By Chuck Jaffe, MarketWatch
BOSTON (MarketWatch) -- Most market observers talk about how the rules of investing have changed in the past few years. Bill O'Neil says nothing has changed at all.
And with more than 50 years of investing experience, O'Neil is in a unique position to know. He's the founder of Investor's Business Daily, now in its 25th year, and the author of "How to Make Money in Stocks," which is just out in its fourth edition.
In the 1960s, O'Neil developed the "CAN SLIM" system for stock investing. The computerized tracking also became the backbone of IBD's research database.
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CAN SLIM is a growth-stock strategy built to help an investor capture the best of the market's upside while missing the worst of its declines.
The mnemonic reminds investors to look for seven traits O'Neil considers essential: Current earnings (up at least 25%); annual earnings (up 25% or more in each of the past three years); new products or services that should make a company a market leader; supply and demand for the stock, (based on trading volume increases at times when prices are rising); leadership in its industry; institutional ownership (mutual funds are buying), and market indexes supporting the investment thesis.
After watching the stock market slam investors yet again last year, O'Neil is more convinced than ever that investing has not changed. Instead, he implores investors to change the way they approach the market.
Here are some highlights from a recent conversation I had with O'Neil about investing:
On whether the market's move has forced adjustments to his long-held beliefs or strategy:
O'Neil: "Actually, I think the market has reinforced almost every single thing we had in the book years ago from the very first edition. You have to look at how we came up with our buy and sell rules.
'Our rule is to cut every loss -- without any excuses, alibis or exceptions -- when a stock is down 8% from what you paid for it.'
-- Bill O'Neil
"Years ago, we built models of every stock that had a huge move that was a real leader in a particular year. We now have those models going back to 1900. We looked at every variable that was known at the time, year after year after year -- 27 market cycles, the fundamental variables, market-action variables. And we came up with the things that were in common with these stocks -- how they moved and what happened when they finally topped.
"So the rules are not my rules or what Wall Street thinks and believes. Those are rules of how stocks actually behaved. It was earnings growth rate, not P/E ratio that was most important. Charts were very important, because chart patterns occurred cycle after cycle.
"The other thing that is proven is that you are not going to be right all the time in the market, and you have to have a rule to cut short losses when you are wrong. Our rule is to cut every loss -- without any excuses, alibis or exceptions -- when a stock is down 8% from what you paid for it. It's like a little insurance policy to protect you against those severe losses, and I think 2000-2003 and 2008 should have proven to every investor in America that they are going to make mistakes and that the key is to cut them quick, cut them fast. Don't argue with them, otherwise you will get yourself hurt."
On how effectively CAN SLIM protected investors during downturns:
O'Neil: "In 2000-2003, some of our readers who have been with us for a long time were able to get out. They followed the rules. We have some rules on general markets, like when you have six distribution days -- where trading volume picks up and the market gives ground -- over a short period of four weeks, it's time to start backing away from stocks. We have our rule to cut losses at 8%. And we have 15 sell rules for stocks on the way up. |
狗仔卡
发表于 2009-6-24 08:54 AM
