Page 385 - How to Make Money in Stocks Trilogy

260 BE SMART FROM THE START

thing: the rules will force you out, but you don’t know how bad it can really
get. You just know it’s going down and you’re out, which sooner or later will
be worth its weight in gold to you. That’s what happened in 2008. Our rules
forced us out, and we had no idea the market was headed for a major break-
down. Most institutional investors were affected because their investment
policy was to be fully invested (95% to 100%).
In early 1962, I had finished reading Reminiscences of a Stock Operator,
by Edwin LeFevre. I was struck by the parallels between the stock market
panic of 1907, which LeFevre discussed in detail, and what seemed to be
happening in April 1962. Since I was 100% in cash and my daily Dow analy-
sis said the market was weak at that point, I began to sell short stocks such
as Certain-teed and Alside (an earlier sympathy play to Certain-teed). For
this, I got into trouble with Hayden, Stone’s home office on Wall Street. The
firm had just recommended Certain-teed as a buy, and here I was going
around telling everyone it was a short sale. Later in the year, I sold Korvette
short at over $40. The profits from both of these short sales were good.
By October 1962, during the Cuban missile crisis, I was again in cash. A
day or two after the Soviet Union backed down from President Kennedy’s
wise naval blockade, a rally attempt in the Dow Jones Industrial Average fol-
lowed through, signaling a major upturn according to my new system. I then
bought the first stock of the new bull market, Chrysler, at 58 ⁄8. It had a clas-
5
sic cup-with-handle base.
Throughout 1963, I simply followed my rules to the letter. They worked
so well that the “worst”-performing account I managed that year was up
115%. It was a cash account. Other accounts that used margin were up sev-
eral hundred percent. There were many individual stock losses, but they
were usually small, averaging 5% to 6%. Profits, on the other hand, were
awesome because of the concentrated positions we built by careful, disci-
plined pyramiding when we were right.
Starting with only $4,000 or $5,000 that I had saved from my salary, plus
some borrowed money and the use of full margin, I had three back-to-back
big winners: Korvette on the short side in late 1962, Chrysler on the buy
side, and Syntex, which was bought at $100 per share with the Chrysler
profit in June 1963. After eight weeks, Syntex was up 40%, and I decided to
play this powerful stock out for six months. By the fall of 1963, the profit had
topped $200,000, and I decided to buy a seat on the New York Stock
Exchange. So don’t ever let anyone tell you it can’t be done! You can learn
to invest wisely if you’re willing to study all of your mistakes, learn
from them, and write new self-correcting rules. This can be the great-
est opportunity of a lifetime, if you are determined, not easily discouraged,
and willing to work hard and prepare yourself. Anyone can make it happen.