Steve McDonald: Hi, everybody. I’m Steve McDonald. This is your Market Wake-Up Call. Our guest this week is the Marc Lichtenfeld, the Club’s pharmaceutical and supercomputer guru. I never quite understood that combination. He’s here to talk about what type of bull or bear signals his system is giving off. Hi, Marc. Marc Lichtenfeld: Hi, Steve. Steve McDonald: Glad to have you back. You have a really unique system. Give us a quick overview of what it’s about. Marc Lichtenfeld: Sure. So the system is called S.T.A.R.S., which stands for Stock Trading Analytical Research System, and it’s designed to take an analyst’s bias out of figuring out which variables are important in predicting a stock’s performance. So, for example, as an analyst, if I think cash flow and price-to-earnings are really important variables that I should be looking at... what we did is we took every variable we could think of, threw it at the wall and saw what stuck. We let the computer tell us which variables were the most important and in what combination. So for an example, price-to-earnings ratio actually is not in the master formula for S.T.A.R.S. It determined that in the combination of variables that worked the best over the last 15 years or so, price-to-earnings ratio was not as important. Cash flow was important; return on equity was important. So basically it was throwing everything at the wall, letting the computer tell us which variables are most important in determining a stock’s future performance. Steve McDonald: Now I know it wasn’t designed to predict market moves, macro moves, but it’s been pretty accurate, and we’ve had a huge run-up this year. Was it kicking out enough picks that you said, “Yes, we’re going to have a big run-up”? Marc Lichtenfeld: As you mentioned, it was designed for individual stocks, but we’ve been using the system for several years now, and when we see a large number of stocks appearing on S.T.A.R.S., that’s usually an indication that the market’s going to move higher. When it’s lower, that means either a sell-off is coming or we’re at least flatlining. So as the market did hit new highs, yes, we saw an increased number of stocks, but over the last few months it’s been really choppy. Even though we haven’t gone down, the system has backed off quite a bit and we haven’t seen as many stocks. Now just in the last week, I’ve seen it starting to tick higher again. Not to the point where I’d say it’s outright bullish – and interestingly September is often a tough month. So at least on the macro picture from what S.T.A.R.S. is telling me, things may be looking a little bit better, but I wouldn’t necessarily back up the truck yet. Steve McDonald: So are we topped out? Is that what your system is saying? Is this something we should be paying attention to? Marc Lichtenfeld: Very difficult to say. It doesn’t necessarily make big bottom or top calls unless you see a really drastic number. Actually, you probably remember. You and I were on together in West Virginia when the market was terrible and I was saying, yeah – Steve McDonald: Yeah, you were saying, “Back up the truck. Buy everything that’s loose.” Marc Lichtenfeld: Yeah, now back up the truck. So I’m not saying anything in those extremes. I’m seeing “right in the middle, getting slightly better” right now. So I certainly wouldn’t say it’s a top or that we’re about to take off. So things are getting a little bit better is what I would say. Steve McDonald: So it’s a system that isn’t designed to make predictions, but it’s very accurate in its predictions. Marc Lichtenfeld: Yeah, it’s done pretty well. That’s a neat little side benefit of having the system. Steve McDonald: Even with the choppiness this year, more winners than losers? Marc Lichtenfeld: Oh absolutely, yeah. Today as we’re talking one of our stocks popped on an earnings beat. Steve McDonald: Oh good. Marc Lichtenfeld: So that was really nice. Steve McDonald: That’s nice. Marc Lichtenfeld: Nice when that happens. Steve McDonald: So it’s not a predictive tool, but it predicts. It kicks out a lot of stocks when things are good and it doesn’t kick out any when things are bad... something you should take a look at. This is quite an interesting system. I’m not a systems guy, and I like it very much. Marc, thanks so much for being with us. Marc Lichtenfeld: Sure. Thanks for having me. Steve McDonald: It’s my pleasure. For everybody here at the Market Wake-Up Call, I’m Steve McDonald. Thank you for being a part of this. We’ll see you next week. [End of Audio]