William O' Neal Top 18 Mistakes of Investors.

1. Most investors never get past the starting gate because they do
not use good selection criteria. They do not know what to look for to
find a successful stock. Therefore, they buy fourth-rate "nothing-towrite-
home-about" stocks that are riot acting particularly well in the
marketplace and are not real market leaders.

2. A good way to ensure miserable results is to buy on the way down
in price; a declining stock seems a real bargain because it's cheaper
than it was a few months earlier. For example, an acquaintance of mine
bought International Harvester at $19 in March 1981 because it was
down in price sharply and seemed a great bargain. This was his first
investment, and he made the classic tyro's mistake. He bought a stock
near its low for the year. As it turned out, the company was in serious
trouble and was headed, at the time, for possible bankruptcy

3. An even worse habit is to average down in your buying, rather
than up. If you buy a stock at $40 and then buy more at $30 and average
out your cost at $35, you are following up your losers and mistakes by
putting good money after bad. This amateur strategy can produce serious
losses and weigh you down with a few big losers.

4. The public loves to buy cheap stocks selling at low prices per
share. They incorrectly feel it's wiser to buy more shares of stock in
round lots of 100 or 1000 shares, and this makes them feel better, perhaps
more important. You would be better off buying 30 or 50 shares of
higher-priced, sounder companies. You must think in terms of the number
of dollars you are investing, not the number of shares you can buy.
By the best merchandise available, not the poorest. The appeal of a $2,
$5, or $10 stock seems irresistible. But most stocks selling for $10 or
lower are there because the companies have either been inferior in the
past or have had something wrong with them recently. Stocks are like
anything else. You can't buy the best quality at the cheapest price!
It usually costs more in commissions and markups to buy low-priced
stock, and your risk is greater, since cheap stocks can drop 15% to 20%
faster than most higher-priced stocks. Professionals and institutions will
not normally buy the $5 and $10 stocks, so you have a much poorergrade
following and support for these low-quality securities. As discussed
earlier, institutional sponsorship is one of the ingredients needed
to help propel a stock higher in price

5. First-time speculators want to make a killing in the market. They
want too much, too fast, without doing the necessary study and preparation
or acquiring the essential methods and skills. They are looking for
an easy way to make a quick buck without spending any time or effort
really learning what they are doing.
6. Mainstream America delights in buying on tips, rumors, stories,
and advisory service recommendations. In other words, they are willing
to risk their hard earned money on what someone else says, rather than
on knowing for sure what they are doing themselves. Most rumors are
false, and even if a tip is correct, the stock ironically will, in many cases,
go down in price.
7. Investors buy second-rate stocks because of dividends or low
price-earnings ratios. Dividends are not as important as earnings per
share; in fact the more a company pays in dividends, the weaker the
company may be because it may have to pay high interest rates to
replenish internally needed funds that were paid out in the form of dividends.
An investor can lose the amount of a dividend in one or two
days' fluctuation in the price of the stock. A low P/E, of course, is probably
low because the company's past record is inferior.


8. People buy company names they are familiar with, names they
know. Just because you used to work for General Motors doesn't makeGeneral Motors necessarily a good stock to buy. Many of the best investments
will be newer names you won't know very well but could and
should know if you would do a little studying and research

9. Most investors are not able to find good information and advice.
Many, if they had sound advice, would not recognize or follow it. The
average friend, stockbroker, or advisory service could be a source of losing
advice. It is always the exceedingly small minority of your friends,
brokers, or advisory services that are successful enough in the market
themselves to merit your consideration. Outstanding stockbrokers or
advisory services are no more frequent than are outstanding doctors,
lawyers, or baseball players. Only one out of nine baseball players that
sign professional contracts ever make it to the big leagues. And, of
course, the majority of ball players that graduate from college are not
even good enough to sign a professional contract.

