Wednesday, September 14, 2011

Interview With Investors Business Daily's William J. O'Neil

Cut your losses. Wisdom of the ages.
From MarketWatch:

Conversation with a maverick investor
Investment legend William O’Neil shares his market wisdom
The peanut-butter/chocolate moment in this trader’s career occurred in 1990. Midway through reading a book on how to make money in stocks, a giant light bulb switched on.

Suddenly it was as if the mysteries of the market — how to find big-winning stocks, why the market did what it did when it did, how to interpret the market’s message, when to become defensive and move to a cash position, among them — were no longer mysteries. 

At that moment, the fog had cleared and all the elusive pieces in the puzzle came together.
This trader was so excited that he put the book down and began pacing the living room floor, pondering all the possibilities. It all made sense now. At last. 

The book, “How To Make Money In Stocks” by William J. O’Neil, went on to become a runaway best-seller. The strategy, known by the acronym “CAN SLIM,“ was based upon an exhaustive research study conducted by O’Neil in the early-‘Sixties. In it, O’Neil looked at all of the biggest-winning stocks of the prior decade to see if they shared common characteristics. In fact, they did. O’Neil discovered there were seven key traits in each big winner, and he assigned each a letter, which comprised the trademark term CAN SLIM. 

O’Neil, a young stockbroker at the time, proceeded to take this valuable information and began applying it to his account and those of his clients. Starting with $4,000 or $5,000 plus some borrowed money and use of margin, O’Neil had three big, back-to-back winners in his account beginning in late 1962. By the fall of 1963, the profits exceeded $200,000 and O’Neil proceeded to buy a seat on the New York Stock Exchange.

O’Neil went on to found a successful institutional research business and, in 1984, a newspaper, Investor’s Business Daily , for which he continues to serve as chairman. 

It is difficult to think of anyone having influenced more of this era’s most outstanding investors than O’Neil. Plenty of individual investors using CAN SLIM have clocked triple-digit annual gains in their accounts. Given the influence of the man on this trader and this column, it made sense to include the following interview, the first of two parts, and conducted via e-mail. 
Q: Bill, in your 50 years of experience in the market and working with investors, what is the biggest mistake the average investor makes?
A: Not having, and following, a strict rule to always sell and cut short your losses. 

Q: What is the most important personality trait that an investor should have to become successful in the market?
A: Willingness to work hard and correct your major weak points....MORE
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