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Whether the economy is on its way up or down, at the end of the day, theres only one thing that matters for money manager Terry Bedford: a stocks price. When it comes to markets, perception is always more important than reality, he says. What people actually think about the economy tends to be more important than what the economy is actually doing because those feelings, those perceptions will impact stock prices more so than any bit of news.
In fact, his Toronto firm, Bedford Associates research group, which oversees $37 million, relies heavily on technical analysisexamining supply and demand within the stock market to track investors perceptions. Bedford, 38, who also writes a regular investing column for MSN.com, watches a stocks price charts and additional data to see how many company shares are trading on any given day. That information tells him about a companys future. If the charts show a healthy rise in the stocks sales and earnings, financial firms and individual investors will probably want to buy, hoping to bag a gain. If theres a big increase in a stocks trading volume, its an indication that a stock is gaining popularity and that demand for the companys shares is outstripping supply, a factor that will push prices higher.
Two of Bedfords picks, Verizon (NYSE: VZ) and SBC Communications (NYSE: SBC), are good examples of his theory. Bedford says Baby Bells should rebound nicely once the shakeout in the telecom industry finishes. More importantly, a scan of the price charts shows Verizon has fallen to around $30 a share twice in the past few months without dropping further, instead rebounding in heavy trading. SBC has slid to about $21 twice over the same period without breaking through, again rising afterward on substantial volume. Bedford says both stocks have a floor or support level. The fact that Verizon and SBC have bounced back from their lows probably indicates that the big institutional investors feel both stocks are a bargain and should return to higher ground soon.
In addition to examining charts, Bedford reads up on company fundamentals and news as a way to double check his technical analysis. The manager says indications show Walt Disney Co. (NYSE: DIS) will probably cut costs and develop new strategies to profit from its many media businesses over the next few years. He also observed that during Disneys rebound this fall, the stock price rose on higher trading volumes.
Another selection, 3M (NYSE: MMM), has seen daily volumes of 7.5 million shares accompany a recent climb in value. Bedford says the companys management is solid and has done a good job leveraging what he calls a massive library of patents. Finally, Bedford thinks a beleaguered Xerox (NYSE: XRX) is a good speculative play. Although the company hit a low point this summer as a result of accounting and managerial problems, Bedford says a rebound could be imminent. Xerox, he notes, also has a treasure trove of valuable patents, and institutional investors have consistently rushed in to