to go into new high ground, pricewise. It just seems too high to them.
Personal feelings and opinions are far less accurate than markets.
11. The majority of unskilled investors stubbornly hold onto their
losses when the losses are small and reasonable. They could get out
cheaply, but being emotionally involved and human, they keep waiting
and hoping until their loss gets much bigger and costs them dearly.
12. In a similar vein, investors cash in small, easy-to-take profits and
hold their losers. This tactic is exactly the opposite of correct investment
procedure. Investors will sell a stock with a profit before they will
sell one with a loss.
13. Individual investors worry too much about taxes and commissions.
Your key objective should be to first make a net profit. Excessive
worrying about taxes usually leads to unsound investments in the hope
of achieving a tax shelter. At other times in the past, investors lost a
good profit by holding on too long, trying to get a long-term capital
gain. Some investors, even erroneously, convince themselves they can't
sell because of taxes—strong ego, weak judgment.
Commission costs of buying or selling stocks, especially through a discount
broker, are a relatively minor factor, compared to more important
aspects such as making the right decisions in the first place and taking
action when needed. One of the great advantages of owning stock over real
estate is the substantially lower commission and instant marketability and
liquidity. This enables you to protect yourself quickly at a low cost or to
take advantage of highly profitable new trends as they continually evolve

14. The multitude speculates in options too much because they think
it is a way to get rich quick. When they buy options, they incorrectly concentrate entirely in shorter-term, lower-priced options that involve
greater volatility and risk rather than in longer-term options. The limited
time period works against short-term option holders. Many options
speculators also write what is referred to as "naked options," which are
nothing but taking a great risk for a potentially small reward and, therefore,
a relatively unsound investment procedure.

15. Novice investors like to put price limits on their buy-and-sell
orders. They rarely place market orders. This procedure is poor
because the investor is quibbling for eighths and quarters of a point,
rather than emphasizing the more important and larger overall movement.
Limit orders eventually result in your completely missing the
market and not getting out of stocks that should be sold to avoid substantial
losses.

16. Some investors have trouble making decisions to buy or sell. In
other words, they vacillate and can't make up their minds. They are
unsure because they really don't know what they are doing. They do not
have a plan, a set of principles, or rules, to guide them and, therefore,
are uncertain of what they should be doing.
17. Most investors cannot look at stocks objectively. They are always
hoping and having favorites, and they rely on their hopes and personal
opinions rather than paying attention to the opinion of the marketplace,
which is more frequently right.
18. Investors are usually influenced by things that are not really crucial,
such as stock splits, increased dividends, news announcements, and
brokerage firm or advisory recommendations.
If you hunger to become a winning investor, read the above items
over very carefully several times and be totally honest with yourself.
How many of the habits mentioned above describe your investment
beliefs and practices? As Rockne would say, "These are the weaknesses
which you must systematically work on until you can change and build
them up into your strong points."
Poor principles and poor methods will yield poor results. Sound principles
and sound methods will, in time, create sound results.
My parting advice to you is: Have courage, be positive, and don't ever
give up. Great opportunities occur every year in America. Get yourself
prepared and go for it. You'll find that little acorns can grow into giant
oaks. Anything is possible with persistence and hard work. It can be done,
and your own determination to succeed is the most important element.

William O' Neal Theory<<<----

And human nature being what it is, 90% of the people in the stock market,
professionals and amateurs alike, simply haven't done enough
homework.
They haven't really studied the problem to find out what they are
doing right and wrong, and they haven't studied in enough detail to
understand what makes a successful stock go up and down. There is no
luck to it, it's not a total mystery, and it's certainly not a matter of random
walk, like some inexperienced university professors believe.
There aren't too many people who are good at stock selection, but
there are probably more than you realize. They are hard to find
because they are certainly in the minority, perhaps one out of every
twenty or thirty people in the market.
The fascinating point is that investors can be good at stock selection
because they've studied, worked, and acquired the right understanding
and experience, but they can also be ignorant about how and why and
when to sell their stocks.
Very few people sell well. Selling a stock correctly is the toughest job
and the one least understood by everyone. The next chapter will discuss
when to sell and take your profits.
In short, if you want to make money in the stock market, you need a
specific defensive plan for cutting your losses quickly and you need to
develop the decisiveness and discipline to make these tough, hard-headed
business decisions without wavering.
Remember, there are no good stocks—they are all bad...unless they
go up.

William O' Neal 4

It is far better to sell early. If you are not early, you will be late; you'll
never sell at the exact top, so stop kicking yourself when a stock goes
higher after you sell. The object is to make and take worthwhile gains
and not get excited, optimistic, or greedy as a stock's price advance gets
stronger! The old saying is, "Bulls make money and bears make money,
but pigs don't."


