Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market
By Gil Morales & Dr. Chris Kacher
John Wiley & Sons, Inc.
$60; 365 pages
Most investors and traders are familiar with IBD – Investor’s Business Daily – and its founder William O’Neil. He was the consummate stock market researcher as he identified, analyzed and catalogued the key characteristics of the best performing, institutional quality stocks in bull and bear markets over decades. His approach became known to the public as CAN SLIM, and he has written multiple investment bestsellers espousing his principles.
On the other hand, most investors are probably not aware of two of O’Neil disciples – Morales and Kacher – who worked at William O’Neil + Company, Inc. as senior proprietary internal portfolio managers. They learned and applied O’Neil’s methodology to reap significant market profits in both bull and bear markets. This book was penned by these two individuals who subsequently have moved on to manage their own and clients’ money at Moka Investors, LLC.
The authors certainly give credit for their initial and continued success to O’Neil and his methodology. According to the authors, O’Neil has helped thousands of investors, traders and institutions achieve success, and “is likely the world’s greatest investor.” They point out that this book was written without O’Neil’s or his company’s assistance or endorsement. Their goal was to provide insight into how he operated and succeeded by applying research and hard work to his passion of stock investing to become a master investor. They also encourage investors to read all of O’Neil’s books and to view the educational materials at investors.com.
The first chapter focuses on the basic tenets of O’Neil’s approach. Interestingly, the authors blend in some of the investing principles espoused by Jesse Livermore, Richard Wyckoff and Nicholas Darvis.
Chapters 2 and 3 provide details on the trading success of Kacher and Morales, respectively. They both provide insight into how they achieved their outsized gains, including the stocks bought and sold, the market conditions at the time, and their thought processes and decisions made in real-time.
One 60-page chapter focuses on their biggest trading/investing mistakes along with their analysis of their thinking and decision-making during difficult periods. They both improved their trading by keeping meticulous diaries and learning from the feedback, as they did not want to repeat expensive mistakes. On a number of occasions, their mistakes led to new trading techniques such as the “pocket pivot,” which was fully explained in a separate chapter. Very few authors even mention their mistakes, let alone provide a comprehensive look at them and what they learned. This chapter is one of the most instructive in the book.
The authors have developed small rules and sub-systems that help enhance their approach based upon using their market experience as an effective feedback system. Some of their successful trading rules that have been tested in practice and statistically are shared with readers. Again, they are not shy about their trading mistakes and readily point them out in their trading review.
After extensive research by Kacher in 2005, the “pocket pivot” was developed to identify an early base breakout indicator in a flat, compressed, sideways market. The extensive 60-page chapter on this indicator includes 57 annotated charting examples, and shows investors how to identify an early entry point to buy leading stocks under accumulation.
To ensure that investors have a full complement of tools, the authors provide guidance on handling bear markets using short-selling techniques. They work their way through six basic short-selling rules providing the philosophical basis on which their O’Neil-based approach is constructed. They provide numerous short-sale set-up chart examples. The authors end this chapter by showing how to short “hot” stocks after their climax run.
One 58-page chapter recounts Morales’ and Kacher’s actual trades 1998 through 2005 while working at O’Neil’s firm. They provide commentary on an abridged version of their combined trading diaries (containing careful notes of their real-time trades) combined with useful annotated charts while at the firm. After a while the number of examples become tedious. They easily could have streamlined that chapter without taking away from their overall focus.
Kacher provides a chapter on his market direction model and the rules that are followed. He developed a model to systematically generate buy or sell signals for the major market indexes. Those rules, he points out, are the market’s, not his or Wall Street’s. They are statistically significant rules based on analyzing more than 20 market cycles on how the leading stocks behaved and how the indicators affected the market. The model focuses on the price/volume activity on the Nasdaq Composite and S&P 500 Index.
One of last few chapters of the book provides Bill O’Neil’s Ten Commandments, which are his key concepts, ideas, rules and principles. This distillation gives readers a snapshot of some of the important tenets of O’Neil’s success.
In today’s environment, the authors favor exchange traded funds (ETFs) as interesting investment vehicles, but emphasize that each ETF must be researched carefully to make sure all the information, especially the risks, are clearly understood.
The bibliography is unique in that it provides a listing of 76 investment books ranked in numerical order of value to the authors as far as content and usefulness. As expected, many of the investment classics are listed for further study.
The book is a bit repetitive in spots and could have used tighter editing. The book’s subtitle, “How We Made 18,000% in the Stock Market,” is inaccurate, as only Kacher, not Morales, achieved a return in his personal account of 18,000% over seven years. Morales earned 11,000% on his own, certainly an excellent performance as well.
The authors provide a unique perspective into the stock market philosophy and principles of an investment giant. Not only do they provide an inside look into their actual trading along side Bill O’Neil at his firm, but they also dispense practical concepts and rules that will help investors become more knowledgeable, and hopefully more consistent and profitable.
Leslie N. Masonson is the author of Buy DON’T Hold and All About Market Timing. Reach him at lesmasonson@yahoo.com.
