— By Anthony W. Haddad and David Bernard
Tobin Smith is a rock ’n’ roll kind of guy in a suit. He attended Long Beach State and is an avid skier and wine enthusiast. At work, he’s sharp as a brand-new Ginsu. There’s a shoot-from-the-hip quality to his speech, which he delivers rapidly, making him perfect for television. And that’s where you’ve probably seen him. Since 2000, Smith has been a market analyst on FOX News Channel’s Bulls & Bears.
Smith is also the founder and chairman of ChangeWave Research, a research network that identifies emerging trends, technologies, and companies positioned to capitalize in the ever-changing global market. He has written the New York Times best sellers ChangeWave Investing and ChangeWave Investing 2.0, and more than 250,000 investors read his weekly e-newsletter.
EQUITIES: What got you into the finance
world? Where did you get started?
Tobin Smith: I was hired by what is now Bank
Atlantic Financial in the early 1980s as a junior
investment banker. As I got into that, I was
hired byKidder, Peabody&Co., and Iwas the
only guywho understood some of the bizarre
stuff they were doing in debt and equity securitization.
EQUITIES: Where did you go to school?
Smith: I was going to UCLA but finished at
Long Beach State. I was a marketing and finance
guy, but my minor was behavioral psychology,
and I usemore behavioral psychology
than anything.Anybody can do a spreadsheet.
Anybody can do a discounted present value.
That’s not unique. I was much better on the
marketing side than I was with finance.
EQUITIES: Explain your investment philosophy.
Smith: My basic premise was that if I was a
good marketing strategist—which I was—
then I could analyze a company from a marketing
advantage much more than from a
financial advantage, and these would be the
faster-growing companies. Combine thatwith
the basic philosophy that I always had: Innovation
is strategy—everything else is tactic. So
I got really involved in the idea of transformational
change of, first, how to create it and,
second, how to find it. I knew that if I was
good at finding it and analyzing it, I’d make
money.
EQUITIES: You started ChangeWave Research
to analyze emerging financial trends.How did
this come about?
Smith: I was already using the ChangeWave
idea, but at the time I was writing a newsletter
that onlywent out to a limited number of people.
The other idea of ChangeWave was that I
was a really early Internet guy. I was on quantum
computing, which used to be AOL. I
thought itwas sort of insane that themodel of
some guy sitting in a roomin his pajamas and
writing a newsletter added any value. So I
started putting together this network of peoplewhowere
experts in various industries, and
that became ChangeWave Research.
EQUITIES: And what is ChangeWave’s relationship
with Phillips International?
Smith: In 2000, I went to Bob King, who was
the president, and I told him that I was going
to set upChangeWave.Within half an hour, he
comes back tomy office and says, “We’re going
to start ChangeWave.” He’d been investing in
my newsletter stuff, and he’d made more
money than he’d evermade in his life.He said,
“We’re going to start it, you’re going to be the
principal and founder, and you get a piece of it,
butwe’ll put all the people in it andwe’ll put all
the money in.” I said, “All right.” So Change-
Wave became a subsidiary of Phillips.
EQUITIES: And you bought out Phillips.
Smith: Right. Our company is now called InvestorPlaceMedia.
We did a leveraged buyout
of TomPhillips in February 2007.Our timing
was absolutely exquisite. ChangeWave is now
a division of InvestorPlace Media, and we’re
the largest publisher out there.
EQUITIES: Who are ChangeWave’s clients?
Smith: About 20% are hedge funds, institutional,
and 80% are self-directed investors.
Self-directed investors are created by their experiencewith
either a stock broker or amoney
manager. Their expectations were not met,
and they said, “Well, hell, I can do this better
myself.”Or it’s inherent. Probably 40%of our
subscribers are engineers.
EQUITIES: How many newsletters do you
publish?
Smith: We have over 40 different newsletters.
All we do is our publishing.
EQUITIES: How did Bulls & Bears happen?
Smith: In December of 2000, our surveys
showed that capital spending fell off the side
of a cliff. I went on FOXNews and said, “My
prediction for the year is that Greenspan is
going to cut interest rates by 50 basis points
before the Januarymeeting because this economy
is tanked.” I said, “Dudes, I’ve got a statistically
valid survey that I have been doing
for five years.” And boom—he cuts rates on
Jan. 5, 2001. That cemented my position on
Bulls & Bears.
FOX originally had a show called
TheStreet.com that Jim Cramer was a panelist
on.He touted his own stock on a show that
taped on Friday night. You can’t do that.
Without editing it, the producers showed the
tape the following Saturday, knowing full
well that it would be the end of Jim’s career
on FOX.Why did they do it? I’ll never know,
but his quiet and demure personality may
have rubbed a few people the wrong way.
They canned the show after Cramer’s
meltdown and needed to replace it. They
kept Brenda Buttner as the host andGary B.
Smith—a.k.a. “The Chart Man”—and
added me, Scott Bleier, and Pat Dorsey to
the permanent panel. Since the beginning in
August of 2000, the ratings have climbed
every year, now averaging over 1 million
households a week. A big show on CNBC
averages over 100,000 households a week.
EQUITIES: We find your show very entertaining
and educational.
Smith: Good! That’s my shtick. I’ve won the
annual stock-picking contest two years in a
row. But what the producers most appreciate
is my color commentary on the topics or
stocks of the day. That’s what keeps the show
fresh and fun to watch for the “non-stock
junkie” viewers.
