Money flow information doesn't tell entire stock story

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published August 13, 2000

Q. I want to go for the ride with the "insiders." Can you help me get a ticket? A few weeks back, per CNN, there was $2.7-trillion out of the market sitting on the sidelines. When the good old boys start the move, putting it into the market, some company shares will go up $5 to $50 per share or more. Can you help?

A. Not much. If I knew which stocks were going up, I'd be busy buying them instead of trying to answer your question.

Looking at money flows into and out of stocks is one of many approaches to stock analysis. When a stock is purchased at a higher price (an "uptick"), that is considered positive money flow. When the next trade is at a lower price (a "downtick"), that's negative money flow. If more shares were bought on the uptick than the downtick, net money flow is positive because more investors were willing to pay a price above the market price.

Daily money flow is calculated by averaging the high, low and closing prices and multiplying by the daily volume. Comparing that result with the number for the previous day tells you whether money flow was positive or negative for the day.

Money flow and prices usually move in the same direction. When they diverge, that's a sign that a reversal could be about to occur. For example, if money flow is negative when a stock's price is rising, look out below. Typically money flow information is used in conjunction with other research rather than alone.

Money flow often is mentioned in financial news reports. Dylan Ratigan reports on this subject for Bloomberg Television. You can find his stock picks on the Bloomberg Web site (http://www.bloomberg.com/tv/moneyline/index.html).

Q. I inherited money from my father's bank account in Germany. Because the exchange rate is not very good, I am considering opening a German bank account and keeping the money in German marks until the exchange rate improves. Do you have any other investment advice on how to handle a foreign inheritance?

A. Your first consideration should be what you ultimately plan to do with the money. Do you want to invest in stocks? If so, leaving your money in a low-interest bank account contradicts your investment objectives.

I have no idea whether the dollar is more likely to strengthen or weaken versus the mark. Putting the money in a German account is a bet that the dollar will weaken. Another way to place that bet would be to buy shares in a U.S. mutual fund that invests in Europe and does not hedge against currency fluctuations. That may be a good compromise if you want to be a stock investor.

Q. Last year I bought stock in Shells Seafood Restaurants. I did the research and saw that for the past five years or so Shells stock went from about $4 a share for half the year to as much as $12 or $13 a share for the other half of the year (seasonal returns, it appears). I bought stock when it was low, and now it's lower. Should I sell, take the loss and move on, or should I hang in there a while longer? I've already lost half my investment, and I don't see any light at the end of the tunnel.

A. The best reason to sell a stock is to put the money in a more promising investment. Your gain or loss is a tax issue that should be a secondary consideration to investment potential.

Shells managers say they are trying to turn things around and improve profitability. If they are successful that should give the stock price a boost. The question you have to answer is whether you think they will succeed. It sounds as if you already have made up your mind on that point but are reluctant to sell because it means realizing a loss. Try to look at the decision objectively and consider what you think the stock will do in the future without regard to the price you paid for it.

Online money map

Looking for help understanding your phone bill? One place to turn for information is the National Consumers League (http://www.nclnet.org), a consumer advocacy group.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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