Page 465 - How to Make Money in Stocks Trilogy

Picking the Best Market Themes, Sectors, and Industry Groups 335

A few months later, data showed that we had turned negative on almost
the entire oil sector, and that we had seen the top in Schlumberger, the most
outstanding of all the oil service companies. Based objectively on all the his-
torical data, you had to conclude that, in time, the weakness would wash
over into the entire oil service industry. Therefore, we also added equities
such as Hughes Tool, Western Co. of North America, Rowan Companies,
Varco International, and NL Industries to the sell/avoid list even though the
stocks were making new price highs and showed escalating quarterly earn-
ings—in some cases by 100% or more.
These moves surprised many experienced professionals on Wall Street
and at large institutions, but we had studied and documented how
groups historically had topped in the past. Our actions were based on
historical facts and sound principles that had worked over decades, not
on analysts’ personal opinions or possibly one-sided information from
company officials.
Our service is totally and completely different from that of all Wall Street
research firms because we do not hire analysts, make buy or sell recom-
mendations, or write any research reports. We use supply-and-demand
charts, facts, and historical precedents that now cover all common stocks
and industries from the 1880s through 2008.
The decision to suggest that clients avoid or sell oil and oil service stocks
from November 1980 to June 1981 was one of our institutional firm’s more
valuable calls at the time. We even told a Houston seminar audience in
October 1980 the entire oil sector had topped. A full 75% of those in atten-
dance owned petroleum stocks. They probably didn’t believe a word we
said. We were not aware at the time, or even in the several months follow-
ing, of any other New York Stock Exchange firm that had taken that same
negative stand across the board on the energy and related drilling and ser-
vice sectors. In fact, the exact opposite occurred. Because of such decisions,
William O’Neil + Co. became a leading provider of historical precedent
ideas to many of the nation’s top institutional investors.
Within a few months, all these stocks began substantial declines. Profes-
sional money managers slowly realized that once the price of oil had topped
and the major oil issues were under liquidation, it would be only a matter of
time before drilling activity would be cut back.
In the July 1982 issue of Institutional Investor magazine, ten energy ana-
lysts at eight of the largest and most respected brokerage firms took a dif-
ferent tack. They advised purchasing these securities because they
appeared cheap and because they had had their first correction from their
price peak. This is just another example of how personal opinions, even if
they come from the highest research places or bright young MBAs from