InvestIdeas

I tot I start a thread on William O'Neil, founder of Investors' Business Daily.

A long time ago when I was a novice, all I have heard about was just WB, Peter Lynch and Bill Miller...

All that I have read told me that mkt cannot be timed... better to invest in index passively than pick your own stocks.. Only when I worked in the US that I chanced upon a book called How to Make Money in stocks.. which opened my eyes to the stories of legendary traders like Jesse Livermore, Bernard Baruch etc..

The fact that they have timed the mkt perfectly and showed you how they do it is enough evidence to disprove the theory that mkt cannot be timed and that the mkt is efficient.

Biography
William O'Neil started out in 1958 as a stockbroker. During his three years in the job, he made a careful study of the top-performing mutual funds - the US equivalent of our unit and investment trusts. He discovered their success was entirely due to buying stocks that were setting new highs in price. In the language of chartists, they were 'breaking out' of previous holding patterns or 'consolidations'. Many of them would then go on to make advances of many tens or even hundreds of percent.

He decided to copy this method. Within a year or so, he had turned $5,000 into $200,000. In 1963, he bought a member's seat on the New York Stock Exchange and founded the firm he still runs today. He was one of the famous 'performance' fund managers of the Sixties, and a pioneer of database-driven stock selection. His company still supplies a wide variety of statistics and data to professional investors.

In 1983, he launched a financial newspaper to rival the Wall Street Journal, called Investor's Daily. Against the odds, this has become a widely-read and well-respected alternative to its venerable competitor. Part of its appeal rests on its unique data tables, which also underpin his own investment approach and his advice to clients.

O'Neil's track record has had its ups and downs, particularly during and just after the 'go-go' years of the Sixties. But he is thought to have averaged an annual return of over 40% on his personal account in the ten years up to 1989.

One of O'Neil's earliest coups was in the drug stock Syntex. The company was the first mass manufacturer of the birth control pill at the start of the 'sexual revolution'. It had just announced quarterly earnings growth of 300% when he bought the stock in 1963. As the market woke up to the potential, the price rocketed from $100 to $550 in 6 months, making him enough money to set up his own business.

O'Neil relies on a mixture of quantitative and qualitative criteria to pick stocks. His method has to be adapted for use in the UK, to allow for differences in accounting practice and the lesser availability of financial statistics. But his basic approach to trading is as applicable here as in the US. The key idea is to seek out only those growth stocks that have the greatest potential for swift price rises from the moment you buy them. In essence, buy the strong, sell the weak.

MM : you are a great O'Neilian practitioner...

for the rest in this forum, if you need to know about O'Neil stye of investing...you could either call up William O'Neil or post your "Ask MM about ONeil Investing Style" question here ....

I have asked MM before to know that he knows his stuff here....

This applies to US mkts only... for followers of CANSLIM methodology


If all of IBD's 20 rules are carefully followed (not just the ones you like), your investment results should materially improve:


1. Consider buying stocks with each of the last three years' earnings up 25%+, return on equity of 17%+ and recent earnings and sales accelerating.

2. Recent quarterly earnings and sales should be up 25% or more.

3. Avoid cheap stocks. Buy higher quality stocks selling $15 a share and higher.

4. Learn how to use charts to see sound bases and exact buy points.

5. Cut every loss when it’s 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. Never average down in price.

6. Follow selling rules on when to sell and take profit on the way up.

7. Buy when market indexes are in an uptrend. Reduce investments and raise cash when general market indexes show five or more days of volume distribution.

8. Read IBD's Investor's Corner and Big Picture columns to learn how to recognize important tops and bottoms in market indexes.

9. Buy stocks with a Composite Rating of 90 or more and a Relative Price Strength Rating of 85 or higher in the IBD SmartSelect® Corporate Ratings.

10. Pick companies with management ownership of stock.

11. Buy mostly in the top six broad industry sectors in IBD’s New High List.

12. Select stocks with increasing institutional sponsorship in recent quarters.

13. Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock's industry

14. Don’t buy because of dividends or P-E ratios.

15. Pick companies with a superior new product or service.

16. Invest mainly in entrepreneurial New America companies. Pay close attention to those with an IPO in the past 8 years.

