CNBC Pro Talks: How Carter Worth knows when it’s time to sell 10/22/24

0:01This is CNBC Pro Talks, where we go one on one on one with Wall Street's top investors, smartest traders, and rising stars. We find out what makes them tick, what makes them money, and how you can follow in their footsteps.

0:17Welcome to this latest installment of CNBC Pro Talks. I'm Dominic Chu. Joining me this month is Carter Worth. In his 35 years on Wall Street, Carter has led technical analysis at Cornerstone, amongst other roles. Now, he's the founder and CEO of Worth Charting, LLC. Carter, thank you so much for being here with us on CNBC Pro Talks. You bet, and thanks for having me. All right, so Carter, you and I have been very familiar with each other over the course of the last several years, a decade plus at this point now, with regard to your charts and your technical analysis. I wonder if we might be able to start with some of your background and bio information.

0:59I laid out some of the broad strokes just now, but this conversation is focused on the technical analysis that you do. So if you could walk us through how you came to the world of chart watching, technical analysis, as you started your career on Wall Street. Yes, please. So I would say just to start out, as is the case with so many individuals, in so many endeavors, you end up at a spot that's not necessarily predetermined or one that one thought might happen or could happen or even sought out. And that is the case with me. And so in the plainest of languages, I have no natural God-given talents to speak of.

1:40And what I mean is, if I could swing the golf club like Tiger Woods, I would have done that. If I could act like Tom Hanks or Denzel Washington, I would have done that. If I could sing like Mick Jagger, I would have done that. But given those limitations, having grown up in Manhattan, the cottage industry of New York City is finance. Just until the last three or four years, it was always the largest employer. Now hospitals are. But looking around, it was clear to me that there was outsized opportunity for outsized income, more so than in many other industries. And so I pursued a career in finance.

2:25And as is the case with most people, I started in the world what I call funny mentals, which is to say I started as an analyst at a firm called ValueLine. ValueLine is a publishing house that puts out one-pagers on stocks, very similar to the tear sheets from Standard & Poor's going back to the 1920s. And in fact, the founder of ValueLine had worked at Standard & Poor's. Now It's a common format. Morningstar, in fact, embraced it when that was invented years later. And so I was an analyst there, having answered an ad in the New York Times. And just for fun, I can tell you we had we showed up, we being all the people that answered that ad.

3:07And we were sitting in a big room, 40, 50 people. And there were two, three parts to this day. The first was you were given a math quiz. It was maybe 30 questions in 20 minutes. So they were quick little things. And then you went through it and did that. The second one were more problem solving. Something like, let's say there's a three by four foot plate of steel that's six inches wide. If you cut a circle out, what's the volume of the remaining? Now, somehow I couldn't do that now if my life depended on it. But at 25, I still had some of my schooling in me and I was able to make my way through that at least the best that I could.

3:50And then the final part was write an essay on the U.S. economy. And so then went about my business. I got a call about a week later and I returned and I was the only person there. So all 40 other 50 other people didn't seem to have made the cut. I guess they picked me. And so I worked at ValueLine for a year. And then I basically got the break of a lifetime. Donaldson, Lufkin and Jenrette, DLJ, sort of the preeminent boutique firm on Wall Street, ended up selling themselves in March of 2000 for about four to five times book, incredible to credit Swiss. But I got a job there working for the strategist.

4:30And this would be the prominent names that we all know now, whether you think of the strategist at Morgan Stanley currently or the one at J.P. Morgan or Goldman Sachs or the ones of lore throughout history. So you think of Abby Joseph Cohen, for instance, Ed Goldman, or Bernstein, for instance, right? Or Chuck Cloud, who had been the Merrill Lynch strategist now, runs his own firm. So I was working for the strategist at DLJ, and it is there that I started to become increasingly interested in price. Rather than studying companies' income statements and balance sheets and the projected earnings, I started to be very interested in what was at the time ridiculed.

5:16There were no quants per se. Charting was very not new. Charting has been around for hundreds of years, but it wasn't embraced and it wasn't respected. And now, of course, come full circle, it's all about ones and zeros, the greatest performers in the market. And many times, whether it's the recently deceased Jim Simons or Cliff Arnast, it's all about patterns. And, Don, I think pattern interpretation is not just a market thing. It's the way we all make important decisions. And we can get into that a little bit if you'd like. No, absolutely. I think one of the things that we want to talk about as well is you mentioned just the story, if you will, behind your career and your start.

