Contents
Parti
The Search for a Successful
Investment Strategy
Chapter 1 Buy to Keep or Buy to Sell?
3
The Concept of Growth
The Cyclical Approach
Evaluate the Political Climate
Is Inst~utional Investment Strategy Changing?
Stock-Price Cycles
Reading the Long-Term Charts
Being Wrong Can Be Painful
The Disadvantages of the Buy-Sell-Buy Approach
4
5
7
9
10
11
15
16
Part II
When Should You Buy Stocks?
Chapter 2 Business Cycles
21
Chapter 3 Washington Policies
25
Economic Control Through Fiscal and Monetary
Policies
Follow the Political Cycle
Inflationary Policies
Economic Planning vs. Political Reality
Federal Monetary Policy and Stock Prices
Do Not Be Misled by Short-Term Monetary Trends
26
27
28
30
32
33
Chapter 4 The Political Cycles
35
The Biggest Boom and Bust, 1927-32
39
The Roosevelt Recovery and Recession, 1932-38
World War II and Immediate Postwar
Cycle 1: 1949-53
Cycle 2: 1953-57
CycleS: 1957.00
Cycle 4: 1960-62
Cycle 5: 1962-66
Cycle 6: 1966-70
Cycle 7: 1970-74
CycleS: 1974Summary of the Stock-Price Cycslei
54
55
56
Chapter 5 Look for Low Risk
59
Buy During the Selling Climax
Trade With the Market's Primary Trend
59
40
44
44
45
46
48
49
51
61
Part III
lMlich Stocks Should You Buy?
Chapter 6 Safety First
67
The Biggest Also Decline
Price Trends of Income Stocks
Most Stocks Are Price-Cyclical
Buy for Large Capital Gains
A Superb Company Does Not Necessarily Have a
Superb Stock
67
68
71
72
72
Chapter 7 Superperformance Stocks: The Record
75
Features of Superperformance Price Action
Superperformance and Company Earnings
Superperformance and Company Size
Superperformance and Subsequent Stock-Price
Action
Characteristics of Superperformance Stocks
77
77
79
80
81
Chapters Look for Price Volatility
83
Stock Prices Reflect the Law of Supply and
Demand
A Tale About Volatility and Timing
Price Distortions by Stock Exchange Specialists
Look for Rebounds
Which Stocks Rebound?
Emotional Selling and Trend Following
Leverage
The Dangers in Leverage
Leverage in Low-Priced Stocks
Leverage in Warrants
84
87
89
91
92
94
96
99
100
101
Chapter 9 Look for New Earning Power
105
Change and Stock Prices
Change Resulting From Discoveries of Natural
Resources
Change in Government Policies
Technological Change
Growth-Stage Companies
Mature Companies
Use Caution When Selecting Growth Stocks
Good Management Is Vital
Turnaround Situations
A Comparison of Two Growth Stocks
Anticipate Growth
Earnings Explosions
Be Skeptical of Reported Earnings
Reported Earnings Depend on Accounting
Procedures
Higher Earnings Are Usually Anticipated
Earning Trends Affect Superperformance Price
Action
The Role Future Earnings Play in Stock Prices
Evaluate Reported Earnings
105
107
107
109
110
112
114
115
115
116
119
122
124
124
125
125
126
127
Chapter 10 Look for Expandable PricelEamings
Ratios
129
Psychology and Stock Prices
Establishing Stock Values
Problems in Establishing Values
Market Price vs. Inherent Value
Market Price VS. Dividends
Estimating Price/Earnings Ratios
The Influence of Price/Earnings Ratios
The Ideal Situation
131
132
134
134
138
139
141
147
Chapter 11 Look for Good Sponsorship
149
An Example of Sponsorship
Sponsorship by Institutional Investors
Trend Following
Spotting Trends
The Sequence of Trend Following
News, Publicity, and Stock Prices
Buy Stocks You Understand
151
152
161
162
163
164
167
Part IV
When Should You Sell?
Chapter 12 The Timing Rhythm
171
The National Economy and Stock Market Declines
Presidential Elections and the Stock Market
Watch Out for Surprises
To Hold or to Sell?
Be Alert to Federal Policy Switches
A Possible Exception
The Pricing Rhythm
A Big Problem for Investors: The Stock Exchange
Specialists
How Specialists Operate
173
174
176
178
179
180
182
183
184
Do Call Options Depress Stock Prices?
Remember the Political Cycle
Declines in Individual Stocks vs. Declines in the
Stock Market
Watch for the Warning Signals
Chapter 13 Selling Short
Timing a Short Sale
The Ideal Time to Sell Short
Patterns of Boom and Bust in Real Estate
Profitable Short-Sale Opportunities Have Been
Numerous
Select Short Sales Systematically
Short Selling by Professionals
Covering Short Sales
185
185
187
188
191
192
193
194
196
197
200
203
PartV
The Strategy for Success
Chapter 14 Sources of Information and Ideas
207
Publications to Review Regularly
Learn to Recognize the Cycles
Look for Potential Price Movement
Individual Judgment Is Crucial for Success
207
211
214
214
Chapter 15 Points to Remember
217
When to Buy Stocks
What Stocks to Buy
When to Sell Stocks
218
219
220
Appendix A: Superperformance Stocks, 1962-74
223
Appendix B: Superperformance Stocks,
October 1974-0ctober 1976
137
Charts
1. Presidential Elections and Stock Prices
2. Ford Motor
3. Metromedia
4. Federal Budget Deficits and Surpluses
5. Durations of Stock Price Cycles
6. United Financial Corporation of California
7. Dow Jones Utility Average
8. American Telephone and Telegraph
12
13
14
29
37
63
69
70
9.S~line
m
10. General Motors
11. Jack Eckerd Corp.
12. Natomas
13. Trans World Airlines
14. Holiday Inns
15. Gulf & Western Industries
16. Vetco Off shore Industries
17. Bausch& Lomb
18. The S-CulVe in the Dow Jones Indusb"ial
Average
19. Chrysler
20. Polaroid
21. Kresge
22. Syntex
23. McDonald's
24. International Flavors and Fragrances
25. International Business Machines
26. Du Pont E. I. de Nemours
85
86
95
98
102
103
108
111
113
117
120
121
123
142
143
145
146
27. Athlone
28. U.S. Steel
29. Burroughs
30. Xerox
31. Winnebago Industries
32. Outboard Marine
33. Avon Products
34. MGIC Investment
35. Grolier
36. Rite Aid
37. Eastern Airlines
38. Thiokol
153
158
159
160
172
177
181
195
198
199
201
208
Tables
Table 1. The Stock Price Cycles
37
Table 2. Presidential Elections Compared With Beir
Market Lows and Bull Market Highs
56
Table 3. The Disparity Between Book Value and
Market Price
135
Table 4. Book Value Lower Than Market Price
136
Table 5. Book Value Higher Than Market Price
137
Table 6. Accumulation of Xerox by Institutions
157