James, I suggest that a wise investor forget most of O'Neil's commandments -- they are a prescription for churning. There are two with which I agree:
2) Forget cost. Cost is as useful as the devil's promises. The stock owes you nothing. It has no memory.
The translation to this is that cost doesn't determine the price at which you should sell (interesting, since O'Neil believes in setting pre-set sell points in case the stock should go down in price). The other part is that if stock prices have no memory, why does O'Neil believe in technical analysis.
9) Be wary of the telltale signs of future sinners such as inventories and/or receivables growing faster than sales, a temporary" sales slow down, earnings that meet expectations due to favorable adjustments below the operating line, an ROE materially higher than the ROA, cash flow earnings that differ markedly from reported earnings, growth spurts that disguise cyclical companies, complex companies, managements that underinvest in the future, and any and all excuses.
Translation: do some financial analysis on the companies you own to make sure that the information is kosher.
Here is my prescription for making money in the market: buy good quality companies with good growth prospects within growng industries. Make sure that the price you pay is consistent with the growth prospects for the company, and sell only when you either need the money for other purposes or the underlying long-term growth story is compromised.
Regards,
Paul |
