Contents

Parti
The Search for a Successful
Investment Strategy
Chapter 1 Buy to Keep or Buy to Sell? 3
The Concept of Growth 4
The Cyclical Approach 5
Evaluate the Political Climate 7
Is Inst~utional Investment Strategy Changing? 9
Stock-Price Cycles 10
Reading the Long-Term Charts 11
Being Wrong Can Be Painful 15
The 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 Monetary
Policies 26
Follow the Political Cycle 27
Inflationary Policies 28
Economic Planning vs. Political Reality 30
Federal Monetary Policy and Stock Prices 32
Do 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, 1932-38 40
World War II and Immediate Postwar 44
Cycle 1: 1949-53 44
Cycle 2: 1953-57 45
CycleS: 1957.00 46
Cycle 4: 1960-62 48
Cycle 5: 1962-66 49
Cycle 6: 1966-70 51
Cycle 7: 1970-74 54
CycleS: 1974- 55
Summary of the Stock-Price Cycslei 56

Chapter 5 Look for Low Risk 59

Buy During the Selling Climax
59
Trade With the Market's Primary Trend
61

Part III
lMlich Stocks Should You Buy?

Chapter 6 Safety First 67

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

Chapter 7 Superperformance Stocks: The Record 75

Features of Superperformance Price Action 77
Superperformance and Company Earnings 77
Superperformance and Company Size 79
Superperformance and Subsequent Stock-Price
Action 80
Characteristics of Superperformance Stocks 81
Chapters Look for Price Volatility 83
Stock Prices Reflect the Law of Supply and
Demand 84
A Tale About Volatility and Timing 87
Price Distortions by Stock Exchange Specialists 89
Look for Rebounds 91
Which Stocks Rebound? 92
Emotional Selling and Trend Following 94
Leverage 96
The Dangers in Leverage 99
Leverage in Low-Priced Stocks 100
Leverage in Warrants 101

Chapter 9 Look for New Earning Power 105

Change and Stock Prices 105
Change Resulting From Discoveries of Natural
Resources 107
Change in Government Policies 107
Technological Change 109
Growth-Stage Companies 110
Mature Companies 112
Use Caution When Selecting Growth Stocks 114
Good Management Is Vital 115
Turnaround Situations 115
A Comparison of Two Growth Stocks 116
Anticipate Growth 119
Earnings Explosions 122
Be Skeptical of Reported Earnings 124
Reported Earnings Depend on Accounting
Procedures 124
Higher Earnings Are Usually Anticipated 125
Earning Trends Affect Superperformance Price
Action 125
The Role Future Earnings Play in Stock Prices 126
Evaluate Reported Earnings 127
Chapter 10 Look for Expandable PricelEamings
Ratios 129
Psychology and Stock Prices 131
Establishing Stock Values 132
Problems in Establishing Values 134
Market Price vs. Inherent Value 134
Market Price VS. Dividends 138
Estimating Price/Earnings Ratios 139
The Influence of Price/Earnings Ratios 141
The Ideal Situation 147

Chapter 11 Look for Good Sponsorship 149

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

Part IV
When Should You Sell?

Chapter 12 The Timing Rhythm 171

The National Economy and Stock Market Declines 173
Presidential Elections and the Stock Market 174
Watch Out for Surprises 176
To Hold or to Sell? 178
Be Alert to Federal Policy Switches 179
A Possible Exception 180
The Pricing Rhythm 182
A Big Problem for Investors: The Stock Exchange
Specialists 183
How Specialists Operate 184
Do Call Options Depress Stock Prices? 185
Remember the Political Cycle 185
Declines in Individual Stocks vs. Declines in the
187
Stock Market
188
Watch for the Warning Signals
191
Chapter 13 Selling Short
192
Timing a Short Sale
193
The Ideal Time to Sell Short
Patterns of Boom and Bust in Real Estate 194
Profitable Short-Sale Opportunities Have Been
196
Numerous
197
Select Short Sales Systematically
200
Short Selling by Professionals
203
Covering Short Sales

PartV
The Strategy for Success

Chapter 14 Sources of Information and Ideas 207

207
Publications to Review Regularly
Learn to Recognize the Cycles 211
Look for Potential Price Movement 214
Individual Judgment Is Crucial for Success 214

Chapter 15 Points to Remember 217

218
When to Buy Stocks
219
What Stocks to Buy
220
When to Sell Stocks

Appendix A: Superperformance Stocks, 1962-74 223

Appendix B: Superperformance Stocks,

October 1974-0ctober 1976 137
 Charts

1. Presidential Elections and Stock Prices 12

2. Ford Motor 13
3. Metromedia 14
4. Federal Budget Deficits and Surpluses 29
5. Durations of Stock Price Cycles 37
6. United Financial Corporation of California 63
7. Dow Jones Utility Average 69
8. American Telephone and Telegraph 70
9.S~line m
10. General Motors 85
11. Jack Eckerd Corp. 86
12. Natomas 95
13. Trans World Airlines 98
14. Holiday Inns 102
15. Gulf & Western Industries 103
16. Vetco Off shore Industries 108
17. Bausch& Lomb 111
18. The S-CulVe in the Dow Jones Indusb"ial
Average 113
19. Chrysler 117
20. Polaroid 120
21. Kresge 121
22. Syntex 123
23. McDonald's 142
24. International Flavors and Fragrances 143
25. International Business Machines 145
26. Du Pont E. I. de Nemours 146
27. Athlone 153
28. U.S. Steel 158
29. Burroughs 159
30. Xerox 160
31. Winnebago Industries 172
32. Outboard Marine 177
33. Avon Products 181
34. MGIC Investment 195
35. Grolier 198
36. Rite Aid 199
37. Eastern Airlines 201
38. Thiokol 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