17. Check into companies buying back 5% to 10% of their stock and those with new management.

18. Don’t try to bottom guess or buy on the way down. Never argue with the market. Forget your pride and ego.

19. Find out if the market currently favors big-cap or small-cap stocks.

20. Do a post-analysis of all your buys and sells. Post on charts where you bought and sold each stock. Evaluate and develop rules to correct your major past mistakes.

Stock picker - interview with Ryan Capital Management LLC portfolio manager...
High-tech Industry to Honor William J. O'Neil at AeA Classic; Founder and...

Despite a general decline in ad spending, the newspaper recently invested in a redesign and announced plans to add more contract printing facilities. While IBD has not been a moneymaker, other O'Neil companies have done well.

Question: How did you become interested in the stock market?

Answer: When I was a young kid and graduated from college and got married, I suddenly became interested in how to get ahead in life and that's when I started reading up on investments.

Q: What did you study in college?

A: I was a business graduate from SMU (Southern Methodist University) I didn't learn anything about the stock market or investing from college, they just teach you how to think a little bit. You have to learn (the stock market) on your own. It's a very complicated subject so it takes a lot of time and, as you can see, most people haven't figured it out. In the last couple of years, a lot of people got hurt.

Q: Where did you take your lessons?

A: I bought a library of books. There were 2,000 of them, all on investing, so everyone and their brother's written a book on the market. Out of the 2,000, there were about eight that were really sound and good, written by people who had made money in the market and who had it figured out. I think the big problem in the market today is entirely too much information. You can get it on the Internet and turn on your TV and everybody's got a program on the market and they're just giving personal opinions.

Q: What people or books have had a big influence on you?

A: The first book I read on the market that seemed to be sound and helpful was (Gerald) Loeb's "The Battle For Investment Survival." He was a tape reader, a technical person, and he made millions of dollars over the years and one of the things he always advocated was you must cut every loss at 10 percent.

Q: What's your policy?

A: Our policy is you cut them at 7 or 8 percent. Most investors do not really understand that basic principle. They're not told by their brokers that all stocks are speculative and any stock can go anywhere. Our estimate is that 80 percent of investors lost 50 to 75 percent in the last few years from the top of the market and they were buying on the way down. You don't buy stocks on the way down and you don't average down, but people like to buy things cheap so a lot of people got clobbered.

Q: On what do you base your investment advice?

A: We do an enormous amount of historical research and we've built models of every single stock that was outstanding each year for the last 50 years and we study those and determine what works based on pure fact. We don't care what somebody on Wall Street is saying.

Q: What have you learned about the stock market?

A: The fascinating thing is there really is not that much new. Most people think the market is changing all the time but it isn't because there are basic principles that work when a company is doing well and then, when they get into trouble, there are other principles that work. The reason the market is pretty much the same all the time is that it's driven by human nature. If you buy something, you hope it's going to go up and if it goes down, you hope it's gonna come back up. Well, what you hope has nothing to do with reality. So it's the human emotion that keeps investors making the same mistakes over and over again.

Q: Why did you start Investor's Business Daily?

A: Well, it wasn't my idea. It was one of my institutional sales peoples' idea that you really couldn't get anything that helps you in the market out of The Wall Street Journal. We had all this research and had been highly successful with it and we could create a superior product that would really help people. I kind of laughed at the thing to begin with but after a while I realized that it was true and we decided to do it.

Q: What was the paper like in the beginning?

A: We were very naive and we didn't even really realize it was the advertising business so it took us a year or two to figure that our. I hope this doesn't sound sexist, but we looked around and took all the secretaries and clerks and people that we didn't have to have upstairs and we put them downstairs in the newspaper and that was our ad/sales department, that was our circulation department. And, here's the fascinating thing -- we were gaining a share of market on The Wall Street Journal with our third string.

Q: How do you think IBD compares to the Wall Street Journal arid other papers?

A: It's totally different and a lot of people in the advertising community haven't figured that out yet. We're not copying anybody. We're innovating. We're creating a superior product. We sell it at a higher price and its price will probably go up (but) it helps people make money and we think that's unique. It's based more on success. We don't have a bunch of negative stories in there.

Q: How much money have you put into the paper over the years?