Nathan Rothschild said, "There certainly is. I never buy at
the bottom and I always sell too soon."


One simply must get out while the getting is good. The secret is to
hop off the elevator on one of the floors on the way up. In the stock
market one good profit in hand is worth two on paper.



If you have a total of $5000 to $20,000 to invest, three
stocks might be a reasonable maximum. A $3000 account could be confined
to two equities. Keep things manageable!




The winning investor's objective should be to have one or two big
winners rather than dozens of very small profits. It is much better to
have a number of small losses and a few very big profits.




No well-run portfolio should ever have losses that have been carried
for six months or more. Keep your portfolio clean and in touch with
the times. Good gardeners always weed the flower patch.




When you purchase a mutual fund, you are hiring professional management
to make decisions for you in the stock market.



Therefore, price patterns taken from successful stocks in the past few
years should definitely be used as models or precedents for future
selection of successful stocks. Attorneys and geologists rely heavily on
precedents; why shouldn't you do the same?





One of the most fundamental chart-base price patterns looks like a cup
with a handle when the outline of a cup is viewed from the side. Cup
patterns last, in time duration, from 7 to as many as 65 weeks (most are
usually three to six months). The usual percentage correction from the
absolute peak to the low point of the price pattern varies from 12% or
15% to 33%.


When handles do occur, they should form in the upper half of the
overall base structure, as measured from absolute peak to the low of the
cup. This should be above the stock's 200-day moving average price
line. Handles forming in the lower half of a base or completely below
the stock's 200-day line are weak, failure-prone price structures.
Demand up to that point has not been strong enough to enable the
stock to recover more than half of its prior decline.





A saucer with a handle is a price pattern similar to the cup with a handle
except the "saucer" part tends to be longer and more shallow. If
using the name "cup with handle" or "saucer" sounds unusual, consider
that for years you have recognized and called certain constellations "the
big and little dipper."


A double-bottom price pattern looks like the letter "W." This pattern
does not occur as often as does the cup price structure. It is usually
important that the second bottom of the "W" touch the price level of
the first bottom or, as in most cases, undercut it by.one or two points,
thereby creating a shakeout.


A high, tight flag price pattern is rare and occurs no more than once or
twice a year. It begins by moving approximately 100% to 120% in a very
short period of time (four to eight weeks) and then corrects sideways



if you want to produce superior results in the stock market, you
can't ignore the market strength or weakness of the 200 industry groups
and subgroups.

William O' Neal 3

Bernard Baruch, a famous market operator on Wall Street and trusted
advisor to U.S. presidents said, "If a speculator is correct half of the
time, he is hitting a good average. Even being right three or four times
out of 10 should yield a person a fortune if he has the sense to cut his
losses quickly on the ventures where he has been wrong."


People think a successful person is either kicky or right most of the
time. This is not so. Successful people make many mistakes. Their successes
are a result of hard work rather than their being lucky. They succeed
in spite of their mistakes because they try much harder and more
often than the average person does. There just aren't many overnight
successes. Success takes time.


Before we delve further into the intriguing shell game of when to sell,
let's define two misunderstood words. These words are speculator and
investor.
Bernard Baruch interpreted speculator as follows: "The word speculator
comes from the Latin 'speculari' which means to spy and observe. A
speculator, therefore, is a person who observes and acts before it
occurs."
Jesse Livermore, another old-time stock market legend, defined
investor this way: "Investors are the big gamblers. They make a bet, stay
with it, and if it goes wrong, they lose it all."
These definitions are a bit different than those you will read in
Webster's Dictionary. But we know Baruch and Livermore on occasion
made millions of dollars in the stock market. We're not sure about
Webster.
One of my primary goals is to convince you to question many of the
investment ideas, beliefs, and methods you have heard about or used in
the past.
The amount of erroneous information and ignorance about how the
stock market really works and how to succeed in the market is downright
unbelievable.

