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How do we know when a company or a group of companies in a given sector are going to change theirs… there is the Ivan Boesky play… I like to avoid the crime and punishment stuff though…no, we do not cheat… and just to go off an a cautionary tangent, most guys who trade on inside information get sloppy, get lazy and cowardly… it hurts their game whenever they don’t have the info and they are scared to act without it… plus the jail thing… really bad… sorry for the little digression.

Back on target… there are a couple of ways that we can spot changes in earnings… you can start from the bottom, this is the Horatio Alger model, rather than the Boesky one… with retail you can go to the stores, you can watch the registers, you can count the transactions… you have got to do this with more than one store, and at more than one time… this is not a mistake, it is not too time consuming… look, if you want to get into retail this is a pretty good way to judge things… when something that is flying off the shelves at a pace that isn’t reflected by the earnings estimates, buy the stock of whoever makes it… pull the trigger… I did this with Reebok during the aerobics boom when I was at Goldman Sachs… this strategy is time consuming, but if you are retired, like I am, and have a lot of free time… go for it… if you don’t have the time to sit in a store and watch the register… you can try to predict spending cycles… the airlines have an incredibly predictable spending cycle… when Boeing is getting a lot of orders you need to buy the stocks of Boeing suppliers… yeah, the BEA Aerospace, the Precision Cast Parts, the Honeywell which makes the cockpit… it is real simple isn’t it…. people don’t see it.

As soon as the analysts start loving these stocks, you get out… when semi-conductors do well, they like to raise money to buy equipment… so when you see them doing pretty strongly, but before they place their orders, you load up on their suppliers… and here I am thinking about the Applied Materials, KLA Tencor, and Novellus… some things happen when the telephone companies do well too… they buy equipment, you see them doing well, well you have to swallow your pride and buy a little Nortel, maybe even some JD Issue, and certainly some Cisco before they start placing orders… same deal as before, you sell when the analysts start to rub up against your picks… don’t listen to the analysts, don’t listen to your friends, don’t listen to me if I am contradicting this stuff without some really good reasons.


You watch the indicators, you stay disciplined, the rest of the market will follow you… and that is the situation that you want to be in.

The bottom line…