Flow:
60
70
80
90
100
110
120
130
140
Aug Sep Oct Nov Dec
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Price
Total Money Flow(M)
Figure 101. France Telecom Total Money Flow:
August - December 1999
1,100
1,200
1,300
1,400
1,500
1,600
1,700
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Price
Tot al Money Flow(Mil)
We would, however, note that the record is not
without blemish. In the Iall oI 1999 the Hong Kong
market anticipated a downturn, probably as a re-
sult oI the then upcoming sale oI the Government`s
equity portIolio. While there were some unexpected
corporate developments such as the purchase oI
Orange Company, (in which Hutchison Whampoa
had a large stake), and there was a rally in the US,
this was an instance where the market`s prescience
was not in evidence.
Figure 105. Nokia Helsinki Total Money Flow:
0
20
40
60
80
100
120
140
160
180
200
-300
-200
-100
0
100
200
300
400
500
600
Price
Another issue with regard to international trading is
dual listing. While we would preIer that both mar-
kets provide the same conclusion, in the case oI
ADR`s we oIten Iind that the majority oI the activ-
ity is in the US, not the local market. Looking at
Nokia`s trading in Helsinki, local investors were not
as optimistic as international ones. We suspect this
might be because local investors had long since held
the stock and had even greater proIits than Ioreign
investors enjoyed.
Part Nine: Money FIows - Q&A
Despite our proselytising Ior many years, the con-
cept and application oI money Ilows continues to
elude many investors. While both our paper port-
Iolio and our managed accounts provide adequate
evidence oI the value oI this approach, there ap-
pears to be a large body oI skeptics. Indeed, the
panelists on W$W who are most Iamiliar with our
results continue to suggest that we have been
'lucky.
Many investors have questions regarding the en-
tire approach. The most Irequent oI these include:
Q: Bloomberg money Ilows provide three choices,
total, block and non-block. Which should we use?
A: As a shortcut and Ior illustration, we usually
show total iI it accurately reIlects both block and
non-block. But our preIerred approach is to look
at both non-block and block and to highlight those
situations where both retail (non-block) and insti-
tutional (block) show the same divergence. While
there is not an abundance oI these, we are hoping to
Iind the lay-ups and the six-inch putts.
In 1998, Iourteen stocks were responsible Ior 50
oI the gain in the S&P and in 1999 only seven stocks
accounted Ior halI oI the gain. Many oI these names
had a divergence Irom both non-block and block in
their money Ilows. So which ones, not how many,
are critical.
Q: What happens iI non-block is positive and block
is negative?
A: First, we want to compare the value oI trading.
II the ratio oI public to institutional is about 1 to 5
or 1 to 6 or 7, we think there is a basis Ior evalua-
tion. II however, there is virtually no retail buying
and the ratio oI institutional is twenty Iive times
that oI the public, we greatly skew our results in
Iavor oI blocks.
II there is activity in both areas, consider the busi-
ness. II a company is in the business oI serving
individuals (Ioods, airlines, gas, and so Iorth), one
might lean toward non-block. Businesses where
the customers are other businesses or institutions
(machinery, oil well drilling) might have a block
bias.
But we are most comfortable when both block
and non-block are in accord.
Q: Since this is an approach that uses numbers and
charts, isn`t it really a new technical tool?
A: We think not, as we are not trying to project
price, produce targets, or necessarily pick stocks.
We are, however, trying to isolate or segregate those
issues where the market is indicating some Iuture,
signiIicant event will take place.
On page 4, we showed a simple chart oI a stock
(page 29 shows the same chart, GTE, with money
Ilows). One manager with a technical bias sug-
gested the pattern was a "diamond reversal Iorma-
tion" which, according to the technician`s textbook,
is negative.
24
25
26
