• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

D. Murali

A SIGN of a stock topping is when you see four or five down days followed by two or three up days, whereas before you would have seen 4 up and 2-3 down. This is just one of the scores of such nuggets of info that William J. O'Neil provides in "How to Make Money in Stocks Desk Diary 2005" from Wiley (www.wiley.com).

"The phrase `buy on dips' can be an invitation to disaster, just as the shallow phrase, `it's a good buy' could mean `goodbye money'," is a cautious quote with which the year opens. Though it was months ago that we cheered the New Year, the book is of great value for the tips it provides. "There will be occasion times when a loss will get away from you, and the stock will suddenly drop 15 or 20 per cent from your cost," is another insight with an accompanying chart to explain, and a counsel to adopt: "When this happens, it's even more urgent that you sell that stock."

For those who watch TV for stock market advice, O'Neil has this to say: "The most successful ones - the real experts - are seldom seen or heard on TV. They're too busy making important decisions based on research that the public has neither the time nor the resources to carry out." Do I see you flicking the remote?

The book has cool analogies too, as for instance, likening portfolio management to tending a garden, because "if you don't keep at it, those lovely flowers you planted will be overrun by unsightly weeds." And there are theories you might not have heard of, such as the `cousin stock theory' - "if there's a building boom under way, all the home building stocks are going up, so might mortgage financiers or makers of lawn mowers or washing machines".

Emerson surfaces in March with his quote: "A foolish consistency is the hobgoblin of little minds". Moral: "What you said or stubbornly believed several weeks ago is totally irrelevant and never worth defending once the market changes direction. Have no pride of opinion or ego."

Learn to read the big picture with inputs O'Neil provides liberally. "A stock that moves higher, while volume trends are lower, suggests that big investors have lost their appetite for the stock and therefore the stock may be topping," is one such input. Another: "Be wary if your stock is the only one in its group that's doing well. You don't want yours to be the one that's holding up when institutional investors are selling all the others. At some point, the selling can wash over the entire group." Yet another cautions you about company that wants to be the biggest in its field, because "what usually follows is a merger and acquisition binge that leads to a hangover from which the original company, and hence the stock, never recovers."

A subjective sell signal is "when you see a CEO's picture on the cover of Business Week, Forbes, or Fortune, with a story inside on how great his or her company is". One more sobering advice is that your object should be to agree 100 per cent with what is actually happening in the market rather than try to tell it what you think it ought to be doing. "The market doesn't care who you are or what you think, hope, or want." On hope, however, here's some: "Over time, you'll learn that only 1 or 2 out of every 10 stocks you buy will be truly outstanding and capable of doubling or tripling or more in value."

Knowledge can be close at hand. For example, shifts in market direction can be detected by reviewing the last four or five stock purchases in your own portfolio, says the author.

"If you haven't made a dime on any of them, you could be picking up signs of a new downtrend." To evaluate tech companies, use this guidance: "Technology companies should show cash flow earnings per share greater than regular earnings."

In September there is a bedtime tip: "Never operate from a position of fear. If your stocks are keeping you up at night, sell to the sleeping point!" In October, know about churning - that is, a great deal of volume occurs but the price barely advances. Stalling is similar; "big sellers are unloading stocks as eager but late buyers are coming in".

Winning stocks should show earnings per share in the latest quarter up at least 25 per cent versus the same quarter a year ago, and preferably much more, prescribes the author.

To help you know if your selection is right, O'Neil asks you to check if your stock moves up shortly after your initial buy, providing you a little cushion.

"A good cushion allows you the margin to make a few smaller follow-up buys after your initial purchase."

Aren't there good and bad stocks? No, says the author. "In a way, all stocks are bad - that is, unless they go up."

Great read.

**

BookValue@TheHindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Alstom: Reject

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line