A: We don't give that figure out because it's so much we'd probably be embarrassed. But it is a substantial amount.

Q: Are you the sole investor?

A: I'm the dominant investor but we have a number of people who own stock in our holding company and we've given out options and things like that.

Q: Is the paper profitable?

A: The way you would normally figure out accounting, no, because it's very expensive to increase the circulation across the country. On a cash-flow basis, yes it is, because we know how to invest.

Q: Do you think IBD has influenced financial coverage?

A: The L.A. Times has put some things in their tables they never had before. They copied us. The Journal copied quite a number of things. We were the first ones to take tables and boldface something in the table or underline something in the table. Well almost everybody copied that because that's easy to do.

Q: How about in terms of editorial content?

A: There's some of it but I don't think so much on the editorial side. I don't think you can really call us a newspaper. It's a national business newspaper but we're really a source of ideas that work. It's a positive paper and that's contrary to the way the newspaper business is setup.

William J. O'Neil

I have witnessed hundreds of institutions and every type of investment philosophy imaginable over the last quarter century, and most of those that concentrate on the undervalued theory of stock selection invariably lag in the results produced when compared to the better money managers today. mm comments - always focus on the leaders. They run the fastest in every uptrend. See my thread on CANSLIM/MOMENTUM INVESTING

If your stocks are down 25% in value, isn't it rather absurd to say you're alright because you're getting a 4% yield? mm comments - I don't have 3MM dollars to buy stocks for 5% yield. Rather buy $1MM worth of stock with a potential of 25-50% capital appreciation once the market follows thro'.

Diversification is a hedge for ignorance. I think you are much better off owning a few stocks and knowing a great deal about them. mm comments - if you own 30 stocks and 1 triples, it is not going to impact your returns. If you own just 5 stocks and one doubles... your returns will be great! But because of concentration, be prepared to cut every losses short.

If the price of a share you are holding sinks like a stone, don't hope, sell. mm comments - there is no hoping in the market. Either you make money, lose money or break even. When you lose money, all hoping in the world will not bring your stock back. Hope is the mother of all f**kups in the market and what kills the common investor/trader. Try telling the guys who bot YangZiJiang at $2.80 that he should continue to hope that his stock will go back from 83cts now to $2.80.. someday..

SPECIAL FEATURES
TMF Interview: Bill O'Neil

June 20, 2002

Bill O'Neil, founder of Investor's Business Daily, is one of the most important thinkers to come out of investing in the last 30 years. His CAN SLIMâ„¢ methodology for evaluating stocks was one of the most enduring systems for making money in the stock market. O'Neil bought a seat on the New York Stock Exchange at age 30 (makes us wonder what we've been doing with our time!) and his investment research company William O'Neil & Co.Inc. counts among its clients hundreds of the top institutional investment firms worldwide.

The Motley Fool's Senior Editor for Investing Bill Mann (TMF Otter) recently spent some time with O'Neil ahead of the release of the third edition of his national bestseller How to Make Money in Stocks. Today we offer the first part of our interview, to be concluded next week.

TMF Otter: Many people have learned for the first time what a real bear market feels like. The last prolonged pain in the stock market came more than two decades ago, when far fewer people were active in the stock market. What are some of your key observations on investing today?

O'Neil: The stock market is human nature on parade. Intelligent, highly educated human beings can easily get into trouble and lose money because the stock market nearly always moves directly opposite to the psychology of the typical investor. For example: We are a nation of bargain seekers. We want to buy something that seems cheap because it's on sale. So, people buy a stock on the way down at 50 because it was 80 and looks like a real deal. This is a deadly sin in the market and one of the worst habits an investor can have. Why try to catch a falling dagger? Stocks that decline more than normal are under heavy liquidation by institutional investors and are almost always down for a reason -- i.e., the tide has turned for the company and something is starting to go wrong.

TMF Otter: It's funny, because it seems that there is no middle ground for the typical investor. He can either get excited about some company because the stock is going up, he can be terrified because it is dropping, or he can get greedy because it looks like a bargain since it has dropped so much. How do you suggest investors learn to improve their success rate in stock selection?

