ALAN SHAW: And I said, well, I hate to do this to you all, but this happens to be the largest holding of this institution.

RALPH ACAMPORA: Well, I think you coined the phrase, the trend is your friend.

ALAN SHAW: Ah, possibly so.

RALPH ACAMPORA: I think you did.

ALAN SHAW: And you did the higher the-- bigger the base, the higher in space. The bigger the top, the bigger the drop.

RALPH ACAMPORA: I went like this to his chest. I said, and earnings are an estimate. You restate earnings. You never restate this chart.

ALAN SHAW: I'd shove them in the desk drawer, because people thought that you were a sorcerer or--

RALPH ACAMPORA: Witchcraft.

ALAN SHAW: Witchcraft, yeah.

[THEME MUSIC PLAYING]

Hi. This is Joe Perry from Real Vision. We're here at the CMT Symposium, and we are pleased to present you this interview between Ralph Acampora and Alan Shaw, two legends not only on Wall Street, but also in technical analysis. They're here to provide you with a glimpse into the future of technical analysis, as well as to provide some reflection into the past. Please enjoy this episode.

RALPH ACAMPORA: Hello. My name is Ralph Acampora. And I am so happy to say that I'm with one of my dearest friends, Alan Shaw. What do you like most about the years you've been in Wall Street? Is it the subject, the people?

ALAN SHAW: Well, I have a very personal gratitude, that is the fact that I had the pleasure and the ability to experience one of the greatest bull markets in the history of the United States and lived through it and have been a participant in it, I mean, a once-in-a-lifetime type thing, coming in the business in the late '50s and then going all through the '60s. And finally the market broke through 1,000 and then 10,000 and now 20,000. It's kind of fascinating when you think back. You obviously got to look at the long-term picture on a large scale, keep it in perspective.

RALPH ACAMPORA: Yeah, a lot has happened. What we do, as you just mentioned, we follow the markets. But I know you've had in your early days had a beginning in fundamental analysis. Tell us a little bit about that because you have an interesting story about when you were right.

ALAN SHAW: Well, I flunked out of college in my freshman year. And I have since been given an honorary doctorate law degree from that same university for my Wall Street accomplishments, you might like to know.

RALPH ACAMPORA: How much you have to pay for that? That's another discussion. I'm only kidding.

ALAN SHAW: But the point was that I really didn't have any background in finance except accounting, my one year. I passed that. And I discovered that Harris Upham-- I was doing a lot of work for Ralph Rotnem statistically, overbought, oversold, indicators, or just doing research for him. In fact, my first computer was a slide rule. And I used to do relative strength analysis, calculating ratios with the slide rule, dividend yields, PE multiples, all that stuff.

And they had specialists in the research department. And I was in my early 20s at the time and again, without any formal education. But I went to Ralph, and I said, you don't have anybody specializing in the consumer non-durables, like foods, beverages, soft drinks, whatever.

And he said, well, would you like to take a crack at it? i said yes, because I think that there's a tremendous growth opportunity, that these are not really widow and orphan defensive stocks because of the growth of things like frozen foods, convenience foods. The profit margins on these products were incredible.

RALPH ACAMPORA: What is this, the early '60s, you said?

ALAN SHAW: Yes, exactly.

RALPH ACAMPORA: Growth industry? Wow. Look at that, huh.

ALAN SHAW: Yeah. So that was my thesis. It was called "Investment Opportunities in the Food Industry." Little did I know, Ralph, that I was publishing a report in the early stages of one of the greatest consumer non-durable sector runs. It came to life all of a sudden to keep that market trend alive.

RALPH ACAMPORA: Wow.

ALAN SHAW: Anyhow, Ralph Rotnem used to commute with a fellow named Jim Morgan.

RALPH ACAMPORA: Oh, sure. Of Morgan, Rogers, and Roberts, yes.

ALAN SHAW: Yes, Jim Morgan was the principal partner at Morgan, Rogers, and Roberts. And they were located at 140 Broadway, one building north of us, where we were on 120. And Ralph come in his office one day, and he gave me this book that Jim Morgan had given him written by a gentleman by the name of Alexander Wheelan. And it was called Study Helps in Point and Figure Charting Technique.

