Augie,
I don't know that others will respond to the book the way I have. This particular book hit home with me because of all the other research I have done. It has taken me over two years to get to this point.
I have been reading Investors Business Daily for over 5 years. It has taken this long for O'Neill's "buy strength, not weakness" to sink into my thick skull.
About 5 years ago, I set up several paper trade portfolio's to see which famous mutual fund manager would have the better results. Each portfolio was picked on the guidelines that the corresponding fund manager used to make his selections.
Peter Lynch, Ben Graham, James O' Shaunessey, William O'Neill and I forget who else were the people who's stock criteria was used to pick the stocks for the corresponding portfolios.
O'Neill crushed the competition in the short term. In the first 60 days, his portfolio was ahead of the nearest competitor by 20%. At the time, I was sold on the buy and hold theory and the draw back to O'Neill's strategy is that you have huge drawdowns if you hold too long. I didn't know how to take profits back then. I didn't know anything about technical analysis so, I didn't have any timing tools for my exit points.
It made sense to me that O'Neill would have the better performance because he combines FA and TA. I was looking at the wrong fundamentals at the time, and I knew nothing about TA so, I didn't put his concept of investing into practice.
The other drawdown to O'Neill's way of investing is that you have to have a strong trending market. The last few years have been a bear market and I'm not sure the results would have been as great.
I am armed to overcome this downfall though. From personal experience, I know how to trade trading ranges. You use a different strategy for a trending market than you do a trading range market.
I read an article in the August issue of Active Trader about George Pruitt of FuturesTruth.com. His company back tests any possible buy and sell program you can come up with. His research came up with two things that hit home with me. The best trading programs according to his research, over a 10 year period, are trend following programs that use chart patterns. Chart patterns help to identify supply and demand and it's supply and demand that is really the only indicator that shows consistent profitable results over time.
Weinstein's book confirms this approach. His 4 stages of a stock is based on chart patterns. When looking at price movement, 70% of a stock's price movement will occur in a 30% time frame. The rest of the time is spent consolidating or pulling back. It's the break out stage that Weinstein and O'Neill try to teach us to look for. Pruitt's research confirms this is the most successful strategy over time.
Then comes this book about conversations with the top traders and lo and behold, they all use the O'Neill system or variations of it. Hedge fund managers, pit traders and institutional traders all focus on the main parts of the O'Neill system.
Companies with increasing sales and earnings, a leader in their sector and out performing the market. Why wouldn't these be the stocks to own? Why wouldn't they continue to outperform? Why are we so afraid of them?
In Trading For A Living and Trading To Win, these psychologists tell us that the mistake we make as amateurs is that we are too focused on getting a good price. We look for stocks that are on sale. They are on sale because they lack the most successful indicator needed to show consistent profits, the right combination of supply and demand.
Food, clothing and other items go on sale because companies can't get rid of them. We think we got a bargain and in some cases we do but, stocks don't quite carry the same weight when put on sale. Because we catch the occasional winner, we continue to look for the next one. The problem is the system won't succeed over time, consistently.
This next comment, taken from one of the world's top traders sums it all up for me.
"I began to understand risk more and also learn that some of the best money managers weren't the ones that had the highest returns. They were the ones that had the most consistent returns and had very low drawdowns. The real trick to managing money effectively is to make the most money on the least drawdown, not necessarily to make the most money, period."
This quote came from a hedge fund manager by the name of Mark Boucher. He has been the world's top hedge fund manager over several five year periods. His first attempt at trading saw his $100,000 account turn into $10,000. Like most of us, he started out as a buy and hold type of guy and he watched his account drop 90% before he decided he'd better learn another way to invest.
In summation, the book had relevance to me because of the track I chose to go down. These traders don't give you the magic indicators to help you succeed. They share their history and what got them to where they are. They share part of their strategies and this was meaningful to me after the many books I've read, and the experiences I've had, putting TA into practice.
dabum |
