Gyroscopic Investing

How many have read the publisher, William Oneil,'s book HOW TO MAKE MONEY IN STOCKS?  how about Peter Lynche's books?

I assume "IBD" in this context refers to something other than Irritable Bowel Disease, right? Oh and Gumby: thank you, thank you so very much for filling my mind with gut-related subjects!

swank wrote: How many have read the publisher, William Oneil,'s book HOW TO MAKE MONEY IN STOCKS?  how about Peter Lynche's books?

O'Neill is a small-cap, fundamental and technical strategy predicated on market timing and a specific chart pattern based on his study of an average of 12 stocks each year that were the biggest winners going back to the 1950's or so.  From memory:

C = Current Earnings (25%+)
A = Annual Earnings (25%+)
N = New High, New Product, New Management
S = Shares Outstanding (Low Float)
L = Leader in Industry (Industry Relative Strength)
I = Institutional Sponsorship (Not Too Little/Much)
M = Market Timing

It's essentially a pre-PC age factor screen and IBD is an ecosystem built around it.

Never read Lynch but I understand he popularized the nonsensical PEG ratio as well as the idea of investing in what you're familiar with, i.e. if you eat at Dunkin' Donuts every day, then buy the stock.

swank wrote: How many have read the publisher, William Oneil,'s book HOW TO MAKE MONEY IN STOCKS?  how about Peter Lynche's books?

A long time ago, in a galaxy far away (the early 1990's) I worked for a small investment management firm where we made people quite a bit of money with CANSLIM.  But that was then, and this is now, and I've been out of the "industry" for a long time which is why I like the PP strategy.

I hate the whole IBD, CANSLIM, "Look, that one stock is about to BREAK OUT! See its squiggly line path?!" thing that they do, and let me tell you why.

A long time ago, my favorite Auntie, who has always loved everything investing, lost literally millions - and I do mean that, MILLIONS - of dollars - literally every single penny she had after earning money through her lifetime - when the 9/11 thing happened and the stock market melted down out of nowhere and all of her carefully picked CANSLIM squiggly line stocks (that she had read about in the IBD daily newspaper thingee that was delivered to her house every morning, for the love of everything holy) fell to pieces in the 9/11 aftermath. Most of the stocks IBD had picked never recovered and she is not exactly destitute now, but she is far, FAR from comfortable.

I have since read everything - literally everything - I can get my hands on about that strategy (I even joined IBD for a long time) just so that I could educate myself to the point where I could do the exact opposite. So that I can understand their strategy to the T and thus run as far away as fast as I can. Her life (and she is single and now past her earning years) was forever financially ruined by the IBD way of investing and the IBD stock recommendations. Sure, it could be said that she chose a bad investing strategy to follow, but she is very intelligent and very knowledgeable and at that time, no one could even imagine the financial pain that the 2000s could bring since her prime earning years were the 80s and 90s. I hate that strategy so much I'm nearly irrational when trying to speak about it.

Squiggly line hocus pocus, and I'm being kind.

(And by the way - I've said on these boards before how much I fear stocks but not long term bonds and not gold - it's because of what I saw happen to my Auntie because she followed IBD and all of their stock-picking ridiculousness and got badly burned. And then a few years later 2008 happened and it all pretty much cemented for me that STOCKS ARE SATAN *AND* THE ANTICHRIST ALL ROLLED UP INTO ONE. I still own them, however, because the PP says I should (and rational investing techniques say I should), but I own index funds and if anyone tries to show me a random squiggly line and tell me what stock is about to "break out," I'm likely to punch them in the face. But that's just me.)

CANSLIM is not a hands-off, buy-and-hold strategy... an important component is to sell stocks when they drop 8%.  That requires frequent attention.

But as we know from the PP strategy, stocks perform well under certain circumstances, not all circumstances.  And a particular stock strategy will perform well under a subset of those circumstances.  That's why diversification is so important.

Not passing judgment on your aunt (and I hate to hear stories like hers) but it doesn't sound like she was appropriately diversified.

CANSLIM is a stock-picking strategy, not a broad portfolio strategy.  Not really trying to defend it, just putting it in some context.

flyingpylon wrote: CANSLIM is not a hands-off, buy-and-hold strategy... an important component is to sell stocks when they drop 8%.  That requires frequent attention.

But as we know from the PP strategy, stocks perform well under certain circumstances, not all circumstances.  And a particular stock strategy will perform well under a subset of those circumstances.  That's why diversification is so important.

Not passing judgment on your aunt (and I hate to hear stories like hers) but it doesn't sound like she was appropriately diversified.

CANSLIM is a stock-picking strategy, not a broad portfolio strategy.  Not really trying to defend it, just putting it in some context.

In terms of being "properly diversified," the IBD folks and their theories/newspaper don't advocate anything at all other than purchasing and selling individual stocks (at the perfect times). Contrary to what it sounds like you may be saying, it is MORE than possible to lose huge amounts of money following their advice and methods. I'm bowing out of this conversation now. I will not be debating what has happened in my family. I posted it as an FYI for anyone who happens to search for the topic because I feel very strongly that the method/materials can be dangerously financially risky.

mdsw wrote: Investment theories like these betray the fact that all this talk and 'knowledge' is already priced into the market.

That assumes you believe in the efficient market theory, otherwise known as the late 20th century capitalist replacement for voodoo.  Just like voodoo, it has no basis in universal fact but is simply curve fitting (taking a selection of historical data and trying to explain it).  When taken as far as EMT it's just mental masturbation.

Of course, if this CANSLIM stuff is really trying to predict the market based on "squiggly lines" then it is more like 19th century voodoo, now known in modern times as "technical analysis."

Technical analysis (TA) is based entirely on the facts that EMT left out.  Facts such as markets aren't efficient, nor are they rational.  Markets are as emotional as the people who comprise them, driven alternately by greed and fear.  These emotions tend to feed on themselves, pushing harder, faster, further until they burn out in a often sudden reversal.  The effect of these emotions are made manifest in the market as a whole, but also in individual companies which may be moving with or against the market.

TA is nothing more than an attempt to derive the prevailing mood of the company or market being analyzed and thus predict what will happen next.  Of course, since TA is relying on emotion, and emotion isn't rational, the interpretation of the "squiggly lines" is extremely subjective as are the resulting predictions.

Anyone who claims they can predict the future obviously cannot. If they could, they wouldn't need to prove it, nor sell it to anyone.  Wouldn't it be funny if Warren Buffet made his fortune with TA but didn't want to admit it so has promulgated what we all know as nothing more than his huge cover story for the past 50 years?

I thought IBD was Investor's Business Daily...  I used to subscribe.  Not since the 1990's.  The WSJ is more useful and I don't even subscribe to that.

CANSLIM doesn't use "squiggly lines" to time the market, but it does use a Cup & Handle pattern -- which reflects distribution and accumulation over a long period -- as an entry criteria for the stocks.  It is one of the most highly probable and profitable patterns out of the chart pattern arsenal.

IBD is supposed to have a "market watch" column that tells you when the market is bullish or bearish and whether to be in or out.  It sounds like Mom2Boy's favorite auntie did not follow that, although I've heard of claims they change their position after the fact to make themselves look good.

I'll stick to quantitative.

MachineGhost wrote: CANSLIM doesn't use "squiggly lines" to time the market, but it does use a Cup & Handle pattern ... as an entry criteria ...

Sounds self-contradictory to me.  But whatever.

CANSLIM just maximizes beta. The result is about the same as holding a 2x leveraged ETF. Time decay occurs through the use of 8% stop-loss sell orders.