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NEW BOOK!
TrimTabs Investing:
Using Liquidity Theory
to Beat the Stock Market
Charles
Biderman,
with David Santschi
• Buy
Now
• More
information
Hardcover,
2005
John Wiley & Sons, Inc.
|
Frequently
Asked Questions
After
much of the REIT industry went bust, Biderman became a successful
real estate entrepreneur, putting together various deals in Tennessee
and New Jersey. His first deals in the mid-1970's were the purchase
of 1,000 apartments, six shopping centers and two office buildings
from REITs and banks. Although he predicted the real estate market
would collapse in 1988, he did not anticipate that no liquidity
would be available for development. This miscalculation forced him
into personal bankruptcy and taught him the distinction between
value and price: value is the intrinsic worth of an asset, while
price is the amount of money that a buyer agrees to pay a seller
for an asset. This simple distinction was the foundation not only
for Biderman's next move but for a new investment paradigm: liquidity
theory. Buckminster
Fuller once said, to maximize change find the trim tabs. A trim
tab is the rudder on the rudder of a capital ship. The first visible
sign that a big ship is about to turn is the trim tab moves. A trim
tab is also the name of the aileron control on most airplanes. The key to liquidity analysis is that the "house" in the stock market are the public companies. When there are net buyers of shares, sooner or later the stock market rises. When companies are net sellers, sooner or later the market drops. Individuals follow, not lead. Flow follows performance. When flows follow corporate buying, that's a bull market - more money chasing fewer shares. When flows follow hedge and pension fund buying - while companies are selling - that's a sell-off waiting to happen. When
outflows follow corporate selling, that's a bear market: Less money
chasing more shares. When companies are net buyers while individuals
are heavy sellers, that's a market bottom. Only senior executives and major shareholders have to file Form 4's with the Securities and Exchange Commission listing insider buying and selling within 48 hours. Major insiders who are planning to sell shares - including some who are not required to file Form 4's - have to file a Form 144 with the SEC. Thomson Financial tracks #144 filings weekly. Most
insiders do not have to file a Form 4 nor a Form 144 when they sell
never before sold shares since their holdings were including in
a blanket share registration, whether as part of an option program
or public offering filing. Currently, insider activity by smaller
holders is not trackable. Therefore, to encompass the entire insider
universe, we double #144 filings to estimate total insider selling.
Sometimes we distribute the research before these deadlines if the research is ready.
TrimTabs
Liquidity research is the road map describing where the equity market
is headed. Anyone managing more than $50 million needs to be more
than just a great stock picker. Portfolio managers of large asset
pools, to outperform their peers, need to know where the market
is headed. Those PM's using the conventional paradigm of market
strategy, that the future of the stock market is determined by future
earnings, are doomed to underperforming those PM's who use liquidity
theory. A convertible new offering is either a bond or preferred stock that is convertible into common shares of the issuer at a premium to the price of the common stock when the convertible was sold. Most convertibles pay interest, usually less than the coupon on non-convertible bonds and preferreds. New offerings are a company or insiders selling new shares via an underwriter whether straight equity or as a convertible. Sales by insiders of never before sold shares, not offered to the public by an underwriter, are counted under insider selling. We
equate convertibles as the same as regular new offerings dollar
for dollar. Several followers of liquidity theory discount convertible
new offerings by the premium over the common. We don't. The reason
we don't is that most of the money going to buy convertible bonds
is equity money. The
key reason people subscribe is because TrimTabs Research historically
has generated significantly higher returns for subscribers than
they would have without our research.
Cautiously bullish or cautiously bearish means we are buying or selling stock index futures whose principal amount is equal to 50% the dollar value of our model portfolio. Bullish or bearish means we are buying or selling stock futures equal to 100% the dollar value of our model portfolio. Leveraged
bullish or leveraged bearish means we are buying or selling stock
futures equal to 200% the dollar value of our model portfolio.
A "green shoe" is the underwriter's option to buy, usually 15%, additional shares at the offering price from the company selling new shares. During the 1920's a new share offering by The Green Shoe Company was the first time underwriters received an option to buy more shares at the offering price. "White shoe" is the Wall Street phrase to describe corporate finance types. At the turn of the century the corporate finance types were the Street elite and wore white shoes since they never did anything that would get them dirty. |
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