NRG Energy is an integrated power company headquartered in Princeton, New Jersey. Wayne Himelsein, one of my managers, has been calling short-term price movements more accurately than anyone else for the past 17 years. Just as the best poker players win by reading other player’s “tells,” Wayne evaluates the market’s “tells” to determine when to be aggressive and when to hang back. He says it's time to buy NRG.
Ken Kam: Wayne, NRG closed at $24 on February 8. On Friday, it closed a little over $35. The stock is up 46% from its low this year. Why is this the right time to buy NRG?
Wayne Himelsein: As I said about Advanced Micro Devices at $16, the best investments are the ones the rise quickly after you make the purchase even if you didn’t buy at the low.
Kam: AMD is over $25 now so your point is well taken. What market "tells" do you see about NRG?
Himelsein: Since hitting the February low, NRG has gained ground in a stable and consistent manner, but sometimes with vigor, while paying little attention to its own sector and the broader market. The trading on Friday was a perfect example, the S&P 500 was flat, the energy sector benchmark (XLE) was down, but NRG was not only up, but making new highs.
NRG persevered in the face of adversity.
Kam: Is that the tell?
Himelsein: When a position all but ignores its companions to surge ahead and leave the competitors in the dust, it’s quite often confirmation of excessive demand from buyers. To be sure, the buyers were not phased or restrained by either the broader or related market associated with NRG; they loved it regardless.
Kam: How long has NRG been leaving its competitors in the dust?
Himelsein: We started to see evidence in February. When the broader market corrected, the energy sector got equally rocked, and NRG just stopped hard at its 200 day moving average.
Kam: Is the 200 day moving average a significant number to track?
Himelsein: It helps me to separate the small moves which are just noise from the ones which signify something significant.
Kam: How did NRG do in the February correction?
Himelsein: The 200 day moving average was like a foundation of stone. NRG sellers spent just about a week pushing down against the solidity of the concrete, and when the sellers gave up, the stock bounced up like a champion to make new highs in March.
It took the S&P 500 till this past week to make new highs from the February move down; it took NRG barely a month. So, while all the crowds were rushing out from stocks everywhere, a good lot of them wanted in on NRG, and they wanted in quickly.
Kam: Why didn't you buy it March?
Himelsein: From that new high in March, the stock hung out calmly and securely in the low 30’s, making further new highs in April and then in May before trading back to March levels in June and July, and back again to May levels in early August. Like a gentle rocking chair, buyers and sellers just hung out and talked for a few months, causing very little commotion. But each time buyers and sellers rocked the stock backward, they wouldn’t let the rocking chair go back quite as far as it did in June; higher lows are buyers growing their eagerness.
Kam: What makes this August uptick different?
Himelsein: Throughout August, the buyers started to get antsy; “we want more”, “we want more”, they chanted. And then on Friday, they took what they wanted, making a brand new high in the face of a flat market and an industry down day. They didn’t care -- the patience of the buyers had worn thin; they were done rocking.
Kam: Where does NRG go from here?
Himelsein: Onward and upward.
My Take: Few people attempt to forecast the price of a stock in the short-term because it is too easy to be proven wrong. Many managers will only give long-term forecasts because if they are wrong, no one will remember so they will never be held accountable.
In contrast, Wayne says it is easier to forecast stocks in the short-term because there are fewer variables you have to consider. Over the long-term, there are too many variables that can change making an accurate forecast next to impossible.
Wayne believes forecasting stock prices to similar to forecasting the weather. The weather forecast for the next 24 hours is much more accurate than the forecast for next month or next year. I think he makes a good point and it is reflected in his investment track record.
Wayne’s Logica Focus Fund (LFF) has a 17+ year track record at Marketocracy. Over that period, Wayne's model averaged 13.23% a year which compares well to the S&P 500's 6.02% return for the same period. In August 2012, LFF was made available as an investment option for clients in our separately managed account program. Since then, the composite of our client returns has exceeded the return on the model portfolio.
Because LFF consists of large-cap, liquid stocks, the S&P 500 is an appropriate benchmark. For those who aim for the lowest fees, an index fund is hard to beat. But for those who aim for the highest return after all fees, LFF has been a better choice for years.
For the full Forbes.com article, please click here.