The Importance Of Stock Volume

We got some great wisdom here from our founder, Dan Celia, who is now with the Lord, answering the following question. How important is volume in a stock? Now, before we play this clip here, one thing to note. Dan tells a great story, actually from his trust company days.

He mentions McDonald’s and how McDonald’s at one point, it seems like a lifetime ago, was actually biblically responsible. It no longer is, but that just tells you how long the story is. The clip itself is only from several years ago, but Dan talks about back in his old days when he ran his trust company, and that was back, of course, when McDonald’s was biblically responsible.
So that was for many, many years ago. But enjoy this great wisdom from our founder, Dan Celia, answering the question, how important is stock volume? Here’s Dan Celia. How important is volume when it comes to stocks? It’s very important to me.
I understand it a little bit, maybe differently, but it’s important to me because it helps develop a kind of mood and a trend. So now I’m not talking about, let me clarify this, and I’m not sure, Glenn, what you’re talking about. When it comes to volume in a particular stock, if the volume is very high on a particular stock, to the negative people selling, there’s probably something going on.
So you have to think about that. And it’s true on the upside, too. But I look at volume overall in the market, and I look at that almost on a daily basis because, and the reason why is volume means conviction, okay? So if a stock is up dramatically and the volume in that stock is up dramatically, meaning the volume is all positive, it’s showing that for one reason or another, even if you don’t know how to find the reason, what it’s saying is there’s a great deal of conviction on Wall street about this company on the, on a positive, in a positive way.

And that’s what it’s telling you. And if you own that stock, you ought to feel pretty good about that. The same is true on the downside.

It shows conviction, but you have to be careful on individual stocks. I always use this example. It’s an old example.
I’ve used it, but I use it for years because it’s always the first thing that comes to my mind. Many, many years ago, back when McDonald’s was biblically responsible, that was a lot of years ago, I was still managing hundreds of millions of dollars in trust money. And I’m driving to Binghamton, New York.

So I’m, I remember very carefully, I’m driving to Binghamton, New York. So I’m listening to financial news, and they said the CEO of McDonald’s, there’s a fairly young guy, I think he was at the time like 52, 56, somewhere in that neighborhood, had a heart attack and the stock was tanking. So they said he had a heart attack, but he seems to be doing okay.
And the stock was dropping like a rock because he was a very good CEO. He’s no longer the CEO. He was a very good CEO.
Did an awful lot. McDonald’s had been like the growth company of the last two centuries, and everybody was selling. I remember calling Pat and I said, pat, I don’t.

I can’t do this. I’m headed to this meeting up in Binghamton, and I’m an hour away. But I need you to tell.
There were some guys in the office to tell these guys now that you want to get into every single portfolio. And most people had positions in McDonald’s in the portfolio, the trust people. And I said, significantly add, don’t deplete their cash totally, but significantly add to the position in McDonald’s.
The reason I’m telling you this example is because the conviction on the company was negative because everybody was selling. But the guy had a heart attack, and it was clearly a knee jerk reaction. I have never and never will again.
It was the most money that I had ever made, not for me, but for our portfolios. The most money that was ever made in our firm in two weeks in one stock. It was astronomical.

I don’t remember the number, but it was unbelievable. And because the stock recovered back up in two weeks, and we had so much of it down considerably that it was in the millions of dollars that that were made. So you always.
So sometimes the movement, Dan, you say, well, I should sell. Everybody selling. It’s a conviction.

You got to be careful if you’re going to watch that. You really need, if you’re going to react to volume, if you want to get kind of an overview of the market’s sentiment, then it’s okay to look at volume. If you’re going to use volume as a reaction to buy or sell, you really need to know why and what you’re looking at, or you’ll get burned.

So all the people that were having knee jerk reactions for McDonald’s that day, there were probably a lot of, a whole lot of people that sold because of the knee jerk reaction, not even knowing what the issue was.