122 of 135 people found the following review helpful:
5.0 out of 5 stars
Excellent Addition to the CANSLIM Literature, August 29, 2010
This review is from: Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market (Wiley Trading) (Hardcover)
This book is an excellent addition to the CANSLIM literature. To understand this book's place in the grand scheme of trading literature, I have to digress first.
If you have been trading for a few years and have read some of the classic literature on trading (e.g., Market Wizards series), you know that the vast majority of successful traders are trend followers. The objective of trend followers is to capture trends in markets with limited risk. The rules of trading that all trend followers stick to are letting profit run, cutting losses short, and manage risk.
O'Neil is in his core a trend follower. He suggests cutting losses at 7-8% or less. Once he latches onto a big trend, he sits tight with the trend until the trend runs its full course (e.g., his trades in Chrysler, Syntex, Pic `N Save, Amgen, Charles Schwab, AOL, Sun Microsystems, EBAY, and more recently in AAPL). O'Neil also manages risk of his trades by rigorous stock selection, broad market timing, and position sizing.
How good is O'Neil? According to some accounts, O'Neil has an average annul return of over 40% for nearly half a century (1962 - present). That's better than anyone else with such a long-term track record. His numbers are better than those of Warren Buffet's, Peter Lynch's, and even George Soros'. Some have argued that given O'Neil's great rate of return over such a long period, why then isn't he as rich as Buffet or Soros? The answers are: 1. Although O'Neil is indeed very rich (2 Billion plus according to some accounts), O'Neil doesn't put all his capital in the market. 2. O'Neil doesn't trade other people's money, thus he doesn't have the leverage that Buffet and Soros have had. 3. O'Neil started with five thousand dollars, while most other big guns started with a lot more money, either theirs, or other people's money. 4. O'Neil's trading style doesn't allow him to trade multi-billion dollars - imagine selling 1 millions shares of a small stock at the market when your stop loss is hit! So, for whatever reasons, O'Neil is not as rich as Buffet or Soros on paper. But what the dickens does that matter to you? If you are reading this review, chances are you are a small fish, most of you may just want to make a little extra money to supplement your regular salary, some more ambitious may want to make enough money consistently in the market so that you can "trade for a living", and still a few, like myself, strive to "make millions" - So, the fact O'Neil is not as rich as Buffet or Soros shouldn't bother you. Because in your and my league, that is, the league of traders who manage the amount of money ranges from thousands to a few hundred millions, the best long-standing player is William O'Neil.
In stock trading, the most reliable and confirming indicator suggesting lasting power of a leading stock with superior relative strength is that in its same industry group, there are one or more other leading stocks demonstrating similar superior relative strength (remember DRYS, TBSI, and TNH all moved at the same time, then POT, MOS, CF, TRA all moved at the same time, then FSLR, SPWRA, TSL, STP, CSIQ all moved at the same time?). Thus, using this analogy, if a host of traders out of the same group (O'Neil's group, in the broader sense, the trend-following crowd), using largely similar strategies, all achieved superior results, then there must be something special about this group. The only difference is that all the leading stocks will finally top out and become the best shorts while the best traders get better and spawn another crop of superior traders.
Take a look at this long list of some of the best traders spawned by O'Neil's teaching: David Ryan (of Market Wizards fame, 1985, 1986, and 1987 US Investment Champion, with performance numbers of 161%, 160%, and 118% for those 3 years, respectively), Cedd Moses (1991 US Investing Champion, 379%), and Lee Freestone (1991 US Investing Championship, second place, 279%, 1992 US Investing Championship, second place again, 120%, and 1994 US Investing Champion - first place finally, 234%). Rumor has it that Mark Minervini (of Stock Market Wizards fame) also worked for or was [more likely] heavily influenced by O'Neil and David Ryan. According to Jack Schwager, Minervini's average annual compounded return between 1995 and 1999 was 220 percent, including his 155% first place finish in the 1997 US Investing Championship.
