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Reminiscences of Marty Zweig: What I Learned From a Market Great

March 4th, 2013

by Liz Ann Sonders

of Charles Schwab

Key Points

  • Wall Street loses one of its greats.
  • Remembering Marty's contributions to my career… and investors everywhere.
  • Marty epitomized humility and civility—both in short order today.

On February 18, while on vacation, I received a shocking phone call. My first mentor and boss, Wall Street icon Marty Zweig, had passed away. I've been extremely blessed throughout my 27-year career to work with some of the most transformative and legendary folks in the business. Marty was one.

I worked for him (and his partner at Avatar Associates, Ned Babbitt) for 13 years, starting in 1986 after I graduated from college. Another would be Louis Rukeyser, with whom Marty and I shared the "stage" on Wall $treet Week for many years as regular panelists. And of course, I've had the great thrill of working for Chuck Schwab since 2000. It doesn't get any better than learning from these legends over the past 27 years.

The early years

After degrees from Wharton, University of Miami and Michigan State, Marty started his career in academia but ultimately became one of the most respected stock market "gurus" in the modern era. I have years' worth of memories of Marty, and hope readers will indulge me as I reminisce and share some of the most important market lessons I learned from one of the greats.

But first, the personal stuff. Marty was brilliant, there's no doubt; but he was also quirky, goofy and affable. He was the consummate worrier… but he was also the ultimate warrior. He lived, ate and breathed the markets and perpetually (and tirelessly) strived to "figure it out."

One of my greatest memories is getting to see first-hand his now-famous memorabilia collection—to which there are no comparables. Among them, there was the dress Marilyn Monroe wore while singing Happy Birthday to John F. Kennedy in 1962; the suits worn by the Beatles on the Ed Sullivan Show in 1964; the 1992 Olympics' US "Dream Team" basketball jerseys; the booking sheet from one of Al Capone's arrests; a letter from Madonna to Michigan State declining acceptance so she could pursue a music career; guitars of many rock stars, including Bruce Springsteen and Jimi Hendrix; the fedora worn by Humphrey Bogart in Casablanca; the original Terminator costume worn by Arnold Schwarzenegger; and multiple boxing championship belts, Super Bowl rings and Heisman Trophies.

Probably the coolest one, which I got to sit on at his home in Connecticut, was the Harley Davidson Hydra-Glide motorcycle ridden by Peter Fonda in Easy Rider. It was bolted to the floor in his game room. How cool is that?! Apparently, last year he also had a banana yellow 1934 Packard convertible installed in his Florida living room. Marty was loads of fun.

Winning on Wall Street

Marty was already well-known in 1986 when I joined Avatar, which he ran with another mentor of mine, Ned Babbitt. Marty's newsletter, The Zweig Forecast, was already ranked #1 in the business by Hulbert Financial Digest, and he had several mutual funds and a hedge fund, co-run by his partner Joe DiMenna. He also had his first best-seller under his belt with Winning on Wall Street (still a must-read today), to be followed by another bestseller, Winning With New IRAs.

But his fame shot to the moon on the fateful evening of October 16, 1987. Having been a regular panelist on PBS's Wall $treet Week With Louis Rukeyser nearly since its inception in 1970, he had one of his regular appearances that Friday night. I was watching, as were three million of Lou's regular viewers.

Marty was one of Lou's most popular panelists and the audience loved his perpetual wrinkled brow, and prudence about the market and his own views. Many saw him as a perma-bear, but in reality he was a perma-worrier, even when he was wildly bullish. If you have access to YouTube, I urge you to look up Marty's appearance on the show that Friday night (Part 1 of 3) and watch in awe. But for those who don't, below is an excerpt of the conversation between Lou and Marty.

The call heard 'round the world

When Lou asked Marty about the chances of a bear market, Marty responded: "I haven't been looking for a bear market per se. I've been, really, in my own mind, looking for a crash. But I didn't want to talk about it publicly because it's like shouting 'fire' in a crowded theater, and there are other ways to play it. You tilt your strategy negatively and you shut your mouth… There'll be some violent rallies, though; in fact, probably early next week I expect a violent rally. I don't look for a long bear market here; I only look for a brief decline, but a vicious one." The very next trading day, Monday, October 19, 1987, the market fell a heart-stopping 23% followed immediately by some "violent rallies."