O'Neil: Anyone can learn to invest more intelligently and much more profitably, but you must begin by reading and studying the few right books on the market and becoming brutally realistic about all common stocks. First, you must recognize that you are simply not going to be right all of the time. Big league baseball players are outstanding if they hit three times out of ten. Three-point basketball shooters are good if they score on four of ten shots. An all-pro passer in football may be great if he hits six and misses four. In a lifetime of investing, you'll probably only be right five or six times out of ten. So you absolutely must have a rule to always protect yourself. When you start off wrong, you are exposing yourself to a loss that can at least half of the time get larger and larger until it does serious damage to your portfolio.

TMF Otter: You've stated publicly that an investor who followed your system would have avoided the egregious losses suffered by holders of Enron or Global Crossing. How would an investor be protected in your mind without also taking the chance of selling out on good companies way too soon?

O'Neil: My rule is simple -- any stock that I buy that declines 7% or 8% below my actual purchase price, I will always without exception, sell to cut short my loss.

TMF Otter: No exceptions?

O'Neil: None. This way I guarantee myself that my capital will never be exposed to a 25%, 50%, or 75%, loss which is always difficult to recover from. So, your first loss is always your smallest loss. The only insurance policy you can take out to protect against a large devastating loss is to cut them all without exception while they're still small.

TMF Otter: No averaging down? No buying back a stock that you are convinced is undervalued?

O'Neil: I will never average down in price. If I bought at $50, I will never buy more at $45 or $40 -- that's risking more money in a stock that's already wrong and not working -- so why put more good money after bad?

I prefer to average up on each stock that is working. At least, when you're right and the stock proves it by going up in price, you'll have more money in the one you're right on and less in the stock where you're wrong. So, you see, the real key to stock market success is not to be right all the time (which you can't be) but to have more of your money in the stocks you're right on and lose less percentage wise and have fewer dollars in the stocks where you're wrong. A few really big profits and several smaller losses is your objective.

TMF Otter: With over 10,000 stocks to choose from, how many stocks should you own?

O'Neil: Before you begin to invest, decide how many stocks you will own.

TMF Otter: Easier said than done, right? Every investment guru alive tells us that we need to be diversified. Plus, it's easy to get excited about the next "new opportunity."

O'Neil: If you have $15,000 to invest, limit yourself to three stocks bought one at a time. Don't buy them all at once. If you have $50,000, limit yourself to four stocks; $100,000, five stocks; and if $1 million, six or seven. You don't need to over-diversify or over asset allocate. Money is made by putting your eggs slowly and intelligently into fewer baskets you know well and watching those very carefully. Over-diversification is a hedge for ignorance.

TMF Otter: That's a fairly contrary opinion. How do you ensure that the companies you hold are good ones? It seems like your margin for error is much smaller.

O'Neil: For more than 40 years of investing, I never bought stocks based on tips, thoughts, rumors from friends, brokerage firms, or analyst reports, technical analyst recommendations, or assumed experts pushing their favorite picks on market TV programs. That's a fast way to lose money.

TMF Otter: Obviously, then the key for you is stock selection. But in How to Make Money in Stocks you are very clear about the need both for a defined buying strategy and a defined sell strategy. What are your definitions based upon?

O'Neil: Rather than listening to Wall Street's conventional wisdom and strong egos, we analyzed all of the best-performing stocks each year for the past 50 years. We evaluated all the known fundamental and technical variables each super winner showed before they soared 100% to 1000% or more. Plus, we studied how these variables changed when these great winners finally topped and began their substantial price declines.

Our buy and sell rules were not based on our personal beliefs, systems, philosophy or opinions, but precisely on how the stock market actually worked for the last half century.

TMF Otter: What you're talking about are home runs. Most investors would suggest that the current market is one that favors singles, or maybe even errors and strikeouts.

O'Neil: That's the key point of the "M" in our CAN SLIMâ„¢ methodology. You have to respect what the market is telling you.... If it's down, we don't try to fight against that trend by buying stocks. I wait until you see a confirmed uptrend and know it's safe to buy.

------------------------------

June 25, 2002

TMF Otter: One of the key points of your investing methodology is that one should pay close attention to the strength of the overall market, and then to the best-performing industry groups. Why is that preferable in your mind to simply buying top-tier companies when they're inexpensive and waiting out a bad market? Where should you focus?

