William J. O'Neil's
How to Make Money in Stocks
William J. O'Neil was the manager of several very successful funds before he founded Investor's Business Daily.
William O'Neil is a classic momentum investor. He likes to buy the stocks that are out front, the market leaders, leaders in the leading industry groups.
His book often falls into being an advertisement for Investor's Business Daily. The reader needs to be aware of that motive.
O'Neil does screen and qualify his buys. He likes to buy stocks that are showing superior relative earnings.
He never buys at the bottom. He likes to see a pattern of upward movement first.
Higher P/E's do not particularly bother O'Neil. He lists a number of stocks that went up by factors of 3,4,5,or 6 starting from P/E's of 60+.
O'Neil likes to buy when stocks are breaking up into new price ranges.
O'Neil is very strong on the idea of cutting losses. He recomends selling after only a 7 to 8 percent loss to preserve capital.
He believes that people should have plans for both how they will buy and how they will sell stocks.
After screening potential purchases, O'Neil looks for patterns in the charts. He looks for:
CUPS WITH HANDLES
AND DOUBLE BOTTOMS.
O'Neil's 18 Mistakes
Most Investors Make
1. Most investors do not select good stocks.
2. Miserable results come from buying on the way down.
3. Averaging down is even worse.
4. The public loves to buy cheap stocks in hundred share lots. People would
often be better off buying 30 shares of higher priced leaders.
5. First time investors want to make a killing. They want too much too fast.
6. Main street delights on buying on rumors.
7. Investors often buy because of dividends or low P/E. Low P/E is a sign
of poor past performance.
8. People often buy the familiar. Because you like to drive Fords does not
make Ford a good stock purchase.
9. Most investors are not able to get good information or advise. Superior
brokers are as rare as superior doctors.
10. Over 98% of the masses are afraid to buy a stock that is beginning to rise
into higher price ranges.
11. The majority of investors hold their stocks when their losses are reasonable
only to see their losses grow.
12. The majority often sells a rising stock too soon.
13. Individual investors worry too much about taxes and commissions.
14. The multitude speculates in options too much because they think it is an
easy way to get rich.
15. Many novices quibble over one eighth of a point and miss buying a stock
that doubles or tripples.
16. Investors are unure because they do not have a plan to buy or sell.
17. Most investors allow their hopes and fears to make their choices.
18. Most investors are influences by non-crucial things like splits, increased
dividends, news announcements, and recommendations.
This is an excellent book. It is also one of the most dangerous stock books on the market. It would be very easy for the reader to forget that O'Neil does rigorous screens on his 'potential buys' before he begins looking at their charts. It would be easy and dangerous to use his charting techniques without doing the groundwork first. I recomend this book as a cautious read. If you read it, do so very carefully. It is rich in usable ideas.
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