When you say, "I can't sell a stock because I don't want to take a loss,"
you assume that what you want has some bearing on the situation. Yet
the stock does not know who you are, and it doesn't care what you hope
or want.
Furthermore, you may believe that if you sell the stock you will be taking
the loss, but selling doesn't give you the loss; you already have it. If
you think a loss is not incurred until you sell the stock, you may be kidding
yourself. The larger the paper loss, the more real it will become



I am talking about cutting your loss when it is 7% or 8% below the
price you paid. Once you are ahead and have a good profit, you can
afford to, and should, allow the stock more than 7% or 8% room for
normal fluctuations in price. Do not sell a stock just because it's off 7%
to 8% from its peak price.
When the late Gerald M. Loeb of E. F. Hutton was writing his last
book on the stock market, I had the pleasure of discussing this issue
with him in my office. In his first work, The Battle for Investment
Survival, Loeb advocated cutting all losses at 10%. I was curious and
asked him if he followed the 10% loss policy himself. He said, "I would
hope to be out long before they ever reach 10%."
Bill Astrop, president of Astrop Advisory Corporation in Atlanta,
Georgia, suggests a minor revision of the 10% loss-cutting plan. He feels
individual investors should sell half of their position in a stock if it is
down 5% from their cost and the other half once it is down 10% below
the price paid.
To preserve your hard-earned money, I think 7% or 8% should be the
limit. Your overall average of all losses should be less, perhaps 5% or
6% if you are strict and fast on your feet.




Letting your losses run is the most serious mistake made by almost all
investors! You positively must accept that mistakes in either timing or
selection of stocks are going to be made by even the most professional
investors. In fact, I would go so far as to say if you aren't willing to cut
short and take your losses, then you probably should not buy stocks.
Would you drive your car down the street without brakes?

William O' Neal 2

If you want to upgrade your stock selection and concentrate on the best
leaders, you could consider restricting your buys to companies showing
a relative strength rank of 80 or higher. Establish some definite discipline
and rules for yourself


buy stocks that have at least a few institutional sponsors
with better-than-average recent performance records.


The best way to determine the direction of the
market is to follow and understand every day what the general market
averages are doing.


At possible market turning points, check several averages to see if there
are significant divergences. For example, if the Dow Jones was up 10
and the S&P was up only the equivalent of two on the Dow for the day,
the S&P, being a broader index, would indicate the rally was no't as
broad and strong as it would appear on the surface




Again, the daily general market averages provide the best clues. Watch
for the first time an attempted short-term rally follows through on anywhere
from its third to tenth day of recovery. The first and second days of
an attempted improvement can't tell you if die market has really turned, so
I ignore them and concentrate on die follow-through days of the rally. The
type of action to be looked for after the first few days of revival is an
increase hi total market volume from die day before, with substantial net
price progress for die day up 1% or more on the Dow Jones or S&P Index.




At stock market lows, the individual investor is safer to wait for a second
confirmation of the turn before buying heavily. The bottom day in
the Dow Jones or the first strong day up after a major decline is usually
the first indication of a possible bottom. A good follow-through, with
the Dow Jones up 18 or 20 points or more (if the Dow is in the 1800
area) and accompanied by an increase in daily volume from the day
before, will usually be on the fourth, fifth, sixth, or seventh day of the
attempted rally. This is your second confirmation and main buy signal.
Follow-throughs after the tenth day indicate weakness.



To summarize this vitally important and rather complex subject, learn
to interpret the daily general market indexes and action of the individual
market leaders. Once you know how to do this correctly, you can
stop listening to all the uninformed, costly, personal market opinions
from amateurs and professionals alike.

William O' NEal

The common Stocks you select for purchase should show a major percentage
increase in the current quarterly earnings per share (the most
recently reported quarter) when compared to the prior year's same
quarter.




The hard-to-accept great paradox in the stock market is that what
seems too high and risky to the majority usually goes higher and what
seems low and cheap usually goes lower.


your job is to buy when a stock looks high to the majority
of conventional investors and to sell after it moves substantially higher
and finally begins to look attractive to some of those same investors.


One fairly positive sign, particularly in small- to medium-sized companies,
is for the concern to be acquiring its own stock in the open marketplace
over a consistent period of time

Most of the time, people buy stocks they like, stocks they feel good
about, or stocks they feel comfortable with, like an old friend, old
shoes, or an old dog. These securities are frequently sentimental, draggy
slowpokes rather than leaping leaders in the overall exciting stock
market