Now that he's left the staff of the University of Waterloo, retired math professor Peter Ponzo has all the time in the world for researching market-beating formulas and strategies. The only problem is that he, er, doesn't have any time for them.
Ultimately, the 68-year-old says, "I don't think that mathematical stuff does much good.
"While you can play with past statistics, mathematical formulas don't give you much insight into what will happen in the future because they don't reflect human nature and investor sentiment, and that's what drives so much of the market." How he does it When Mr. Ponzo left academia at the age of 59, he didn't want to take the big hit on his pension payments prompted by his early retirement, which would have left him with only $2,800 a month before taxes. He felt he could do better by opting out, rolling the money into a registered retirement savings plan and managing his money himself.
His wife, in an astute move, persuaded him to take half that money and buy a life annuity. Interest rates were much higher at the time -- the annuity is based on 9.1 per cent -- and haven't seen those heights since. The move has paid off, so much so that Mr. Ponzo's financial adviser, who had been asked to give the couple a call once a year to let them know what he could do annuity-wise for them with the rest of their funds, eventually gave up calling, unable to offer them anything remotely as appealing.
The other half of his pension money became his tuition as he went about an in-depth and, at times, costly independent study into the way of the stock market.
"My portfolio could go to zero and we could live comfortably. That's why I can afford to put all my money into one basket."
Despite some early successes, his investment portfolio is a quarter of what it was at the height of the boom in early 2000, he said.
"If we have a good year, we take a trip to China, like we did in 1998. If we have a bad year, we stay at home and play canasta."
And canasta is what the markets dealt the Ponzos last year and this year.
One of the first financial truisms Mr. Ponzo put to the test was the notion that if one wanted to leave one's principal intact by withdrawing, say 4 per cent a year, it was best to maintain the same level of withdrawals year in and year out. Well, not so, said Mr. Ponzo, who ran some numbers and concluded that it's best to take out less in the years one's portfolio does poorly, and more in years when the profit pours in. (He compiles his research -- much of it the result of questions from other investors -- on his Web site at http://home.golden.net/~pjponzo/gummy--stuff.htm. His mathematical muck-raking also has him coming down against dollar-cost averaging. "I think you should invest in the market as soon as you have the money." The reason is simply that the markets tend to rise more then they fall, so that at any given time, you have a better chance of your money growing and then shrinking, compared with the results of slowly moving it into the market.
He made good money on the very first stock he bought -- Ciber Inc. (CBR-NYSE) in 1995 -- by trading it over a couple of years using a modified moving average. Instead of looking at a stock's average price over a period, and the trend that suggested, he added another variable -- the volume. In essence, he assigned more weight to a stock's price on any given day if the volume was heavier than usual, and less weight on days when the stock was lightly traded. In fact, from November, 1998, to June, 2000, while the stock drifted from $21 (U.S.) to $17, Mr. Ponzo made an annualized return of 24 per cent.
Brilliant, except it didn't hold water when he tried it on other stocks. And so it has gone as he has tried various other number-crunching methods to maximize market returns. In the end, he said, he figures anybody who's busy working and raising a family is best off just trying to mirror the market's performance by investing in exchange-traded funds or an index fund.
But he's still playing with other strategies. He keeps an eye out for companies that have been taken out at the knees for missing their earnings estimates, and also tracks stocks hitting new lows (using data from money.cnn.com/markets/us--lalerts.html). with the hopes of catching them on a rebound.
He also enjoys betting a little on the comeback chances of fallen giants.
"For me, it's a lot of fun to put a little money into a company that's almost bankrupt." Most recently, he kissed goodbye to a few dollars by buying 1,000 now-worthless shares of Enron Corp. at 48 cents. "It's a lot easier for a stock to go from 50 cents to $2 than it is for it to go from $10 to $40."
Currently, he has 25 per cent of his portfolio in cash, and is raising even more by slowly selling his "Mickey Mouse losers." He wants to be in a position to buy if another terrorist attack takes the market down.
"I hate to take advantage of it, but I suspect there will be another 9/11," he said. "I don't see how you can stop it in a country as open as the United States." Best move When he heard about Sugen Inc., a San Francisco-based cancer therapy company, he decided to put most of his eggs in one basket -- 70 per cent, to be precise. "They had a whole pipeline of cancer products, and the more I learned about it, the more I thought if it doesn't double or triple, somebody will buy it."
Eventually, somebody did, with Pharmacia & Upjohn Inc. picking up the company in 1999. Ever the mathematician, Mr. Ponzo said that while the stock price doubled in a matter of days, "it really took two years." Worst move They say an apple never falls far from the tree, but they never really talk about how far it will fall. On the principal that the market often overreacts to bad news, Mr. Ponzo thought he would pick up some badly bruised shares of Apple Computer Inc. (AAPL-Nasdaq) after the computer maker's stock dropped by 50 per cent early in the fall of 2000, paying $25.80 a share. But instead of snapping back, the stock continued its plummet, and Mr. Ponzo got badly bruised before bailing out at $14 a share in December.
Advice "Put as much money as you can afford each month into an exchange-traded fund or index fund and then ignore it, because eventually the market will go up." The investor
Peter Ponzo Age
Retired math professor Investment personality
Non-indexed life annuity, Bombardier, Genesis, 360 Networks, Com Dev, Corel. Portfolio size
Six figures Rate of return