Bill O'Neil: It pays to concentrate in the top 10% or so of industry groups in recent performance or the top six or seven broader sectors for company selections. Since the most recent market bottom in the Dow Jones Industrials in September 2001, the leading groups -- the ones that have generated the highest returns -- have been defense stocks, homebuilders, medical and healthcare, leisure and gaming, and smaller-cap, unique consumer-oriented, companies in retailing, restaurants, and banking.

Some of these stocks have held IPOs [initial public offerings] within the last 10 years. But interestingly, former high-tech leaders have been the poorest-performing sector, which means that many people who are waiting out a rebound in tech are missing an ongoing rebound in other sectors.

It should be noted that Wall Street completely missed the homebuilders as a group with strong potential. Most leading firms all downgraded the group in the spring of 2001, saying they should be sold and that strength in housing sales couldn't last. The better housing stocks have since then doubled. Housing analysts gave costly advice.

TMF Otter: Your point about poor performance from Wall Street reminds me of a question I got awhile ago about whether following analyst recommendations was profitable. "Profitable for whom?" It's tough to describe to people that some of their preconceived notions about what makes a good company are nothing but notions -- and following analysts can be pretty damaging. Give us some of your hard-and-fast rules for selecting stocks.

O'Neil: I have always avoided low-quality companies. As a rough definition, I place any company with a price below $10 in this category. You won't get the same quality of sponsorship behind these companies that you do in true market leaders.

TMF Otter: I thought you just said that analysts are not to be followed.

O'Neil: That's not what I mean by sponsorship. Sponsorship in this case is ownership by institutional investors. Let's face it, they move the market when they make buy or sell transactions -- they are the big money. Many mutual funds and pensions have limitations against buying stocks that are below a certain threshold, starting at $10. Why try to fight upstream with a company that the big money can't buy?

Also, don't pick your stocks because of dividends, book value, or P/E ratios. Buy the leading company in a leading sector with high earnings and sales growth, return on equity, profit margins, and product superiority.

TMF Otter: We have heard legions of stories at this point about companies that are cooking their books and that earnings aren't to be trusted. Is that why you would ignore P/E?

O'Neil: Not quite. We have found that P/E is a poor predictor of a stock that is going to go much higher. Usually great companies have high P/Es. People are excited about these companies for a reason, just like a low P/E indicates that people are not excited about a company. Our research shows that most of the companies that had the best performance in the stock market started big runs with high earnings multiples.
TMF Otter: So an advancing P/E is unimportant to you in terms of determining when to sell as well?

O'Neil: Although I don't advocate over-focus on P/E, I do know that it generally provides me with a general idea of the expectations of the market as to future growth. If I disagree, I sell.

You absolutely must learn, write down, and follow some specific sell rules on when to best sell and take a profit on the way up while a stock is still advancing and popular. For example: If your stock breaks out of a sound price base structure and advances for many months and, on top of that, then runs up in price for one or two weeks at a much faster rate than in any other prior weeks since the beginning of the move up, this is a climax top, and the stock should always be sold while everyone else is all excited by the exceptionally strong price action. Typically, one day in this climax period will be up more points than any other day in the whole move up. Sell, get out while you can, and nail down your profit.

TMF Otter: If you pick a great stock with good value in the first place, shouldn't it hold up and outride the downdraft? Personally, if I feel like a stock is underpriced, I don't care what it does from a price standpoint in the interim.

O'Neil: How many times have you been wrong? When a stock is dropping, that's what the market is telling you -- "you're wrong." There are plenty of people who thought that Enron was severely underpriced at $30. Everyone needs sell rules, otherwise you're not being realistic. Nothing lasts forever. The big leaders in one market cycle do not normally come back and lead in the next bull market cycle. If you want to learn more about when to sell or how to create a realistic set of sell rules to improve your investment results, that includes being prepared to not fight the market. It doesn't care what you think about a company, or what you paid for it.

Recognize this about the stock market -- it is a wonderful example of psychology on parade. It's a matter of historical fact that 82% of the best-performing stocks over the last 50 years had a blow-off top before they started coming down. I don't know about you, but if I saw something that happened 82% of the time, I'd pay attention. The things you read about in How to Make Money in Stocks aren't my opinion -- they're based on what has happened in the past. Because human psychology does not change, there is a great probability that they will happen again in the future. If you're an investor, putting probability on your side is in your best interest.