RALPH ACAMPORA: Yes, the bible, yes.

ALAN SHAW: And I looked at Ralph. I said, you want me to read about this tic-tac-toe stuff, the Xs and the 0s and all? He said, well, just take it home and read it and see what you think of it. Well, I found it to be absolutely fascinating, not believing anything, of course, because I was now looking at earnings and managements and balance sheets and income statements and so forth. I was looking at companies not really stocks.

But unbeknownst to Ralph, I took a walk over to 140 Broadway one day. And I said to Jim Morgan, I said, you know, I'm fascinated by what I have superficially learned so far from this book by your colleague Mr. Wheelan. Is it possible you could give me some sample charts from your library? And I can try to keep them up to date by hand going forward. And if you're going to charge me, charge me. I'm not a rich guy, but I'll be happy to pay for some of it.

So he was very happy to do so. So I walked back with a chart of General Foods, National Dairy Products, Swift, Armor, all these foods.

RALPH ACAMPORA: Food companies, yeah.

ALAN SHAW: Yeah. And I used to keep them up to date by hand every day. And when somebody walked by in the research department, I'd shove them in the desk drawer because people thought that you were a sorcerer or--

RALPH ACAMPORA: Witchcraft.

ALAN SHAW: --witchcraft, yeah. So anyway, 1961, I started to see patterns develop on these charts that made me feel very uncomfortable.

RALPH ACAMPORA: Wow.

ALAN SHAW: So I went to the book, to Mr. Wheelan's book. And on page 25 they had example a point and figure price patterns. And the ones I was finding happened to be in a column called Market Tops.

RALPH ACAMPORA: Oh, last stage in the move.

ALAN SHAW: Yeah. They were all rolling over, like the difference between the frown and the smile.

RALPH ACAMPORA: Yeah.

ALAN SHAW: And I showed these to Mr. Rotnem. And I said, Ralph, I said, all my fundamentals are on target. The earnings are coming through. The growth projections we forecast are happening. I know the stocks have doubled and tripled, which they did. I was a big hero in the research department, the food analyst. That's a joke in itself.

So he said, well, Alan, he said, what do you think you want to do about? And I said, Well, I don't know. I'm betwixt and between. He said, well, you know, you might be about to learn something. So anytime he said something like that, I would sit down--

RALPH ACAMPORA: --and listen.

ALAN SHAW: --and listen intently. And I said, Ralph, what is it now? He said, you're going to learn maybe how to separate a company from its stock.

RALPH ACAMPORA: There you go.

ALAN SHAW: And I had to sit there and reflect on this. What is he talking about? I said, you mean the stock might go in a different direction than the company?

RALPH ACAMPORA: Yes.

ALAN SHAW: He said, yes, he said, because the market is a discounting function. Market is a discounting function. It looks to the future not to the past ever and [? said, ?] sell them to the side. So the reason these stocks are all up is because the things that you thought might happen have happened.

And he said, it's almost like the stockholder who raised his hand at the annual meeting and asked the president, how's the business? And the business turned to the guy, and he said, business couldn't be better. Well, the stockholder ran to the nearest phone, called his broker, and sold all his stock. And the broker said, why are you selling everything? Because, he said, the president just told me it couldn't be better.

RALPH ACAMPORA: Yeah, can't get better, can only get worse.

ALAN SHAW: And that's the whole trick right there, you see?

RALPH ACAMPORA: Wow.

ALAN SHAW: In price there is knowledge.

RALPH ACAMPORA: Absolutely.

ALAN SHAW: Market's a discounting function. So I sent out-- in those days, the typical brokerage lines-- not sell. But we would have no objection if clients wished to book profits--

RALPH ACAMPORA: Book profits.

ALAN SHAW: --and lighten up positions. And Ralph, the 1962 bear market came out of nowhere.

RALPH ACAMPORA: Wow.

ALAN SHAW: My stocks crashed 30%, 40%, 50% in that bear market.

RALPH ACAMPORA: Wow. That's-- so the timing aspect.

ALAN SHAW: Exactly.

RALPH ACAMPORA: Which is what technical's all about.

ALAN SHAW: Exactly.

RALPH ACAMPORA: Just-- you nailed it.