Our firm had dramatically lowered stock exposure in advance of that "call" of Marty's, and we started buying back into the market within the following week. I remember thinking, "So that's the ticket—just figure out when the market's going to tank, get out before, and then get back in when prices are much lower!" Credit the naivety of a 23-year old, newly in the business, with that pearl of wisdom. Little did I know how difficult market timing really is.

Civility and humility… where are you today?

If and when you watch the clip, notice the civility and humility of both Marty and Lou. When I appear on financial TV, I witness first-hand that those days are largely gone. Rather than grandstand with his forecast of an impending crash, Marty even appears reluctant to share his fears. It was a rough period for the market, but a kinder, gentler period for financial journalism.

So how did Marty do it so well, and for so many years? Marty's philosophy and models were a blend of technical analysis, contrarian sentiment analysis and traditional fundamentals. In fact, he was a pioneer in the study of investor sentiment. Marty is credited with the creation of the "put/call ratio," an options-based sentiment indicator that illustrates the relative strength of bullish or bearish cohorts. He was also before his time in understanding the influence of Federal Reserve policy on markets, having personally coined the phrase, "Don't Fight the Fed," which has become almost ubiquitous today.

In Marty's book Winning on Wall Street, he called Jesse Livermore one of his heroes and "one of the most fabulous traders of all time;" recommending that people read the 1923 book about Livermore, Reminiscences of a Stock Operator by Edwin Lefevre. It was the first book about the market I read; it remains one of my favorites, and one I always recommend when people ask about the best market books.

Here's a quote from Livermore: "People don't seem to grasp easily the fundamentals of stock trading. I have often said that to buy into a rising market is the most comfortable way of buying stocks… Remember that stocks are never too high for you to begin buying or too low to begin selling." These words were quoted often by Marty, because he believed in "buying strength, selling weakness and staying in gear with the tape."

The trend is your friend

Marty is also given credit for popularizing the phrase "The trend is your friend." He was a trend follower, not a trend fighter; smart enough to realize that "a slap is easier to recover from than a beating…" He considered himself both conservative and aggressive. By nature he was conservative and risk-averse, wanting to protect himself and the people to whom he gave advice. But he also believed there were times to be aggressive. "The problem with most people who play the market is that they are not flexible."

In addition to introducing me to the musings of Jesse Livermore, Marty also connected me with several market greats, whose research I continue to read and share with you, including Ned Davis, Steve Leuthold, Laszlo Birinyi and Mario Gabelli.

Telling it like it is

One common trait among these great market analysts is that they're humble (yes, even Mario in his own way). And, they tell it like it is. When I write or speak, I try to heed that call. I remember talking to Marty on the eve of my first Wall $treet Week appearance as a guest in 1997 (I became a regular panelist shortly thereafter). He had a few simple recommendations for me: "Be yourself; speak in lay terms; and don't pretend you know more than you do. Be humble and gracious, but also have fun."

Just before I came on set to be interviewed, Lou also gave me advice I'll always remember. He asked me whether my parents were finance people. I told him there were far from it, neither having any background in our business. He said, "Well then, when you come out and talk to me for our interview, get them to understand what you're saying." Boy, were those ever words to live by.

Sleep better at night

"Summing it up, to succeed in the market you must have discipline, flexibility—and patience. You have to wait for the tape to give its message before you buy or sell." These words from Marty still ring true, and it's why I cringe when I'm asked about market tops and bottoms as if anyone can call them precisely. "…you must forget about trying to catch the exact tops or bottoms, which no one can consistently do anyhow. But success in the market doesn't require catching those tops and bottoms. Success means making profits and avoiding losses. By using [his theories] and waiting for a trend to develop, you can make money, stay in tune with the tape and interest rates, and, best of all, sleep better at night."

Rest in peace, Marty.

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