EQUITIES: You’ve said three- to five-minute
talking heads are what’s wrong with investment
journalism.Domore channels andmore
coverage help alleviate this, or is it just more
of the same?
Tobin Smith: Look, I’d love to do a 60 Minutesstyle
weekly show that looks at the good
and the bad investment opportunities out
there, but the panel/sound-bite structure is
what works. I love magazines. If I’d go
again, I’d be a magazine publisher. I love the
form and the length of magazines. It’s not
a book, but it’s not one minute.
EQUITIES: People enjoy reading 1,500 words
about a company.
Smith: It’s the right length. Sixty seconds is an
idea at best. But the format, the business
model, the way they get paid is, we do a 30-
minute TV show with 10 minutes of commercials,
so that’s 20minutes of content. The
fact that we attract 10 times the CNBC audience
for our host/panel-type showmeans that
most people prefer the quick hit to the long
format. It is what it is.
EQUITIES: What are your thoughts about
growth stocks in this market?
Smith: You don’t always want to own aggressive
growth stocks that have high P/Es. You
want to buy them according to the business
cycle. You want to buy them at the beginning
of the new expansion, and you want to sell
into the last few innings of the business cycle
because aggressive-growth stocks move 40%
to 60%frompre-recessionmarket tops to the
recession trough. Most people can’t absorb
that kind of brain damage,whichmakes them
sell at the bottom and keeps them out of the
stocks until they can’t stand the pain of missing
the bullmarket, so they start buying stocks
at the top.
EQUITIES: Do you explore the micro-cap
market?
Smith: We have ChangeWave Micro Cap.
We have a number of plays that have been
up 1,000% for us that we’ve sold. They’re
always right on the edge. They’re going to
absolutely kick ass or turn into chow mien.
The micro-cap space is very inefficient; we
have 14,000 people in 2,000 different industries
throughout the world and they’re
our eyes and ears. We love micro caps—
we say micro cap is your 5% to 10%. Don’t
kid yourself. It’s Vegas money. You either
take that money to Vegas or you can do
micro caps.
EQUITIES: You’ve said recently that you believe
this is a bear market.
Smith: Yes, we are in a bear market—a
bear market that is a function of a recession,
or in other words, the market anticipates
a recession. That’s what a normal
bear market is. They have a limited duration—
eight months, right? So you want to
be the guy who is buying about halfway
through this bear market. We sold a lot of
our stuff in December 2007 and January
2008. We went to cash. We sold off anything
that had a high P/E, anticipating this
recession, because we wanted to preserve
our capital.
EQUITIES: So you believe we are in a recession?
Smith: Our research shows it for the first time
since ’01.Whatwe do is capture real time. The
Fed is always looking in the rear-view mirror,
always looking backward. We went out to
14,000 companies of our ChangeWave Alliancemembers,
representing over 2,000 companies—
the same people that we’ve talked to
for eight to nine years. I really wish I’d studied
more statistics, since I use it every day now. If
they would have tied it to gambling ormaking
money, it would have been much more interesting
than statistics of sociology and stuff I
didn’t care about. But the fact of thematter is
this: With our 14,000 people in our Change-
WaveAlliance—our research panel—our stick
rate is about 99.8%. Normally in the research
panel, your stick rate is about 2%.
EQUITIES:What do you believe the next 12 to
24 months will bring?
Smith: That means you’ve got to predict who
the president’s going to be.
EQUITIES: Let’s assume we’re going to have a
Democratic president.
Smith: If Barack Obama is leading by 10
points over John McCain going into November,
I guarantee you that you’re going to
have a sell-off purely for locking in capital
gains. I mean, Obama said he wants to go to
28%. Don’t fall for the trap that Obama really
thinks he’s going to become president of
the United States on a platform. Right now,
everybody is pimping for John Edwards’ delegates—
they need 235 delegates from Edwards.
So right now, Obama sounds like he’s
a socialist. You have to assume that when
that’s done, whenever Obama is the one
who’s the leader in the clubhouse—because
Edwards hates Hillary Clinton—once he
gets the delegates, then you’ll see that rhetoric
move back to the middle.
EQUITIES: So you believe there will be a selloff
in November.
Smith: If Obama is leading, then yes.When he
gets in, you’re going to know a number of
things. Alternative energy is going to kick ass.
The other thing is you’re going to assume that
the Fed is going to be at 2% to 2.25%, which
means that financials will do well as soon as
they make the turn. And the turn is that you
will have clarity on Citibank and the real big
guys, we’ll have real transparency. We still do
not have transparency. Credit Suisse can come
out and say, “Oh, by the way, two of our
traders gave uswrongmarket-to-market numbers,
sowe need towrite down $2.1 billion for
two traders.”
EQUITIES: Is there one rule of thumb regarding
investing?
Smith: You have to understand that there’s no
free lunch. If you want a bond rate of return,
then buy the bond. If you’re looking for superior
return, you have to come to grips with
the idea that you’re getting paid extra because
you’re willing to ride out the bumps in the
road. Many times, investors sort of miss that
part.Usually, themost powerful psychological
ingredient is the fear of not being greedy
enough. The other part is that it’s not profitable,
nor is it prudent, to always own growth
stocks. The thing about an S-curve change that
nobody realizes is, if something’s growing rapidly,
it’s also getting to satiation rapidly. If it’s
slow growth, it’s going to take a long time.
email to a friend
digg this
del.icio.us