TMF Otter: Mr. O'Neil, thanks so much with your time.

O'Neil: My pleasure.

O’Neil: You Can Make Money in Stocks
NewsMax.com
Tuesday, Jan. 28, 2003

Despite the stock market’s tough times in recent years, one of America’s most renowned stock market experts tells NewsMax that investors can make great profits in the years ahead – if they follow some simple rules.
The man who knows these simple rules is William O’Neil.

Noted as one of the most important thinkers to come out of the investing world in the last 30 years, O’Neil is the publisher, chairman and founder of the highly respected Investor’s Business Daily.

He is also the author of several million-copy best sellers, including "24 Essential Lessons for Investment Success" and "How to Make Money in Stocks," which is currently on the best-seller list of BusinessWeek, USA Today and the Wall Street Journal.

“How to make money in stocks?" you ask, repeating the title of the O’Neil’s latest best-seller.

O’Neil reveals one market rule: Don’t invest for the moment, but for the future.

That’s why Bill O’Neil appears characteristically optimistic today. He cited Bush’s economic plan and the effect it will have on the longer-term stock market. He says President Bush’s economic stimulus plan will recharge the sagging financial markets. The coming war will have little drag effect, he predicts, and foresees the possibility of an Iraq conflict lasting no more than six weeks.

Some other “rules” O’Neil shares to make money in the coming bull market:

Limit your losses. If you lose 7 to 8 percent on a stock, sell it and avoid any catastrophic drops.

Keep investment choices limited to companies in the United States.

Never buy corporate bonds because they barely keep up with inflation and taxes.

These are just some of the things O’Neil says an average investor can learn to make money like the pros. O’Neil believes because that’s just how he started.

O’Neil’s first venture into investing was a $300 outlay in Procter & Gamble stock, although he admits he did not make a lot of money on the deal. Still, his fascination with the stock market launched his career as a stockbroker in Los Angeles, where he studied the historical trends of the greatest stock market winners.

His analysis revealed seven performance characteristics that each leading stock had in common before any big price swings. Ultimately, his efforts paid off: O’Neil was the top-performing broker at the firm and boosted his investment portfolio by 2,000 percent in just 26 months.

NewsMax Media’s Barry Farber of Off-the-Record spoke with Bill O’Neil, who revealed his stance on brokers, what he really thinks of market media coverage, and when he believes the bear market will end.

NEWSMAX: You started investing in your 20s with that $300 in Procter & Gamble. What happened?

O’NEIL: I didn’t make much on that. I read a lot of investment books. Gerald Loeb’s "Battle for Investment Survival" helped guide me to cut all losses at 10 percent. You aren’t going to be right all the time, and you’ve got to have some kind of a sell plan if you make a mistake. The secret to doing well in the market is not to be right all the time, but to lose the least amount possible when you might be wrong.

NEWSMAX: You talk about how investors can empower themselves to start doing for themselves. But aren’t there experienced friends of investors, you know, we call them stockbrokers?

O’NEIL: The brokerage industry is a little bit of a sales process. It’s not that they’re unethical. They’re hardworking people, but over the years it has gravitated toward the firm’s research recommendations. The only way I figured out the market as a broker was to make some dumb mistakes.

NEWSMAX: What did you learn?

O’NEIL: For the last 30 to 40 years, if I’m down 7 or 8 percent from what I paid for something, I go out automatically. I don’t want to run the risk of losing 30, 40, 50 or 80 percent. You mentioned the brokerage industry. I think that people have to learn that they can’t just listen to anybody. They’ve got to learn to study on their own and know a little bit more about what they’re doing. It’s their money.

NEWSMAX: Have you ever received complaints or criticism that you took the audience backstage when you started Investor’s Business Daily?

O’NEIL: Not really. We’ve received an awful lot of letters from people saying that we saved their lives. About 30 percent of our customers made a huge amount of money in the late '90s, sold stocks and raised cash, and another 30 percent made some net positive progress. The rest of them didn’t pay close attention to what we repeatedly were telling them in 2000, and they probably got hurt like everybody else.