ALAN SHAW: And I looked back, and I-- see, I wasn't smart enough to know that 49 times earnings was expensive for General Foods. And that was the multiple at the top that it topped out in.

RALPH ACAMPORA: Yeah, of course, of course.

ALAN SHAW: So from that point on, that would be like '62, '63, '64, is actually when I started teaching a course at the Institute of Finance because a lot of our trainees were coming back from the Institute and telling me things they were supposedly learning, which I didn't think had any real--

RALPH ACAMPORA: --relevance.

ALAN SHAW: --relevance. So they gave me a chance. And I always said, if you want to learn a subject, you teach it.

RALPH ACAMPORA: Yes.

ALAN SHAW: And so I started to do that. And then I discovered that there wasn't enough time for just one course. So I started an advanced course. Tuesday night was the elementary course. And Monday night was the advanced course. So anyhow--

RALPH ACAMPORA: Then when I joined you, you gave me the basic class to teach.

ALAN SHAW: That's right.

RALPH ACAMPORA: And I've been teaching for the last 49 years.

ALAN SHAW: Exactly, right.

RALPH ACAMPORA: And with you, we taught the Street.

ALAN SHAW: We really did.

RALPH ACAMPORA: In fact, at the Institute-- I give them a lot of credit, that school. The School of Wall Street, it's officially called.

ALAN SHAW: That's what it was called, yeah.

RALPH ACAMPORA: And we were calling it-- I think you used the same term in your class. I called it fusion analysis, when you take the fundamentals and the technical, and you put them together.

ALAN SHAW: Yep.

RALPH ACAMPORA: That's the best of both worlds. You've got to know the different between a company and its stock.

ALAN SHAW: That's it.

RALPH ACAMPORA: That's it. It's wonderful. That's wonderful.

ALAN SHAW: Or if you had a choice of picking one versus the other, you certainly pick the chart, then you would the balance sheet.

RALPH ACAMPORA: Well, that's my bias, yes. [LAUGHS]

ALAN SHAW: I think you once said, they can't adjust the price, but they can adjust the earnings.

RALPH ACAMPORA: Alan, so you remember when I first met you?

ALAN SHAW: At the New York Institute of Finance.

RALPH ACAMPORA: Yes.

ALAN SHAW: You were in a class I was teaching in 1969.

RALPH ACAMPORA: And you asked me if I could do a point and figure chart.

ALAN SHAW: I asked a very important question. You were the only person in the room that raised his hand so dramatically. And you went up to the backboard and wrote the answer down. And I asked you if you were looking for a job. And you said, I'm always open.

RALPH ACAMPORA: Yeah.

ALAN SHAW: And so that was it.

RALPH ACAMPORA: That was it. That was in--

ALAN SHAW: --1969.

RALPH ACAMPORA: --1969.

ALAN SHAW: Then you came to work at Harris Upham.

RALPH ACAMPORA: Yes. Yes. And I had the pleasure of meeting your boss, or your-- a man by the name of Ralph Rotnem.

ALAN SHAW: Yes, you did.

RALPH ACAMPORA: It seems like all great technicians are named Ralph. I don't know why.

ALAN SHAW: Oh, that's right. Well, he was not really a technician. But he very much called himself a student of the market, which is really what a technical analyst is.

RALPH ACAMPORA: Well, but he left some valuable stuff to all of us, hasn't he, in the old days?

ALAN SHAW: Oh, sure.

RALPH ACAMPORA: Yeah.

ALAN SHAW: Yeah, he was the president of the New York Society of Security Analysts. He was very good friends with some of the leading technical students, Edmond [? Tobell, ?] Kenneth Ward.

RALPH ACAMPORA: These were all the old-time technicians. It was way before our time, in fact.

ALAN SHAW: Yeah, they were as old as I am now at that time.

RALPH ACAMPORA: Yeah, in the '80s, that's right. That's right. Didn't he create the famous hemline indicator?

ALAN SHAW: He certainly did.

RALPH ACAMPORA: Yes. And what was that all about?

ALAN SHAW: Well, see, he found a strong correlation to the length of women's skirts and the height of the stock market.

RALPH ACAMPORA: [LAUGHS]

ALAN SHAW: And he presented that indicator to the public when Twiggy was around, and the skirts couldn't go any higher. And sure enough, the market topped out the next year.