27
28
29
30
31
32
33
34
S O N D J F M A
Figure 106. Shell Union Oil: Diamond Reversal
Formation after Technical Analvsis
of Stock Trends, Magee and Edwards
p.184.
Money Ilows provide a dimension that is not avail-
able with most graphs, and while the conclusion oI
chartists was negative, GTE illustrates a positive
divergence between the two variables (price and
money). Hence, the 50 total return in 1995 was
not, to us, a surprise.
Figure 107. GTE Total Money Flow:
1une - December 1994
$ $, Mil
29
30
31
32
33
34
-50
0
50
100
150
200
250
Price
Q: But, staying with technical analysis, what is
the diIIerence between this and Joe Granville`s On-
Balance-Volume or other approaches that have
tracked price and volume?
A: Some years ago, Mr. Granville`s publicist wrote
us and accused us oI usurping the idea. II we have
borrowed at all, it is Irom Jesse Livermore`s idea oI
tape reading. Money Ilow diIIers Irom other ap-
proaches, because it analyzes every single trade.
Approaches that look at price change and volume
at the end oI the day make the tacit assumption
that a stock that trades 500,000 shares, and is up
$1, has had a large inIlux oI investment. But it
could have been that a 400,000 share trade down
, Iollowed by a series oI small trades aIterwards
caused the price rise.
Q: In every trade there is a buyer and a seller. How
do you know that a stock is being bought? Or put
it another way, there are two parties to every trans-
action. Why assume that one is right and the other
is not?
A: We are hard pressed to think oI any business
transactions that entail two buyers and only one
seller. NYC today has an extremely tight and alleg-
edly inIlated housing market. But every apartment
is leased to one party by one landlord.
We have all heard horror stories oI individuals ris-
ing at 4 a.m. and virtually emptying the local ATM.
Why does someone get up that early to rent an
apartment? Because the individual knows that iI
they show up at 8 a.m., even with a certiIied check,
that the apartment has long since been rented. In
the market, the trader who pays up Ior a block oI
stock is not doing so because he is necessarily de-
sirous oI completing a trade or to take some stock
out oI a broker's inventory. He is doing so because
he has a large order and has an opportunity to Iill
Figure 107. Sample Series of Trades
9:32 10,000 $51.000 $0.000
9:33 20,000 51.000 0.000
9:34 100 49.875 -1.125
9:35 1,500 51.000 1.125
9:36 18,000 51.125 0.125
9:37 200 51.250 0.125
9:38 1,500 51.125 -0.125
9:39 1,100 51.125 0.000
9:40 400,000 50.625 -0.500
9:41 100 50.625 0.000
9:42 2,000 50.750 0.125
9:43 1,000 50.750 0.000
9:44 15,000 50.875 0.125
9:45 200 51.000 0.125
9:46 1,500 51.125 0.125
Change from
Time Quantity Price Last Sale
some part oI the order. II he did not, someone else
would, and his PM would likely question why a
block traded without his participation.
Anyone who has ever transacted in the capital
markets has had the experience oI oIIering or bid-
ding at some ridiculous price, only to see the client
buy the stock without any negotiation or demur-
ring. And every trader knows that when someone
hits a down $2 bid Ior 100,000 shares without hesi-
tation, that that bid will cost his trading book, re-
gardless oI what the commissions might be.
Q: Yes, but how do we know that an up-tick was a
buy? Could not the seller have gotten lucky?
A: Indeed this could have happened, and with
100,000 trades a day, some sells are done on the
oIIering side oI the market and vice versa. But any
trader will readily concede that it is a minority oI
instances. Furthermore, the SEC in its 1971 study
had the ability to reconstruct trades and Iound that
trades on up-ticks began as buy orders at the origi-
nating institution.
Q: Have you ever considered zero plus ticks or
adjusted Ior the Iact that down 1/8 on a day, when
the market is down 2, might actually be positive?
A: Historically, tape reading was simple and
straightIorward and we Iind that the issues where
we have our best results are simple and uncon-
scious. II we were to tinker and make all sorts oI
