Lyman M. Lowry
Lyman M. Lowry majored in Finance at the University of Nebraska, and his first taste of the stock market came in 1925 as a junior trust officer in a Florida bank. Initially, Lowry adopted the existing investment philosophy of the bank, which relied almost exclusively on the "fundamentals" and the news developments of the day. However, as the 1929 stock market crash unfolded, he quickly became disenchanted with portfolio managers who, frozen with fear, comforted each other with assurances that they owned nothing but high quality stocks, rather than preserve what was left of their customers' capital. Dissatisfied with the results of relying largely on fundamental analysis, Lowry left the bank in 1933 in favor of independent research.
He felt that there must be a way to analyze the condition of the market itself, rather than attempting to analyze the conditions surrounding the market. His search for a better method of analyzing the market led him to the Dow Theory. His enthusiasm for the Dow Theory was initially positive. However, he eventually found that even the so-called experts often disagreed at major turning points in the market. His conclusion was, "If the experts can't agree, what chance have I got of coming up with the right interpretation?"
Again disillusioned, Lowry undertook his own research of the stock market. Having majored in Finance, Lowry was well aware the first chapter of nearly every basic textbook on the subject of macro economics discusses the importance of the Law of Supply and Demand. And yet Lowry could see no evidence of this principle being used in the analysis of the stock market. It was his conviction that market trends override fundamentals and that the trends were ultimately the product of the basic Law of Supply and Demand. Thus it followed that, regardless of the reasons why, if the desire to buy is stronger than the desire to sell in any given period, prices automatically rise. And if the pressure to sell exceeds the desire to buy, prices automatically decline. It was as simple as that.
However, another important question needed answering. How do stocks reflect an over-balance of buyers in one period and an over-balance of sellers in another? With this question in mind, he set out to determine a method to measure Supply and Demand as it applies to individual stocks and the equity market in general. In the end, Lowry concluded that it all came down to price and volume. If a stock ends the trading day at a price above its previous close, it seemed reasonable to assume that it was purchased with more enthusiasm than with which it was sold. And given that the desire to buy or sell can also be measured in terms of activity, the volume of trading should be a prime consideration. Thus the action of the entire market, encompassing the individual actions of insiders, specialists, tape readers, fundamentalists and all other investors, could be reduced to simply four basic components: (1) Total gains for all stocks closing higher than the previous day's close; (2) the total volume of trading in stocks registering gains; (3) total losses for stocks closing lower than the previous day's close, and; (4) the total volume of trading for declining stocks.
Using data from the Wall Street Journal back to January 1933, Lowry calculated these metrics for each stock traded on the NYSE. It was an enormous effort given the fact that in those days there were no computers or databases, just hand-cranked adding machines.4 Upon compiling the data, Lowry then began a series of exhaustive tests of various moving averages from 3 to 180 days run singly and in various combinations, to find the optimum way of using the data to portray Supply and Demand and measure market trends. "The studies made so much sense to me that I figured they would also be of interest to any serious student of the market." Thus with Mansfield Mills, an old friend with vast advertising and business experience, the firm Lowry and Mills was established at 40 Wall Street, New York City, in April 1938. To this day, nearly 80 years later, Lowry Research Corporation publishes the original indicators developed by Mr. Lowry from its offices in Palm Beach Gardens, Florida.