How to Make Money in Stocks

Transcription

1 How to Make Money in Stocks A Winning System in Good Times or Bad William J. O'Neil Second Edition McGraw-Hill, Inc. New York San Francisco Washington, D.C. Auckland Bogota Caracas Lisbon London Madrid Mexico City Milan Montreal New Delhi San Jüan Singapore

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3 Contents Preface ix

4 vj j 9. When to Seil if Your Selection or Timing Might Be Wrong Contents 85

5 Preface

6 How to Make Money in Stocks

7 PART l A Winning System: C-A-N S-L-I-M

8 Introduction:

9 A Winning System: C-A-N S-L-I-M

10 6 A Winning System: C-A-N S-L-I-M aren't misled by comparing current earnings to nearly nonexistent earnings for the year earlier quarter, like 1 cent a share.

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14 2 A = Annual Earnings Increases;

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16 18 A Winning System: C-A-N S-L-I-M

17 20 A Winning System: C-A-N S-L-I-M faulty method of selecting stock investments based chiefly 011 low P/E ratios and go wrong more often than not.

18 3 N = New Products, New Management, New Highs: Buying at the Right Time It takes something new to produce a startling advance in the price of a stock. This something new can be an important new product or service, selling rapidly and causing earnings to accelerate above previous rates of increase. It could also be new top management in a company during the last couple of years. A new broom sweeps clean, or at least may bring inspiring ideas and vigor to the ball game. Or the new event could be substantial changes within the company's industry. Industrywide shortages, price increases, or new technology could affect almost all members of the industry group in a positive way.

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25 36 A Winning System: C-A-N S-L-l-M

26 38 A Winning System: C-A-N S-L-I-M June 1972, a normally capable, leading institutional investor in Maryland bought Levitz Furniture after its first abnormal price break in one week from $60 to around $40. The stock rallied for a few weeks, rolled over, and broke to $18.

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29 M = Market Direction 45 7 M = Market Direction: How to Determine It You can be right on every one of the factors in the first six chapters;

30 46 A Winning System: C-A-N S-L-I-M

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32 50 A Winning System: C-A-N S-L-I-M Watch for Heavy Volume

33 52 A Winning System: C-A-N S-L-I-M HOURLY

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36 58 A Winning System: C-A-N S-L-I-M (a popular but overrated index) or, as is most often the case, on the way down from a peak in the index reached four to eight weeks earlier. These

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40 66 A Winning System: C-A-N S-L-I-M investment advisors were bearish that the next time the advisors' index

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43 72 A Winning System: C-A-N S-L-I-M lios for year-end tax benefits. Odd-lot figures also have seemed to be of less importance in recent periods. The odd-lot, short-sales index, which measures the percent of total odd-lot sales that are short sales, is one constructive measurement of crowd psychology and often has signaled the bottoms of bear markets. When you reach a point where numerous small investors conclude the only way to make money is to sell short, you are very late in the down

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48 82 Be Smart from the Start If you don't know the name or location of a stock brokerage firm that is

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50 86 Be Smart from the Start This point of Baruch's was proven to my satisfaction in the case of an account I managed many years ago. In 1962, the general market took a 29% nosedive and we were right in only 33% of the commitments made

51 88 Be Smart from the Start Buys 100 Navistar 100 Luby's Cafeterias

52 90 Be Smart from the Start dent selection and lost money, you are making decisions exactly the opposite of those you would make if you were running your own business.

53 92 Be Smart from the Start Cutting Losses Is like Buying an Insurance Policy

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55 96 Be Smart from the Start And human nature being what it is, 90% of the people in the stock mar-

56 go Be Smart from the Start Joe Kennedy's Stock Market Secret

57 100 Be Smart from the Start About this time, I was accepted to the Harvard Business School via

58 102 Be Smart from the Start

59 104 Be Smart from the Start overall perspective to avoid getting scared or shaken out in what may just be a normal pullback.

60 106 Be Smart from the Start 27. Sell quickly before it becomes completely clear that a stock should

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62 110 Be Smart from the Start How Many Stocks Should You Own? An individual investor with even a large portfolio of a million dollars

63 112 Be Smart from the Start It is absolutely essential that you understand that when the general market declines and your stocks start sinking in price, you will lose your

64 114 Be Smart from the Start rate of increase or have turned down. Furthermore, the stock's rela-

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67 120 \ Be Smart from the Start Community Psychiatric March 1977 to April 1987, $11 to $590

68 122 Be Smart from the Start just like everybody else. The United States' system of freedom and

69 124 Be Smart from the Start deal falls through or other unforeseen circumstances occur. In other words, it can be a risky, volatile business and in most instances should be left to experienced professionals. Should You Buy Foreign Stocks?

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72 130 Be Smart from the Start You should, furthermore, be careful of putting too large a down pay-

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76 138 Be Smart from the Start growth. Their policy of remaining heavily invested at all times does,

77 14 Models of the Greatest Stock Market Winners Now that you've previewed C-A-N S-L-I-M and know when to sell and cut a loss or nail down a profit, I should mention that a number of the models of

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83 152 Investing like a Professional Models of the Greatest Stock Market Winners

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85 156 Investing like a Professional Models of the Greatest Stock Market Winners

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87 15 How to Read Charts like an Expert And Improve Your

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89 164 Investing like a Professional Cups without handles have a somewhat higher failure rate, although

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93 172 Investing like a Professional Houston Oil & Minerals Pattern Tightens Up

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97 16 How to Make Money Reading the Daily

98 182 Investing like a Professional This, of course, could be crucial intelligence because it gives an

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112 210 investing like a Professional refer to the stock's chart to see if the stock is in a base-building period or if it is extended from a base. If it is extended in price, leave it alone;

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114 214 Investing like a Professional Don't Buy into Overhead Supply Last, a professional tape reader always avoids buying securities as they

115 216 Investing like a Professional Interpret and React to Major News

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119 224 Investing like a Professional The "Follow-On Group Effect" When efficient new jet aircraft took to the skies in 1963 through 1965, airline stocks also flew. As a result of materially increased air travel, the hotel stocks had a tremendous bull market beginning in Loews

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128 242 Investing like a Professional Is In-House Pension Fund Management the Answer? A few corporations that become disillusioned with their pension fund performance decide to move their money in-house. I doubt that going in-house provides any serious advantage because the problem is still the

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130 246 Investing like a Professional The savvy individual investor has a gigantic advantage in not having to listen to 50 different strongly held opinions. Perhaps the common-

131 248 Investing like a Professional ping and expect the next three months and much of 1994 to be a somewhat more difficult year. Many of President Clinton's proposals appear to us to be unsound, particularly in the healthcare area. Our estimate is that 10 years from now,

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133 252 Investing like a Professional Taxpayers normally have to ante up when these funds have mediocre performance. In some cases, states might be better off turning their investment portfolio over to several professional money managers rather than having it run by state employees. Is an Index Fund the Way to Go? One last thought about the indexing of equity portfolios. A key fallacy

134 20 18 Common Mistakes Most Investors Make

135 256 Investing like a Professional General Motors necessarily a good stock to buy. Many of the best invest-

136 Accounts, opening, Accumulation/distribution, 184 Index

137 260 Cousin stock theory, 224 Crown Cork & Seal, 100

138 262 Institutional investor(s) (Cont.): management and, ,

139 264 Overbought/oversold indicator, 66

140 266 Tandem Computer, 34 Tandy, Charles, 234