The American Spectator

Another Perspective

Seventeen-year-old Reed Floren got his first computer in seventh grade, when he started going to the Minnesota New Country School, a charter school in St. Peter, Minnesota.

At that time, says Reed, whom I've gotten to know through the bulletin boards on Investor's Business Daily's Investors.com site, "I didn't really know how to operate a computer. I barely knew how to use a mouse."

It didn't take Reed long.

"I learned about programming," he says now. "In eighth grade, I wrote I book that's used by the state of Minnesota on teaching web design." The book has no title. "Just 'The HTML book.'" In the cavalier fashion of the teenager, he didn't publish it or make any commercial claim on it. The photocopied pages were merely passed around, and now form part of the curriculum at the Minnesota extension schools and the 4H. Or so Reed thinks. He doesn't really keep track.

It also didn't take Reed long to get into some trouble.

In 2002, his school's economics class offered a stock-picking contest. Reed had started reading Investor's Business Daily that summer, and he also subscribed to the Wall Street Journal and Barron's. The contest started in mid-February, as Reed remembers, and he did well initially. "I'd gone up about $30,000 or so" on an imaginary $100,000 investment by early March.

"Then I put my money in a mutual fund, and it crashed down to about $78,000."

Reed went back to picking individual stocks. "Then from March to May, I went from $76,000 to $2.3 million in 90 days."

HE CONCEDES THAT HIS imaginary method would not work in real life. He based his picks on after-hours price gains and on new earnings declarations. An ordinary individual investor couldn't get the prices that Reed got in his imaginary scheme. But the experience whetted his already-keen interest in economics and the stock market.

As for investing philosophy, "I'm a firm believer in CAN SLIM," the proprietary stock picking system developed by William J. O'Neil, author of How to Make Money in Stocks (McGraw-Hill, 2002) and publisher of Investor's Business Daily. That's where the trouble started. Reed, a quick study, started posting tutorials and analyses and links to his own website via the Investors.com bulletin boards. He called his own site IBDU.com, for "Investor's Business Daily University."

He was shortly told to cease and desist by a vice president at IBD. IBD complained of links to copyrighted material, drawing people away from their own website (an ongoing battle on Investors.com, where many posters are also investment advisers or newsletter writers), and, of course, misappropriating "IBD" for his site's name.

As Reed tells it, IBD also complained that his discussion forum had the "look and feel" of Investors.com. Indeed it does. Reed's rejoinder must have stung a bit: "I was just using form software I got for free on the Internet. I didn't hand-code the forum to look like theirs." (So if you could make a bulletin board like IBD's using free software…You can practically hear the wheels turning at IBD.)

IBDU.com survives as Reed Floren.com Forums. For an example of what Reed can do with a computer (if you're an Excel geek), check here. The whole conflict got documented in a well-written story by Bob Fenske in the Mankato Free-Press. Kudos to Fenske. MSNBC picked up his story and byline on January 16.

REED'S SKILL WITH SPREADSHEETS made his name on Investors.com, where he is now one of the four or five best-known posters. (Typical comment on the IBD brouhaha from his fellows: "Hire him!")

Bruce Brotnov, of Lewiston, Idaho, "noticed he was doing a lot of things with Excel and the IBD 100." That's the list published every Monday of Investor's Business Daily's top-performing 100 stocks. "Then I found out his age, and I was even more impressed."

Bruce started asking Reed to run various tests on the IBD 100, particularly to reveal price-earnings ratios (PE). "Anything you wanted him to figure or manipulate on Excel, he'd have it back in about two minutes."

Bruce, 58, an investment adviser who runs the site Poormans.com, began a study with Reed, testing the performance of IBD 100 stocks with high PEs (above 23) versus low ones for 10 weeks. It is an article of faith in the CAN SLIM system that price-earnings ratio doesn't make any difference in historic stock performance. "I thought we'd challenge that," Bruce says in his mild country accent.

Bruce and Reed ran the test for 10 weeks, November through December last year, and published the results week by week on Investors.com. The low PE stocks beat the high ones by a ratio of about three to one. IBD took notice, and published a breakout of the IBD 100 themselves, featuring low PE stocks.

That comparison won't always play out, as Bruce concedes. "When the market gets crazy, with a lot of emotional buying, the low PE stocks don't do so well."

Reed Floren will go to college soon, he's not sure where. Maybe the University of Minnesota, maybe hometown college Gustavus Adolphus, maybe one of the Ivies, if his tests are good enough.

I'd say there are few limits to where Reed can go. His website is actually pulling in advertising.

topics:
Economics, Business