This week's question comes from James, and is about how to read the three tools described in Rule #1.
Hi Phil Town,
I have a question about your book. On page 210, the 3 charts show when to buy and sell Starbucks. I tried to duplicate the charts on the web, and they match if I select the weekly (instead of daily view). However, the buy and sell trigger points are very different between the daily and weekly charts. For example, the daily chart show all 3 buy signals on 9/2 and all 3 sell signals on 9/22. The book and my weekly chart show all 3 buy signals on 9/20. Why the discrepancy? Should I use daily or weekly charts?
When you shift from daily to weekly charts, the inputs change from days (8 days, 17 days, 9 days) to weeks (8 weeks, 17 weeks, 9 weeks). That creates a whole different chart.
I recommend you use the weekly chart inputs for long term situations since the signals to get in or out are going to come much more slowly than with daily charts.
An example of that sort of situation would be when you have money in mutual funds in a 401K that can't be moved so quickly. You use the tools with a weekly data input mostly so that you'll get out in the event of another market melt-down, but you don't have to get in and then out a week later as you might with a 'faster' toolset.
Ahhh. And there is more: When a business splits its stock like SBUX did, the changes in price sometimes change the historical chart. I'm not sure why this happens since theoretically it shouldn't, but it does. Perhaps it's because some charts have smoothing built into them that changes them historically. In other words, what you see today may not be exactly what you see in 3 years. Such is life. And yet another reason that I tell you guys that you won't make money with tools. You make money by buying a wonderful business at an attractive price. Tools just help you keep from losing it in a crash and help take the fear out of investing.
Now go play!