6:02I'd also like to talk about some of the big characters and personalities. You mentioned some of the big names out there that kind of permeated through Wall Street at the time that you were kind of growing up in the business. I wonder if you might take us through any of the potential mentors or folks that kind of coached you through the field and some of the principles and theories that they taught you and how they've kind of shaped your thinking as a technical analyst in today's era. Sure. So the person that hired me there at DLJ, Eric Miller of Bronxville, he had worked at Dominic and Dominic.

6:41That might be either that or Alex Brown and Sons, the first broker dealer ever to be sort of registered and in business. And then ultimately Oppenheimer and then was hired at DLJ. And that was a very important individual in terms of putting me on the right path. But the single most important individual was the man I met there. His name was Vincent Boning. He was a technician having started as far back as 1960s in the Fidelity chart room. And for those who have never been there, you might get lucky one time in your life. It is the most definitive room that exists. It's not a room. It's a very large space that's got some of the greatest and long term running charts of all time.

7:31And so he he basically let me say this. I was I was disillusioned in many ways. And they say, well, it's good to be disillusioned. That's called the breaking down of illusions. And it is good to be disillusioned if you're in an endeavor, something is not practical. I was going to maybe leave and go seek out a medical degree or law, something different, because the error rate in predicting earnings, as you know, Dom, is so incredible. The notion of people studying companies and trying to get the quarterly results right that I didn't like that. But he he pulled me aside and he said, there's some things I can show you, I think, that will be very important.

8:14And so this individual basically changed my life. He put me on the path that I am on today. And it was like a really an old fashioned apprenticeship, like studying at his knee. In fact, I even left DLJ to just learn from him at the end of his career before then starting my own in the area of technical analysis. So far and away the most important influence. All right. So that leads me to my next question, because I'm listening to this and I think to myself, you learn about these things from a seasoned professional, a pioneer in certain aspects of the business. I wonder if you could tell us through or talk us through some of the principles that he taught you, Vincent did, and how you've kind of incorporated them into your world in your professional sell side career.

9:10And now that what you're doing with Worth Charting is kind of proprietary to yourself and your names on the door, what kind of principles and influences has he had on you and your role as founder of Worth Charting? Sure. Sure. So the number one thing, I guess, that I would say he really sort of imparted to me, and then we can add to that some of the things that, as I've gotten older, I've relied on, but it's respecting volume. And now, so a lot of charts don't look at volume. They say it's all in the price action and the moving average, but volume is the essential criteria. And so let's discussed that a bit.

9:53The existentialists, right, the Camus or the Sartre would argue that existence precedes essence, and in markets, volume precedes price. We're looking for some unusual activity. That's a heavy flow. It's the classic thing where if you and I, and actually this is a good moment to maybe use this reference. The basic principle of fundamental analysis, yes, is as follows. If Dom, right now I said, listen, next time you're in Boston, you've got to go to this restaurant. It is fantastic. Write it down. Stop the conversation. Write this down. And I was emphatic like that. Now, for you to consume that advice, yes, you would think one of three things you'd think, well, Carter's been there.

10:44I mean, truly, how could I be recommending that you go there if I haven't been there? Two, that Carter knows something about food. He goes to restaurants all the time, maybe business meals, or maybe he was in the prior life, studied the culinary arts, or maybe I'm the son of a restaurateur, that I know something about food, that I've been to the restaurant, that I've sampled its foods, everything. I've gone inside the meat locker, or I've interviewed the chef. I know a lot about it, and therefore I'm qualified, and I can make a recommendation to you. The approach of studying volume is exactly the opposite.

11:20It's as follows, and this is what I do for a living. It's in the business of pattern interpretation. So I'm a food idiot. Can't tell you the difference between tiramisu and chocolate mousse. Just sue me to hot dog. Don't care. Okay, and that's not the case. I love good food, but I'm using making a point. My premise is the premise of someone who studies volume as follows. It's a rainy night. We're in Boston. I stand across the street and I've noticed there's a bunch of restaurants all in a row. And restaurant one is sort of full, restaurant two, sort of full, restaurant three, empty, restaurant four, packed, lying around the block.