Kacher and Morales, the authors of this book, are two more recent outstanding students of O'Neil's. Kacher's performance numbers: from 1996 to 2002, 110% per year for 7 years (could have been much higher had he decided to fully use his available capital, also remember he has included in the two and half years of the great bear market at the beginning of this century). Jil Morales' performance numbers: from 1998 to 2005: 80% per year for 8 years (excellent numbers given that a large chunk of this timeframe falls right into a once-in-a-life time bear market).
So, Kacher and Morales' numbers speak for themselves - they are among the best. They are like the leading stocks from the No 1 industry group! So, their book is a must "long" for any serious trader.
That's why I had placed a pre-order several months ago before the book was published and as soon as pre-orders became being allowed. So far, I have gone through the book only twice, and already liked it. The meat of the book, in my opinion, is Chapter 5 and Chapter 7. Chapter 7 discusses the Dr K's Market Direction Model, which is Kacher's formalization and refinement of O'Neil's concepts of using follow-through days to identify general market (a.k.a, broad market indices, such as the Nasdaq Composite and the S&P 500) bottoms and using cluster of distribution days to identify general market tops. Chapter 5 discusses entry points that are different from, and supplementary to, the classic O'Neil new high breakout of the nine or so O'Neil patterns (e.g., cup and handle, double bottom, flat base, and others). I don't know if these newly introduced "pocket pivot" are indeed very efficacious patterns with superior Risk/Reward ratio and reasonable reliability - but the concept is certainly interesting and one should check them out and back-test them thoroughly before applying these new concepts to his/her own trading. I find the buying-gap-ups entry more useful but once again I need to do more research myself before I can decide if or how I should incorporate it into my trading. I personally find the Dr K's Market Direction Model chapter most interesting, because I have been trying to do the same thing in the past few years. So, this chapter, plus Chapter 2, which Kacher describes how he made 180 times of his capital in 7 years using this model and individual stocks selection, will be most helpful to my evolution as a trader. Given any kind of decent seminar nowadays costs the trader thousands of dollars and more, and any mistakes in the market cost even more, I'd say the book is worth many times over its nominal price.
Of course, the book is not perfect; nothing about the market is perfect because the market is not perfect. I agree with the previous reviewer's (Chandra Sekhar) comment that the writing can be improved. There are some inconsistencies of thoughts. For example, at the beginning of Chapter 7, page 226, the authors say that "while a market direction model may seem like a `timing model', we do not ascribe that term to it, since it does not adequately describe our approach in using such a model. A market direction model, in contrast to a timing model, should be... ". I bet anyone who is reading this would assume that the authors meant to say that market direction model is not equal to market timing model, however, the terms "market direction model" and "timing model" are used interchangeably throughout this Chapter and especially in Chapter 2, where the author would say "my timing model sheds much light on the character of the market" on one page (Page 35), and then one page later say "My market direction model is almost always on a buy signal during such times (Page 37). So, after having perused the relevant sections 3 or 4 times, I still don't know what the difference between "Market Direction Model" and "Timing Model" is. Overall after reading the book, I think they are the same, but the author seems to have especially pointed out they are not identical - I am still confused.
Also, I wish that Kacher could have been more transparent and been less ambiguous about the rules and construction of his market direction model. But I assume that this model is proprietary and its full construction is not intended to be fully disclosed to the public.
In addition, as the previous reviewer (Chandra Sekhar) hinted, Morales' trading of CUBE using a shipload of call options is not something that the readers of this book should aspire to. One of the most confusing aspects of the market is that in it, there are good trades, there are bad trades, there are wining trades, and there are losing trades. And they are not the same thing. A winning trade could be a bad trade. And in the case of Morales's hugely winning 1995 CUBE call options trade that increased his capital by 500% (not 1000% as the previous reviewer said) it was actually a bad trade. Why, because Morales could have lost all his money and would never be able to trade again. So from a long-term survival point of view, this trade is a bad trade, because he obviously overtraded, meaning, had he repeatedly position-sized like that(seems that he betted all his trading capital on that trade), very soon, he would have been wrong and could have lost everything. However, I am glad that Morales survived a potential disaster (partially based on skills, but largely due to luck), developed himself into a more disciplined trader (otherwise either his numbers...
