How to Make Money in Stocks
O'Neil, William J.
Are you kidding? This is not the book to read on the train home from a day on Wall Street in the company of the shell-shocked, cynical, and sometimes besotted, who, having weathered the October...
...His very good advice comprises a mixture of three parts common sense and one part technical knowledge...
...The three parts of common-sense advice Mr...
...He also advises the investor to buy only a few stocks...
...This is not the book to read on the train home from a day on Wall Street in the company of the shell-shocked, cynical, and sometimes besotted, who, having weathered the October Crash, are reeling every time a double-digit merchandise trade deficit comes out, and the Dow drops 100 points...
...The stock market is not the place to get rich quick, writes Mr...
...He discounts Wall Street research reports, almost all of which tell the investor to buy or hold, when selling would be the timely thing to do...
...In the past, it frequently marked the beginning of bear markets and impending recessions when the discount rate was increased three times in succession, and it usually signalled the end of a bear market when the discount rate was finally lowered...
...finding out whether your stock leads or lags the market...
...The tone might be self-serving, but the substance is accurate...
...After his revealing description of how to read charts, and what they mean, Mr...
...O'Neil's formula is: "Don't dabble in stocks...
...making sure it has Joe Mysak is assistant managing editor of the daily Bond Buyer and TAS's chief saloon correspondent...
...In How to Make Money in Stocks, subtitled "A Winning System in Good Times or Bad," Mr...
...With just a little practice, you too will be able to recognize a double-bottom, a high and tight flag, and cupwith-a-handle price patterns...
...Success, Mr...
...Professionals who scoff at, or do not believe in, such important tools are openly confessing their total ignorance of the use of modern sophisticated measurement and timing mechanisms...
...O'Neil presents his formula for success in the market "whether you've got $500 or $50,000 to invest...
...Nor, I think, is it for the "little guy," the typical Ralph Kramden kind of investor who buys on tips from friends...
...The formula falls under the acronym C-A-N S-L-1-M, which more or less stands for examining current quarterly earnings per share...
...Learn how to make a net profit, and when you do, be happy about it, rather than complaining about having to pay tax because you made a profit...
...He has two main themes...
...O'Neil tells his readers to buy the best performers in a stock group, and to buy at the market, and not quibble over eighths and quarters of a point...
...Once again, however, the average investor, whether for reasons of pride or penury, hangs on to his losers, to salvage his ego or save on brokerage commissions...
...And he excoriates the egomaniacs who insist on fighting the market...
...Boiled down even further, Mr...
...Still, as author William J. O'Neil says, every bear market has been chased by a bull market that has soared to new highs, and there is money to be made...
...There is nothing here for the schemer, or for those who seek shortcuts and who abjure hard work...
...O'Neil advises his readers not to HOW TO MAKE MONEY IN STOCKS: A WINNING SYSTEM IN GOOD TIMES OR BAD William J. O'Neil/McGraw-Hill/S19.95 Joe Mysak 47 fight the market, and to learn to cut their losses early...
...O'Neil is didactic, and at times entertaining, taking some nice patriotic jabs at politicians and the press...
...Or he may wait until it is too late, hoping for the big kill...
...Don't be thrown off by the swarm of gloom and doomers...
...I have also never met a successful pessimist...
...O'Neil's chapter on how to read and what to look for in the financial news pages is instructive, although he consistently boosts and cites his own paper, Investor's Daily...
...Yet investors, institutional and otherwise, are all too prone to sudden overwhelming anxiety attacks of cheapness...
...Such men might well remember the wise man who wrote, "The most powerful investment returns are stable, compounded returns...
...The whole secret to winning in the stock market is to lose the least amount possible when you're not right," he notes, the point when you're not right being reached when the stock drops below the investor's purchase price...
...Put your eggs in a few baskets (if you have $20,000 to $100,000 to invest, this translates to four or five stocks), and watch those baskets closely...
...O'Neil takes shots at some worthy targets...
...The more you diversify, the less you know about any one area," he writes...
...The amount of detective work he dictates is not for the faint-hearted...
...He also believes in the "cousin stock" theory...
...O'Neil dispenses can be mastered easily enough...
...A group that is doing well—for example, plane manufacturers—is likely to have several distinctive supply companies, such asthe company that makes chemical toilets for jets, and these are likely to enjoy increased sales and handsome earnings...
...In the long run, they have seldom made anyone any money or provided any real happiness...
...The last thing you want is cheap advice in the stock market...
...W hile imparting the commonsense approach to stock market investing, Mr...
...But he is never misleading about what it will take to get the reader to the finish line, and obviously believes Lincoln's dictum, "Always bear in mind that your own resolution to succeed is more important than any one thing...
...And they usually pay dearly for it...
...The little guy rarely wants to make the commitment of time and effort, or has the single-minded determination that Mr...
...The average investor, at the same time he hangs on to his losers, will sell his winners early and take small gains...
...And why not...
...annual growth in earnings...
...He continues: "Price patterns are certainly not Ouija-board magic fakery...
...O'Neil offers advice on judging market direction, and a foolproof guide...
...O'Neil, a confirmed stock man, will have nothing to do with tax-exempt securities or tax shelters...
...And he disparages the price-toearnings ratio method of selecting stocks, noting that the investor who always sought out low p/e ratio stocks would miss some pretty fair performers...
...What you keep after taxes is more important than what you earn . . . minimize risk . ." The wise man was writing about buying municipal bonds...
...some institutional sponsorship...
...The fact is, the paper contains the kinds of specialty tabular and graphic stock market material unavailable elsewhere, which he considers essential for professional equity investing...
...O'Neil, who runs an investment advisory firm and is founder of Investor's Daily newspaper, does not buy the smug pessimism of bond men...
...And he tells them not to go bottom fishing for bargains: if a stock is cheap, there's a good reason for it...
...If you want to buy tax-exempt or corporate bonds, what are you doing reading this book...
...Dig in and do some detective work...
...He inveighs against the niggling cheapness that is the obsession of so many little guys...
...new products, new management, and new highs in price...
...shares of common stock outstanding...
...and determining market direction...
...How to Make Money in Stocks is, finally, a work nothing like its title suggests...
...The better money managers will earn the extra one-quarter or one-half of I percent, 10 or 20 times over...
...But at the very least, charts provide quick answers to questions about earnings, prices, book value, and shares outstanding...
...This seems outrageous, and imbecilic, yet there is the fact...
...The investment decision should always be considered first and tax considerations made a distant second," he writes...
...O'Neil answers them summarily: "Charts record and represent pure facts on thousands of stocks...
...He also understands that penny wisdom infects big institutions, which should know better but instead often try to skimp on management fees...
...Chartists are not without their critics, who contend that examining charts is the same as reading chicken entrails, and that no real patterns can be discerned...
...O'Neil—a lesson lost on the Ralph Kramdens, who hear largely apocryphal tales of the magical riches to be made, and swallow them whole...
...O'Neil recommends, to "make money in stocks...
...But the real work is the one part technical research...
...O'Neil believes, is invariably tied to perseverance and fortitude, and a little luck...
...Facts on markets are much more reliable than 98 percent of the personal opinions and academic theories circulating about the stock market today...
...O'Neil steps back and offers a caveat that they might not be of much use during bear markets when it's selling time...
...To help the neophyte along, the author produces two excellent chapters, one on reading charts, which provide the heartbeat history of companies' past stock price performance, and one on reading the daily financial news pages...
...If you were going to have open heart surgery, would you select the doctor who would do it for the absolutely cheapest fee...
Vol. 21 • August 1988 • No. 8
