Benzinga's Exclusive Interview With VectorVest Founder: First of Three Part Series (SPY)

Benzinga's Exclusive Interview With VectorVest Chariman And Founder Dr. Bart DiLiddo: Part 1 of 3

Benzinga’s own Shane Edmund had the chance to sit down with VectorVest Inc’s Chairman Bart DiLiddo at the New York Traders Expo. DiLiddo provided a wealth of information; from a breakdown of what makes VectorVest unique, to his lighthearted view of Cleveland's athletics.

In the first of a three part series, DiLiddo outlines how he started the company and what made it successful for so many years.

S: Where did VectorVest come from?

B: Once I had a sense that I could really evaluate a stock using guided parameters, I began feeling more confident about what I was interested in and what I was rejecting. That was in ’78. In 1980 or 1981, I bought a Mac computer, and we started entering data on all the stocks and started ranking them and everything. And it was a tremendous amount of fun.

S: When was VectorVest founded? Obviously you had this idea and implemented it early on, but when did it become a business?

B: We actually produced our first commercial product in Jan 1988. That’s when we sold our first subscriptions. By that time I thought “Boy, this is going to be a lot of fun”. And it has been a lot of fun. We launched a product after that great crash of 1987. One thing we’ve done is we’ve been able to survive both bull and bear markets.

S: Do you think that’s a true testament to your product, as a great service to your clients, because they’re surviving in these markets and your business has continued to be successful?

B: Yes, we always had a sense of what the market was doing but when I first started I was pretty arrogant. I felt the stocks we were selecting were super star stocks and they would go up in any kind of market.

For example, in the summer of 1987, the market was very good. It peaked in August, then it started going down, and I had some indicators on market strength. The indicators were getting weaker and weaker, and I could see them. But my stocks were doing well, so I thought, “Boy, I’m going to sail right through this thing.” And of course, Monday October 19th, you never forget it.

I remember my wife and I were flying to San Francisco. And the limo driver picked us up and I said, “Hi Sandy, how’s everything going?” He replied with, “You’re not going to like what’s going on in the market.” So I asked him why is that, what is going on? "It’s getting killed.”

The Dow had dropped 520 points. By the time we got to San Francisco, it was later in the day, and I looked at the price of these stocks. I couldn’t believe it. They were totally devastated. Stocks I owned went down, they weren’t slaughtered, but they did go down.

S: What did you take away from that event?

B: After that I decided I needed to have stop prices, I needed to have more safety, as well as risk management. I also felt I’ve got to pay more attention to what the market is doing! I saw the warning signs in late August and early September, but I ignored them. So I felt I had to do a better job paying attention to what the market was doing.

And so we devised our market timing system. We formalized it, and began using it in VectorVest in 1996. Now we are in a position where we have been doing and publishing our views of what the market trend is since 1996. And we are trend followers; we do not forecast the market.

We feel, right now, that understanding market direction is the single most important thing you need to know. And if you don’t know what the market is doing, whether it’s trending higher or lower, it’s like driving around at night with your eyes closed. You don’t want to do that. And it’s amazing how many people just don’t have a clue. If you listen to the conventional wisdom, they tell you, you can’t time the market. You can’t do this, and you can’t do that.

S: I see where you are coming from. Why do you think they do this to the retail investors and traders?

B: The fact of the matter is the large brokerage houses don’t want you to time the market. Because they don’t want you selling your stocks when the market starts going down because you’re liable to take your money and put it in a money market fund- they want to have it all the time. Then they teach you how to dollar average on the way down, and all you’re doing is throwing good money after bad.

That’s what I meant when I said “A lot of the things I knew, were wrong”. For example, buy and hold is wrong. It’s about the dumbest thing you can do. Because in early 2009 the S+P (SDPRs NYSE: SPY) was where it was 10 years ago. And a lot of people that built up their portfolios in the late 90’s saw it all go away in 2008.

Click here to read the second part of the interview

Click here to read the final part of the interview