RALPH ACAMPORA: Yeah. That was interesting because that was literally behavioral finance, which was what we at the universities call now behavioral finance. But yes, that was one of the forms. Didn't he do some cycle work, like presidential cycle?

ALAN SHAW: Oh, he did all that stuff. He could tell you what happened to the stock market in the minutes after the battleship Maine was sunk.

RALPH ACAMPORA: Yeah. Yeah, that's fantastic. Going back to the old days, I walked into the office working with you, and I brought with me a young guy by the name of Johnny Brooks.

ALAN SHAW: Absolutely.

RALPH ACAMPORA: Johnny Brooks and I were so excited. Actually, we were jealous, Alan. We were jealous of the fundamental analysts. In those days, the fundamental analysts at the New York Society of Security-- would have breakout groups. Like the chemical analysts would meet once a month, then the drug analysts.

ALAN SHAW: Correct. Correct.

RALPH ACAMPORA: And we came to you and said, Alan, we'd like to start a group where maybe we have tech people meet once a month. And you were very supportive of that.

ALAN SHAW: Well, my first impression, though, is how that was already something that was tried.

RALPH ACAMPORA: Yes.

ALAN SHAW: And unfortunately, it was without success. A bunch, about five guys got together. I was one of them at Fusco's Bar once a month. And it turned into a "you're an idiot, you're a jackass, that's not going to work" type of session.

RALPH ACAMPORA: Oh, wow. yeah.

ALAN SHAW: And that, to me, wasn't where I was going to learn anything.

RALPH ACAMPORA: That's why you sent me to Ralph Rotnem.

ALAN SHAW: Right.

RALPH ACAMPORA: And you said, young man, if we do this, you got to run it my way. I said yes, sir. And you said, there will be no discussions at the meeting. Whoever the monthly speaker is, you raise your hand politely, and you ask questions. Oh, I'll never forget that. And yes, sir. Yes, sir. And that's what Johnny and I did. In fact, his boss, John Greeley at Eastman Dillon, sent John to Merrill Lynch, Bob Farrell at Merrill Lynch, who ran the big department over there.

ALAN SHAW: Right.

RALPH ACAMPORA: And Bob Farrell became the first president of the organization. You were the second person.

ALAN SHAW: That's correct.

RALPH ACAMPORA: Yeah.

ALAN SHAW: And none of us had any idea that it would be such an incredible growth experience thereafter.

RALPH ACAMPORA: And you know what I found interesting, Alan? Because here you were at a very big firm, or we were, at Harris Upham, which morphed into Smith Barney years later. And here we had Merrill Lynch. And you two fellows, as important as you were, you never really actually sat up until the time the organization was started.

And that's the key to what we've been doing. We're bringing people together and networking. I think that is so cool.

ALAN SHAW: That's correct. And if you look back, too, the thinking was, which we followed, that we would look for like practitioners who had some following, press wise or professionally wise, like Tony [? Tobell ?] was our third president, et cetera, et cetera, et cetera. And that started to get other people thinking, too, that we're kind of doing our line of work. Maybe this is a group I should join.

RALPH ACAMPORA: Actually, the mandate that Johnny and I had-- we were the youngest kids running around. I think Johnny was 26, and I was like 27, 28, whatever it was. And the mandate was we only had to have people who wrote a technical market letter for their firm. And we ran around, and we found 19 people. Those were the 19 original members.

ALAN SHAW: That's right.

RALPH ACAMPORA: And years later, one of my students, John Murphy, wrote a book on inter-market analysis. And he wasn't an equity guy, didn't write a market letter. And he wanted to become a member. So we had to change the constitution to bring him in. And that's how the organization grew, as more and more people with different backgrounds came in.

ALAN SHAW: Exactly.

RALPH ACAMPORA: Do you know the most important date in modern technical analysis history is Friday, December 17, 2004. You weren't there, Alan. I was there with a couple of guys from our organization. And we were fighting the Sarbanes-Oxley law that came out in January of that year. And Sarbanes-Oxley law said that all the analysts, that's us, had to take two new tests, series 86 and 87. 87, new rules and regulations-- no problem. But you got to take that.