NEWSMAX: The database you started years ago can be labeled as bulletproof and pig-tight, but who says that anything that happens now is really based on the past?

O’NEIL: Historical stock market sages such as Jesse Livermore and Bernard Baruch both said that history repeats itself and there’s nothing new in the market. The market is human nature on parade, and human emotions, ego, opinions, hope, fear and pride keep being repeated.

The stock market is really crowd psychology. People don’t want to buy stock on the way up in price; they want to buy it on the way down because it looks cheaper.

The market tends to move contrary to how a normal, intelligent, educated, successful person thinks. They don’t want to take losses yet they never think about when is the wisest time to sell and take a profit or cut short a loss.

NEWSMAX: The media, which once ignored the market, can’t get enough of it today. How do you feel about the media’s market coverage?

O’NEIL: This is a tricky question because I don’t pay any attention to any of the shows on TV. When something is widely available, free to the masses, you’re probably going to make a lot of mistakes. Since the market tends to go in the opposite direction of what the majority of people think, I would say 95 percent of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable.

NEWSMAX: Do you think the media taints the public’s perception of the market, which then affects the economy?

O’NEIL: The market is mainly determined by the big institutions, the big mutual funds, and what they are thinking and doing. The media doesn’t understand the market very well, plus there’s a lot of bias.

Numerous studies show that about 6 percent of reporters and editors voted Republican. There’s an enormous balance over on the other side, and the bias comes in when they just report on some issues and intentionally ignore others.

There’s a great deal of important news that never sees the light of day. Balanced reporting is what people need to see, if they’re to understand in full context the important issues.

NEWSMAX: What about investors – what should they do today?

O’NEIL: Learn to read stock charts to time your investments. Develop a set of selling rules. Look for stocks with excellent earnings. And have a logical plan.

The Investor’s Corner of Investor’s Business Daily explains how to do this. The methods provided in that column beat approximately 50 other systems, including those of Warren Buffet and Peter Lynch, according to a real-time study over the last five years conducted by the independent American Association of Individual Investors.

The public should realize that they have to sit down and do some studying. The investors who made 500 percent are the ones who picked up some of our investment books and read the books at least three or four times to develop the skills, write out prudent, realistic buy and sell rules and follow them.

NEWSMAX: What should a new investor get into? Mutual funds? Dow Jones top 30?

O’NEIL: It’s a matter of time and motivation. If you’re typical, you can learn to do it on your own, but if you don’t have the time, you don’t want to, you want to go into funds, it might be worthwhile just to look at an index fund and put so much money in each month.

Even with index funds off 30 percent or more, I would add a little bit more each month because the funds are diversified across a broad section of the market and will sooner or later recover.

NEWSMAX: Are there any particular sectors you like?

O’NEIL: The Internet is still a young baby, and even after the blow-up, there will be some companies with a sound business and an excellent, proven earnings record.

It’s a little early to tell about groups now because there’s been so much damage done in the market. It’s just gradually trying to recover. The stimulus package needs to get passed. Right now you have both parties with a vested interest in the economy doing better.

NEWSMAX: Do you have any interest in investment opportunities outside the United States?

O’NEIL: It is a world economy, but we are so far ahead of Europe and Japan and other countries. In Europe, they don’t even have a Nasdaq market that encourages young, new companies to be created. Japan is a great country, but they haven’t quite faced up to all those bad bank loans.

I don’t see any reason for somebody to invest in foreign stocks when you’ve got over 5,000 potential investments here. You can look for ones with a high return on equity, ones that have consistent earnings growth and a good profit margin that are leaders in their industry, that are acting a little bit better than the rest of the market.

I’ve never bought foreign stocks, and I’ve never bought bonds. Bonds can’t even keep up with inflation and taxes. Eventually, you’ll be able to invest part of your Social Security dollars in index funds, which will have a very positive effect on the future of Social Security and the American market.

NEWSMAX: Why are bonds so popular, then? They seem kind of dull.

O’NEIL: They are dull because it’s a place to hide if you’re concerned about the market. We tend to invest in the very best companies we can find, hold them as long as they’re behaving properly, and when we don’t like the market, we retreat and go into money market funds.