adaptations, we would probably end in a morass,
as we should consider a myriad oI Iactors that might
include:
The behavior oI the group or the sector.
Making allowances Ior the time oI day (theoreti-
cally there might be more blocks at the end oI the
day as traders try to Iill orders).
Adjusting Ior the bond market (on a bad day in
bonds, banks or brokerages might be treated more
kindly).
Making more allowances Ior large blocks (one
million shares and more) and so on and so Iorth.
We are not suggesting that iI it ain`t broke don`t Iix
it, but are saying that iI the weather indicator says
a thunderstorm is imminent, and that indicator is
correct, the nuances are not that critical.
Figure 109. Microsoft Total Money Flow:
6
7
8
9
10
11
12
13
14
15
-5,000
-4,500
-4,000
-3,500
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
Price
Q: Explain why this doesn`t work as well in the
OTC market.
A: Money Ilows require that we have every trade
in sequence and that all trades are reported accu-
rately. So iI 100 shares trades at , then 10,000
shares trade at 3/8 Iollowed by another 100 shares
at 3/8, the 10,000 share print is an uptick and rep-
resents an inIlow. II, however, the trades are out oI
sequence and the block Iollows the 100 shares at
3/8, the block is now a zero tick and the inIlow is
100 shares at 3/8.
In the OTC market, since trades are reported by
the participants (on the NYSE trades are reported
by Exchange employees), the reporting may be more
casual. Furthermore, because OTC trades come
Irom many diIIerent locations that a 100 share trade
Irom Chicago might indeed be reported just beIore
the 10,000 share print in Boston, even though the
Boston trade was to the Boston participants
clearly an uptick.
Q: But why then does it work in some OTC stocks?
A: Curiously, we Iind that in many OTC stocks
money Ilows are useIul. As we noted earlier, there
was clearly accumulation in the Internet names in
early October 1999. We surmise and only that
this results Irom several Iactors. One is the high
prices and volatility in these names. Traders may
try to 'game the market or test the limits oI re-
porting in a Cisco or Dell because the issues are
liquid and relatively stable. But a 500 share trade
in Yahoo represents over $168,000 and can move
3 points in the proverbial heartbeat. Hence, re-
porting in the Yahoos and eBays is probably more
accurate and thereIore money Ilows more useIul.
Q: What then does one do with Dell and Cisco?
A: Two suggestions. First, look at similar listed
stocks recognizing that there are diIIerences in the
companies. But iI there were strong buying in
Compaq, Gateway and IBM, it would suggest that
Dell is also on investors` buy lists. Likewise PC
Sprint Ior WorldCom and so Iorth.
Secondly, the Bloomberg money Ilow process was
designed so that the data is kept since inception.
Hence, one might set the parameters Ior MicrosoIt
Ior 1/1/95 to 12/30/95 and Iind that the Ilows clearly
showed net selling, despite a strong rally oI 45.
We would agree that Ilows don`t work on this stock
and rather than engage in mental meanderings, move
on to those where we can make money and im-
prove investment results.
Q: How does program trading and day trading aI-
Iect the process?
A: Interestingly, it probably enhances the approach,
as programs, almost by deIinition, will be a series
oI relatively small trades, which because oI their
abruptness, have an inordinate eIIect on price.
Hence, most approaches will show a large price
change, but not one supported by money. There-
Iore, these situations mostly reverse themselves.
On December 23, 1999 Ior example, Bristol Myers
had a sharp rise ($3 3/8), but on only $3.55 mil-
lion or 53,300 shares. The Iact that the stock was
down $7 over the next several days was not a sur-
prise. The real surprise was how quick the run-up
was relative to the interest in the stock.
55
60
65
70
75
80
85
90
95
100
Jun Jul Aug Sep Oct
-100
0
100
200
300
400
500
600
700
800
900
Price
Figure 108. Yahoo! Total Money Flow:
1une - October 1999
Figure 112. Aviation Sales Company Total
