If the name Gil Morales does not ring a bell, join the club.
Mr. Morales, squirreled away behind LCD screens in a Century City office, one valley over from Los Angeles, likes it that way.
Gil’s track record with two funds he runs at Gil Morales & Co., along with his investing history at William O’Neil & Co., is extraordinary. In seven years going into year-end 2005, the markets-do-as-markets-are acolyte notched a total return of almost 11,000% in his personal accounts, as audited by Rothstein Kass & Co., a hedge fund auditor.
Some of those years, many of us can recall, were the good years, when securities were powered by 1) day traders, 2) wildly optimistic press releases, 3) a steady stream of flashy public offerings, and well, 4) you fill in the blank. It was that kind of market.
Morales, a 49-year-old former cartoonist and Stanford University graduate, now scripts a letter called www.gilmoreport.com. He also runs two funds for investors.
My interest in Gil is his today-take on just how easy it is making money by betting against securities. It is an anti-matter mirror of those good years we all recall so fondly.
Gil was impressed when I quoted a line from William O’Neil’s benchmark book, HOW TO MAKE MONEY IN STOCKS: “Broad diversification is often a hedge for ignorance.”
Many of us know this is the approach of William O’Neil, founder of Investors Business Daily newspaper and still, at age 75 or so, a pioneer in the art and science of choosing individual investments. The financial author and investment manager is bullheaded in his beliefs, many of which defy widespread investment sense.
The O’Neil approach, as explained to me numerous times by Morales’s partner, asset manager and markets author Kevin Marder, is this: Markets are as markets do, and what they do we know when they do it. Most everything else is speculative fervor or absence of that enthusiasm.
HOW TO MAKE MONEY IN STOCKS is Bill O’Neil’s best seller. Mr. Morales, when he was at O’Neil & Co., ran an internal portfolio and the institutional side, then donned the robes of chief market strategist and co-wrote the O’Neil book, HOW TO MAKE MONEY SELLING STOCKS SHORT.
One of Morales’s recent and spectacular money-makers was his short-selling of the security First Solar Power (NASDAQ: FSLR, Stock Forum).
‘Yo, Broadcom baby’
“I compared it to Broadcom (NASDAQ: BRCM, Stock Forum) shares in 2001,” he tells me. That was when Broadcom’s US$175 stock ran down to something like $15. “I go back and see stocks in prior cycles and mimic those patterns,” Morales says. “First Solar looked like a topping formation. It took three months for it to pan out, and a couple of months ago it really broke apart.”
First Solar Inc., a profitable company, currently has a market worth of $8 billion, even after its shares this year have declined to US$100 from about $300.
Morales is still a believer in O’Neil’s methodology, known in trading circles as CANSLIM. If, for example, a position moves the WRONG way, say 7% wise, Morales will back away. “We are directional. If markets go up, we want to be long, and vice-versa. We use weekly charts to identify institutional buying or consolidating. We want to see what is going on right now in real time,” he says.
What I take away from Morales’s continued success for himself and his audience of readers and investor are these points:
- We are in an anti-matter bubble. It is still far easier to make money in global securities by short-selling them than it is owning them. “I have never seen anything like this,” he says. “I have parameters for short-term profit targets, especially on shorts. You can have historically 25% downside move, but things in this environment keep going lower and lower; it is almost unprecedented.” Thus: Making a pound, a buck or a yen on the downside is as easy today as making a buck on the long side was in 1999 and 2000.
- Still, Morales envisions “a market break on the down side with circuit breakers, with the VIX (volatility index) going to 100.” He sees “no reason to buy at all” right now. “We have asset values deflating and people are continuing to pull money out. There is another 20% to 30% downside.”
- Also: Morales does not stake himself to the flagpole of his beliefs with ball and chains. If life, the universe and everything changes, so will his positions.
I know this guy is the real goods by talking specifics with him. When we were discussing, for example, institutional ownership of an investment, he says, “Well, you want stocks that have some institutions in them. But 56% of the float for me is a warning signal of a top.” I get it. Not 55%, mind you.
“We are,” Morales says, “in a general asset deflation and until we get to clearance prices, a lot of people are being fed a bunch of baloney about stocks being cheap. We are in a recession as bad as the mid-70s. Back then, the average price-earnings multiple of current earnings for the S&P 500 Index was 7 and 8, and now it is about 12 or 13 times current earnings. So that implies a lot more downside from here.”
(For my part, I expect speculative fervor to some extent will return to equities and commodities … and some specialized strategies. I measure the globe’s willingness to risk the family jewels a number of ways: Please see the ThomWatch RISK LIST. Witness the surge in Saudi Arabian gold purchases in November, for instance, even as the futures price of the metal remains flat.)
On The Ticker Trax
The first issue of Ticker Trax By Thom Calandra is available – for free. Please click here for the actual newsletter. Next week, issue No. 2 will cost money, sorry to say. Still, I am fairly certain I can promise a bombshell for subscribers.
It has been many years since my last service, The Calandra Report, put me at center stage. I hope to repeat the success of that service, and I expect to follow every legal and ethical principle in the investment world. I recognize and have paid for the shortcomings that led to my U.S. Securities & Exchange Commission civil settlement some four years ago.
Thank you for the chance to do what I love doing most: sharing ideas with the garage-loft investors who have made my career a beautiful, just a cherished thing. I still get goose bumps when I view the thanks the Gold Antitrust Action Committee handed to me more than six years ago, in this 2002 note.
Ticker Trax By Thom Calandrawill explore planet Earth for those few stakes that offer the prospect of excellent, in some cases cosmic, returns. It is for those who are entirely at ease with stratospheric levels of risk and potential losses. As we complete our investment research, we fully hope and expect, but cannot and do not promise, stratospheric returns.
HOLDINGS: Thom’s cosmos of holdings is listed on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. He and his family also own gold coins.
THOM’S STORY:Thom Calandra helped his audience find value in a quagmire of investment choices. He settled a valid complaint with the USA Securities & Exchange Commission in 2005. Thom co-founded CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom fancied sub-$300-ounce gold before that metal became an investment rage. Thom visited bioscience companies, metals mines and scores of thin-crust pie joints across the planet in a search for profit, fashion and pizze de trippa gorgonzola. Thom's novel PABLO BY NUMBERS awaits full publication.