NEWSMAX: Did you ever keep score on how often your rules don’t work?

O’NEIL: Those rules are based on exactly how the market has worked each year for many years. The only problem with the rules is you might misinterpret them or forget to pay attention. People get into trouble when they ignore the rules.

For example, we have some rules on how you spot the top of a general market average, like the Dow or S&P 500. We look at how many days of distribution we see with heavy volume, higher than the day before, with the market giving ground. This has gotten us out of almost every top in a market reasonably early.

After you see five to six days over a period of two or 3 weeks, where there’s too much distribution, that market is going to come down. We tested this over 50 years, even applied it to the stock market of 1929, and it hit it right smack on the button four days off the peak in 1929.

NEWSMAX: When is the bear going to yawn, limp off stage and wave goodbye?

O’NEIL: You have to look at history. Look at the ’73-’74 bear market. The average stock were off by 75 percent. It was horrendous and lasted a long time. It took two to three years to really come out of it, even with the few small sharp stock rallies.

After World War II, in the late '40s, the market was sloppy, and it took about three years to snap out of it. After the Great Depression that started in the fall of 1929, it took two and three-quarters years to begin to recover, and it was a painfully slow process.

NEWSMAX: What if there was another catastrophic terrorist act in the U.S.? And what about the war’s effect on the economy and the anticipation of the war’s effect?

O’NEIL: Everybody has historically, always underestimated this country. They underestimate the strength and the resilience and the willpower of our people. We have freedom and opportunity, and I would not want to be the enemy on the other side, facing a bunch of our highly trained, better equipped Marines coming down into Baghdad.

There is a lingering fear from the aftermath of 9/11, and that’s a problem. But this country is sound and strong. An enemy who wants to come after us has got to be nuts.

Bill O’Neil: This Is a Bull Market By: Dan Weil

William O’Neil, founder of Investor’s Business Daily (IBD), says stocks are in the midst of a bull market that began in March.

“The market went through a 17-month devastation period, which probably was the third-worst bear market we’ve had in the last 100 years,” O’Neil told Moneynews.com’s Dan Mangru.

“On March 12, I think it turned, and that was the beginning of a new bull market.”

The Standard & Poor’s 500 Index has gained 41 percent since then.

“Markets are always perceptive. They’re looking ahead,” O’Neil says.

“And it usually occurs right at a time when the news is absolutely horrible. People are worried about the dollar, about inflation, about the government, about Iran.”

He says an IBD study of the worst 20 bear markets in the last 100 years shows they averaged 19 months in duration.

“We’re now way past that,” O’Neil says.

“You take such a battering that finally you have to start coming out of it, because things are really cheap. A lot of the value people have done very well. Some of the high technology cyclical stocks are coming back.”

What most people don’t understand is that business cycles “are always led by innovators, entrepreneurs, new inventions, and they’re still out there,” he says.

The bottom line is that “the bear market is over,” O’Neil says.

“We started the bull market in March. It won’t be a normal bull market because there was so much devastation, and some of the government proposals aren’t necessarily designed to create a lot of jobs.”

He adds that some of those proposals “can create some huge debt and then that may affect things and make recovery a little shorter.”

The government needs to cut back or slow down on some of these things they’re doing, and the economy will start recovering, he advises.

O’Neil offers several tips on stock investing.

First, “stocks are speculative, and you’re going to make mistakes,” he says.

“We say cut every single loss when a stock goes down 8 percent below the price you paid for it. It’s like taking a little insurance policy.”

Second, “learn to read charts,” O’Neil says.

“There are patterns that are repeated cycle after cycle after cycle. That has helped us a lot to be able to recognize that this stock is under accumulation. Something big is going on, and then you buy the ones with the best products, best sales, best earnings.”

Finally, “forget about the PE (price-earnings) ratio,” he says.

“Everything sells for what it’s worth. The better stock is going to sell at a higher PE, the poorer stock is going to sell at a lower PE.”

© 2009 Newsmax.
http://moneynews.newsmax.com/streettalk ... 38902.html

“On March 12, I think it turned, and that was the beginning of a new bull market.”

wow....isn't that amazingly accurate.....

Congrats to the O'Neilian practitioners who bought in March to ride the uptrend