Contents

Parti

The Search for a SuccessfulInvestment Strategy

Chapter 1 Buy to Keep or Buy to Sell? 3

The Concept of Growth 4The Cyclical Approach 5Evaluate the Political Climate 7Is Inst~utional Investment Strategy Changing? 9Stock-Price Cycles 10Reading the Long-Term Charts 11Being Wrong Can Be Painful 15The Disadvantages of the Buy-Sell-Buy Approach 16

Part II

When Should You Buy Stocks?

Chapter 2 Business Cycles 21

Chapter 3 Washington Policies 25

Economic Control Through Fiscal and MonetaryPolicies 26

Follow the Political Cycle 27Inflationary Policies 28Economic Planning vs. Political Reality 30Federal Monetary Policy and Stock Prices 32Do Not Be Misled by Short-Term Monetary Trends 33

Chapter 4 The Political Cycles 35

The Biggest Boom and Bust, 1927-32 39

The Roosevelt Recovery and Recession, 1932-38World War II and Immediate PostwarCycle 1: 1949-53Cycle 2: 1953-57CycleS: 1957.00Cycle 4: 1960-62Cycle 5: 1962-66Cycle 6: 1966-70Cycle 7: 1970-74CycleS: 1974-Summary of the Stock-Price Cycslei

Chapter 5 Look for Low Risk

Buy During the Selling ClimaxTrade With the Market's Primary Trend

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Part III

lMlich Stocks Should You Buy?

Chapter 6 Safety First 67

The Biggest Also Decline 67Price Trends of Income Stocks 68Most Stocks Are Price-Cyclical 71Buy for Large Capital Gains 72A Superb Company Does Not Necessarily Have a

Superb Stock 72

Chapter 7 Superperformance Stocks: The Record 75

Features of Superperformance Price Action 77Superperformance and Company Earnings 77Superperformance and Company Size 79Superperformance and Subsequent Stock-Price

Action 80Characteristics of Superperformance Stocks 81

Chapters Look for Price Volatility 83

Stock Prices Reflect the Law of Supply andDemand 84

A Tale About Volatility and Timing 87Price Distortions by Stock Exchange Specialists 89Look for Rebounds 91Which Stocks Rebound? 92Emotional Selling and Trend Following 94Leverage 96The Dangers in Leverage 99Leverage in Low-Priced Stocks 100Leverage in Warrants 101

Chapter 9 Look for New Earning Power 105

Change and Stock Prices 105Change Resulting From Discoveries of Natural

Resources 107Change in Government Policies 107Technological Change 109Growth-Stage Companies 110Mature Companies 112Use Caution When Selecting Growth Stocks 114Good Management Is Vital 115Turnaround Situations 115A Comparison of Two Growth Stocks 116Anticipate Growth 119Earnings Explosions 122Be Skeptical of Reported Earnings 124Reported Earnings Depend on Accounting

Procedures 124Higher Earnings Are Usually Anticipated 125Earning Trends Affect Superperformance Price

Action 125The Role Future Earnings Play in Stock Prices 126Evaluate Reported Earnings 127

Chapter 10 Look for Expandable PricelEamingsRatios 129

Psychology and Stock Prices 131Establishing Stock Values 132Problems in Establishing Values 134Market Price vs. Inherent Value 134Market Price VS. Dividends 138Estimating Price/Earnings Ratios 139The Influence of Price/Earnings Ratios 141The Ideal Situation 147

Chapter 11 Look for Good Sponsorship 149

An Example of Sponsorship 151Sponsorship by Institutional Investors 152Trend Following 161Spotting Trends 162The Sequence of Trend Following 163News, Publicity, and Stock Prices 164Buy Stocks You Understand 167

Part IV

When Should You Sell?

Chapter 12 The Timing Rhythm 171

The National Economy and Stock Market Declines 173Presidential Elections and the Stock Market 174Watch Out for Surprises 176To Hold or to Sell? 178Be Alert to Federal Policy Switches 179A Possible Exception 180The Pricing Rhythm 182A Big Problem for Investors: The Stock Exchange

Specialists 183How Specialists Operate 184

Do Call Options Depress Stock Prices?Remember the Political CycleDeclines in Individual Stocks vs. Declines in the

Stock MarketWatch for the Warning Signals

Chapter 13 Selling Short

Timing a Short SaleThe Ideal Time to Sell ShortPatterns of Boom and Bust in Real EstateProfitable Short-Sale Opportunities Have Been

NumerousSelect Short Sales SystematicallyShort Selling by ProfessionalsCovering Short Sales

PartV

The Strategy for Success

Chapter 14 Sources of Information and Ideas

Publications to Review RegularlyLearn to Recognize the CyclesLook for Potential Price MovementIndividual Judgment Is Crucial for Success

Chapter 15 Points to Remember

When to Buy StocksWhat Stocks to BuyWhen to Sell Stocks

Appendix A: Superperformance Stocks, 1962-74

Appendix B: Superperformance Stocks,October 1974-0ctober 1976

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191

192193194

196197200203

207

207211214214

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223

137

Charts

1. Presidential Elections and Stock Prices 122. Ford Motor 133. Metromedia 144. Federal Budget Deficits and Surpluses 295. Durations of Stock Price Cycles 376. United Financial Corporation of California 637. Dow Jones Utility Average 698. American Telephone and Telegraph 709.S~line m

10. General Motors 8511. Jack Eckerd Corp. 8612. Natomas 9513. Trans World Airlines 9814. Holiday Inns 10215. Gulf & Western Industries 10316. Vetco Off shore Industries 10817. Bausch& Lomb 11118. The S-CulVe in the Dow Jones Indusb"ial

Average 11319. Chrysler 11720. Polaroid 12021. Kresge 12122. Syntex 12323. McDonald's 142

24. International Flavors and Fragrances 14325. International Business Machines 14526. Du Pont E. I. de Nemours 146

27. Athlone28. U.S. Steel

29. Burroughs30. Xerox31. Winnebago Industries32. Outboard Marine33. Avon Products34. MGIC Investment35. Grolier36. Rite Aid37. Eastern Airlines38. Thiokol

Tables

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159160172177181195198199201208

Table 1. The Stock Price Cycles 37

Table 2. Presidential Elections Compared With BeirMarket Lows and Bull Market Highs 56

Table 3. The Disparity Between Book Value andMarket 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