Money Flow: 1anuary - December
1999
Q: How long can accumulation or distribution last?
A: Our experience is that most divergences will be
reIlected within the next month to three months.
This is not a hard and Iast rule. It does provide
institutions with an opportunity to research and
analyze and is thereIore, as we have stated, not a
trading input.
The most extreme example was probably MCIC,
which spent all oI 1986 going down, and was under
accumulation the entire time. AIter bottoming in
1987, the stock went virtually straight up, perhaps
because the average position was in the area oI $6 -
7 so everyone had stock at a proIit.
Figure 110. MCI Communications Non-Block
Money Flow: 1985 - 1988
10
15
20
25
30
35
40
45
50
-20
-10
0
10
20
30
40
50
60
Price
$ $, Mil
Stocks whose change in trend is Iorecast by Ilows
will go longer and greater than we can anticipate.
Texas Instruments (page 35) illustrates this. On
the downside, even with the great bull run oI the
1980`s, Hewlett Packard was a laggard and was so
Ior years. We cannot Iorecast how long or how
much, but a stock where the market said something
will happen is likely to be a stock that has a much
greater move than most approaches or disciplines
would suggest.
Q: When do Ilows Iail?
A: At the risk oI being Ilippant, we suggest that
Ilows never Iail because they are the outlooks as
provided by the stock market itselI. Hence, they
are most useIul in highlighting signiIicant Iunda-
mental changes and not necessarily mergers, illegal
activities, management squabbles, legal issues and
so on.
The market however, does oIten Iail. Sometimes
the market expects developments which never ma-
terialize or are just plain wrong. In 1999, we pur-
chased AVS thinking it was Avis Corp. With good
money Ilows and some awareness oI the company,
we were comIortable in doing so. When we discov-
ered that the company was Aviation Sales, we sold
the stock and were Iortunate in so doing, as the
money Ilows, despite the drop, were compelling.
The market is wrong more oIten than one might
recognize, but it is still right much more than other
approaches.
Figure 111. Hewlett-Packard Total Money
Flow: 1983 - 1988
$ $, Mil
Q: Why is the idea not more embraced?
A: First, this is because most investors are not aware
enough oI the nuances and the subtleties, as well as
the realities oI the market. We detailed this in our
piece, Whv Institutions Underperform, where we
suggest that the market is too oIten the Iinal step in
the process instead oI a part oI the entire Iact-
Iinding process.
One recent illustration oI this was the widely held
belieI that technology would be strong in early 2000
aIter the Y2K issue was behind us. But the market,
as we all say, anticipates, and the Y2K rally actu-
ally occurred in the Iourth quarter oI 1999.
Investors are also put oII by the Iact that the mar-
ket does not detail how, when, and where. There is
comIort in the Iundamental analyst who says earn-
ings will accelerate next year, the growth rate will
climb and the historical peak oI two times a market
multiple is a viable target. Money Ilows say some-
thing good is going to happen and detail those stocks
likely to produce above market perIormance. But
that is not good enough today. Or as Warren BuIIet
once noted, most investors would rather be pre-
cisely wrong than approximately right.
Furthermore, we will not provide, as some disci-
plines try to do, the illusion oI certainty.
Q: What did Ilows look like in 1987?
A: We do not have the abundance and availability
oI those graphs that we do today. But Apple sug-
gested that investors were beginning to look Ior the
exits as early as mid-summer oI that year.
Figure 113. Apple Computer Non-Block Money
Flow: 1985 - 1988
$ $, Mil
Figure 114. Apple Computer Block Money
Flow: 1985 - 1988
$ $, Mil
Appendix A. International Oils Money Flow: 1anuary 1983 - 1une 1988

MR Market

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

MR Market

Transféré par

Droits d'auteur :

Formats disponibles

!

Figure 7. Tom's Las Vegas Results: Round 1

Vous aimerez peut-être aussi