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21 of 22 people found the following review helpful:
3.0 out of 5 stars
Good systems book, January 9, 2011
This review is from: Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market (Wiley Trading) (Hardcover)
I am an intermediate level trader who has avoided most rookie mistakes in my investing career. I , like most, however realize that the list of rookie mistakes is unending. I never buy an investment book in a hurry as I have more interest in learning rather than wasting time reading fake authors. This is my first book review.
Gil and Chris have been honest to write their true experiences as well as their 'tricks of trade'. They have also sensationalized the title and their best trades (which happened in dot-com era and unlikely to repeat till post FaceBook IPO?).
The book is seriously over-priced. This is unfortunately a tell tale sign of opportunism. Understand what this means- from your own life experiences.
The 18,000% (11,000% of Gil) return may be much lower if you remove the 1 year with crazy leveraged risk and super return which statistically is very rare. So you may not be able to replicate this.
This book is a system book. It is trend oriented. It is trading (not long term investment) oriented. The authors have a GROWTH stock investment niche. The authors acknowledge IBD. My guess is so should you. The 5-star rating probably belongs there.
IBD may be better - O'Neil's "How to make money in stocks- 4th edition". The number of 5 star reviews here infact goes to show that many people think they have found the new holy grail. Investing is not easy. Some reviewers unfortunately have tried this book for few weeks and given it 5 stars, based on that, in a momentum market (see dates of reviews).
This book is NOT about value investing, day-trading, distressed investing, option investing, etc. The author hopes that your stock performs as long as possible as long (which may not be more than few weeks to months at most)as it is among the best growth stocks. So you are encouraged to force-rank the stocks.
So expect an aggressive investing technique.
They have covered setups, pyramiding, stop-losses, position sizing, risk levels, psychological aspects of the "game". They have also covered short selling. Some investors may find it complex but I have read other mind numbing books.
The book is well written using simple language and clear charts.
If you are a beginner :
1. and find it difficult to understand read it repeatedly underlining and using sticky notes to mark important pages. Do not give up! You will learn gradually.
2. read other top 3-4 books as recommended by the authors if you desire.
3. Do not meander into new techniques of investing every Monday morning. There is no holy grail other than one- STOPLOSS !!! Stick with this or any other method I have mentioned above over multiple years. Be a specialist. Otherwise you will never make money as you will jump onto the last outdated fad! This common problem is called style-drift.
4. Remember that the market behavior changes continuously, you should not meddle with your system. The system will outlive the market. (But keep learning).
5. Be prepared for setting stop losses on every trade.
6. Remember, this book has a trading approach not long term investment approach. Know your psychology /mental make up.
7. My opinion- if you read this as a beginner - For the first 5-6 years keep your position size small! Yes, otherwise you will curse the authors as well as this book reviewer. Investing this way is playing with fire!
8. When the system begins to work it is supposed to cover your losses. When it doesn't- twiddle your thumbs and make small losses! (I have not tried it but am making a guess)
9. The system has some shortcomings that you may read in other reviews. Understand it and know it. It will burn your fingers at times.
10. You may need to sit in cash for for lengthy bear market periods.
11. Until and unless you hit the real momentum stock, I suspect you run the VERY serious risk of increasing your average cost in the name of 'pocket pivot' thereby increasing risks and possibly reducing percentage return in several stocks as most stocks do not go to the moon.
Remember that all stock price movement at the end of the day is probability driven so if you decide to invest on your own, remember that there is no holy grail. Only discipline and consistency of applying your niche. That has worked for the authors!
My advice is keep lower risks and better set ups /entries and follow it. IBD may be better - O'Neil's "How to make money in stocks". (I do not subscribe to either).
Don't give up. You may get better returns than both these advisors! Its tremendous hard work- which will give you luck!
Good luck.
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