Investing has earned Marty Zweig a $70m apartment in Manhattan.
Not many people can say they own a $70m apartment in Manhattan, overlooking Central Park and just about everything else. I'm not sure that Marty Zweig can say that either, as $70m was the asking price his famous pad didn't achieve -- having been on the market for four years, it was finally withdrawn from sale late last year. But he picked it up for a mere $21.5m in 1999.
Of more relevance to investors is the fact that his fortune was build on investing in shares, and also from writing a newsletter detailing his thoughts on the stock market.
Background and early career
Zweig was born in 1942 in Cleveland, Ohio. At the age of 13, his uncle gave him six shares in General Motors, and with that his interest in investing was born. I hope he sold them, as they would now be worth less than they were in 1955.
He received his first degree from University of Pennsylvania's Wharton School of Finance in 1964, followed by an MBA from the University of Miami in 1967, while working in parallel as a stockbroker. In 1969 he was awarded a PhD in finance from Michigan State University.
After becoming a Professor of Finance, a series of articles in Barron's magazine led him to produce his own newsletter, The Zweig Forecast, which reportedly delivered 16% compound returns over a 15-year period. In 1986 he published his book, Winning on Wall Street, which outlined his investment philosophies, and in the same year launched his mutual fund business, followed by a hedge fund two years later.
Investment style
Often cited as an admirer of Jesse Livermore, Zweig combines fundamental analysis with technical factors. Essentially he is looking for GARP shares -- growth at a reasonable price -- but only invests when he sees the overall market as being in his favour.
In that sense, he is a big proponent of timing the market, something that many others, such as John Bogle and John Templeton, do not believe is consistently achievable. And his main cue for market timing is monetary policy, as he regards the supply and cost or money as the main determinant of asset prices.
"In the stock market, as with horse racing, money makes the mare go … the monetary climate -- primarily the trend in interest rates and Federal Reserve policy -- is the dominant factor in determining the stock market's major direction." Or as he more succinctly put it, "don't fight the Fed".
He uses a combination of technical indicators to tell him whether he should be in the market, including the put/call ratio which he pioneered himself as a measure of market sentiment. His formulae led him to be only 8% invested before the crash in October 1987, and even that 8% was more than balanced by short positions on the market.
Having decided to invest, Zweig then hunts for shares that are growing but not excessively priced. He does not make sector bets.
Regarding earnings, he's not just looking for companies where earnings are growing, but where they are growing at an increasing rate. Sales should be growing in a similar manner, as this excludes companies whose earnings are increasing as a result of one-off cost savings.
The price you pay for these companies should be low in terms of the price/earnings ratio (P/E), but not too low; in contrast to hardcore contrarians, Zweig's thinking is that a company on a P/E below 5 is just too likely to crash and burn. And if the growth rate is good enough, he is happy to pay up to three times the market average P/E for the right companies, up to a maximum multiple of 43 on the US market.
The third major criterion is to exclude shares that are under-performing the market. He wants to see sentiment already working in a share's favour, rather than buying extremely out-of-favour shares and hoping that sentiment will improve. In the same way that he doesn't fight the Fed, he doesn't fight the ticker. "Buying on strength gives you an edge. You must pay a premium, but you increase the probability of being right."
In addition to these main ideas, he wants to see debt below the average for the sector, and pays attention to directors' dealings.
When it comes to selling, he sets trailing stop-losses, and is most definitely not a long-term 'buy and hold' investor.
Zweig is a avid collector of 1950s memorabilia, and likes to run in his spare time.
Books by Martin Zweig:
- Winning on Wall Street (1986)
More investing greats:
John Bogle | George Soros | Ben Graham | Jim Rogers | Warren Buffett | Anthony Bolton | Jesse Livermore | Jim Slater | Charlie Munger | Peter Lynch | Carl Icahn | Philip Fisher | Ken Fisher | John Neff | John Templeton | Mark Mobius | Neil Woodford | T. Rowe Price | Bill Miller | Robin Geffen | David Dreman | Ian Rushbrook | James Montier | John Paulson | Seth Klarman