11:57I come back two nights later. I noticed the same pattern. Sort of full, sort of full, restaurant three, empty, restaurant four packed, lying around the block. I come back one more time, observe this same pattern. Restaurant four is packed, lying around the block. Guess what I can tell you? Having never been in there, the meats are succulent. The tables are spread apart beautifully. The music isn't too loud. The hostess and waitstaff is particularly polite and helpful. And the food is delicious. The wines are priced perfectly. We can study. We can go inside that restaurant and study it. But what we've learned, and people didn't even believe this early on, but now it's all gone this way.

12:39It's called Yelp. It's called crowdsourcing. Everyone knows that you don't turn to one expert, one expert, one analyst at investment bank A, investment bank B or C. We take a collective judgment and collective judgments, and that's studying volume when there's unusual activity. is the most wise of all. So to summarize it, there's wisdom in price. And there's so many examples, Dom, of this in life. There was, for instance, as you know, Who Wants to Be a Millionaire? That show, as you'll recall, just a game show. And it's the same principle. If you could answer the question, you went on to the next or the next.

13:19If you couldn't, you had a choice. You could, what? One, turn to an expert. Call an expert. Okay, so this question comes in, let's say, okay, it's on the Civil War. And the contestant doesn't know it, but he's thinking, oh my gosh, my father-in-law is a Civil War expert. He's a nut. He reenacts the thing on the weekend with the muskets. He studied the Civil War. He went to West Point. I could call the expert. Or on this question, you can't answer on the Civil War, I could turn to the audience and ask the audience. Now, who would turn to the audience? I mean, after all, who's an audience in a game show in the middle of a workday?

14:00These are a bunch of unemployed people. Why would we turn to the audience? But guess what the numbers are? The experts get it right, seven out of 10. The audience, nine out of 10. It's a reliable thing. There's wisdom in more inputs. And so the study of patterns in the market, and especially volume, is where there's unusual activity, a lot of shares changing hands, and a stock is starting to drop pretty aggressively on the day or rally. Who is that? Is that one big hedge fund moving it? Is it two in collaboration, which would be illegal, of course, or is it just the group? There's wisdom in price.

14:41The government knows this. The government uses stock prices as part of their leading indicator index. And the study of volume and price volume correlation is the single most important thing one can do if one wants to engage in pattern recognition and studying price action, trying to profit in the market. I got you. So, Carter, this is interesting because when you think about the stories that you're telling, when you think about the analogies that you're making, those are all things that seem logical. When we talk about the idea of looking at charts and using them and their patterns as ways of looking at history and seeing if those patterns repeat themselves.

15:23I got to figure many technical analysts have that same philosophy, right? Those same fundamental building blocks about looking at charts. I'm curious what in your mind sets apart your strategy at worth charting compared to, say, some of your peers or competitors on Wall Street that look at the same charts and may come to different conclusions, subtly or more overtly so. Yes, there is no difference whatsoever, meaning there's nothing that I do as proprietary. This is the oldest business in the world, right? Cap M is how old? I think it's 40 years old this year. Dividend discount models, discounted cash flow.

16:05A peg ratio is really invented because PEs got too high in the year 2000. So now we'll take different metrics. That's all brand new. Candlestick charting goes back hundreds of years, the study of price. And so the answer to that is, Dom, there's nothing that I do that's proprietary. And they're excellent chartists, both at an individual level and at a professional level. all over the world. Now, what you'll notice is that more often than not, chartists come to the same conclusion, not always, whereas, and interestingly, this is the curious part of all, in the world of fundamentals, in any given stock, you can pull it up and you'll have one house saying, let's say it's$100 stock, the price target 12 months forward is$140, and someone else is saying$80.

16:51Now, that should be clearer, right? Because they both have income statement, They both have balance sheet. They both have telephone. They both can study the, if it's a retailer, same store sales. They can study disposable income. They study trends in, in, in, and yet they can come to completely different conclusions. It's not so often that technicians come to different conclusions, but it does happen. cnbc pro talks is a monthly interview series that's part of cnbc's premium subscription service cnbc pro to hear the full pro talk interview including specific stock picks and investment strategies listeners can subscribe to cnbc pro at cnbc.com slash pro talks that's also where subscribers can submit questions for upcoming guests or pro members can email those questions to ask pro talks at cnbc.com Oh no nothing, I don't know.

17:45Wow, design is great. And here I'm feeling it. The only person in this car is overwhelming. Everyone gets rid of hats and mad that they can either hurt their waynehka or they can continue. And I'll be able to put doorskam' in astop dial just with a second and opal match heel.

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