Page 949 - How to Make Money in Stocks Trilogy

198 Appendix A

higher priority than trying to squeeze out a few extra percentage points.
Remember, cash can be a position no matter how low the interest income.
Other investors have bought into the concept that their money always has
to be working for them, even when they’re asleep. That sounds good, but
isn’t always practical in the stock market. The buy and hold strategy comes
to mind again here, an approach where you take your hands off the steering
wheel and hope it all works out. And when it doesn’t (and it hasn’t), it takes
some phenomenal gains to make up losses over time—no matter how low
that price was when they started.
Our method also gives us a clear view of the stocks most likely to become
the next new leaders. That’s because our approach is based on a compre-
hensive analysis of every big winning stock since the late nineteenth century.
Actually, picking the right stocks using our products isn’t very hard at all. All
of our products are designed to bring the best stocks to the surface in every
cycle. That’s not to say there’s no art to picking stocks, but an investor can
quickly narrow the field from thousands to a few dozen. We look for a com-
pany that is a leader in its space, with solid short-term and long-term earn-
ings, plus a strong return on equity or high pretax profit margins. Bottom
line, if the fundamentals aren’t outstanding, we’re not interested. Some of
the stocks in which we invest may tend to have low brand-awareness.
Usually they have gone public within the last 12 years. We tend to shy away
from a stock that is too well-known or has become a market darling.
Most important to long-term success in the market is having the disci-
pline to consistently follow a well-thought-out set of portfolio management
rules. At William O’Neil + Company, we have time-tested rules that offer
guidance on: how to enter positions while minimizing risk, when to be more
aggressive, when to lighten up, and when to exit and sidestep bad markets.
This last set of rules, which allows us to recognize the signs of a topping
stock or a topping general market, is perhaps the most unique and powerful
part of our method. Investors with a strong sell discipline are rare. Once a
stock is purchased, many emotions will work against selling it—sometimes
until it’s too late. On top of this, the stock market has an uncanny way of
exploiting human beings’ character flaws and leveling all egos. When oper-
ating in the market, we want to remain balanced and humble, always learn-
ing from our mistakes.
The ability of our method to keep pace with the natural lifecycle of lead-
ing stocks—to identify them early, own them during a good part of their run,
and sell them when the move is likely over (often when a new innovation or