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How to Make Money in Stocks: A Winning System in Good Times or Bad

by William J. O'Neil

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Porter said: " Watch for 3 to 5 weeks of successively tight closes followed by a breakout week. Strong signal that a rise is coming.

Cups with handles are another strong signal. "

Jul 12, 2025 07:29AM · see review

Porter is currently reading

Value Investing: From Graham to Buffett and Beyond

by Bruce C. Greenwald

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Porter said: " Using Kenneth French market to book data the return of a portfolio that was along the cheapest 30% of stocks and short the most expensive 30% is zero cost portfolio before transaction fee fees had a compound annual return of 3.35% from 1927 through 2 Using Kenneth French market to book data the return of a portfolio that was along the cheapest 30% of stocks and short the most expensive 30% is zero cost portfolio before transaction fee fees had a compound annual return of 3.35% from 1927 through 2018 on the gross amount invested in each bucket for an overall portfolio requiring known at investment. Page 9.

More than 80% of active fun managers under perform their market punch mark over a 510 and 15. Ending in June 2018. And not 15. The S&P 529.3% a year; the cheapest Quinn tile of stock sorted by earnings to price Returned 11.8%. Page 10.

Value investors regard price fluctuations as opportunities to buy or sell, not as accurate estimates of the intrinsic worth of the security. Page 14.

The future returns a portfolio is organized by market to book ratios increase steadily with the degree of cheap. The cheapest sells bucket of stocks often see 2/3 of the companies go bankrupt. But the ones that do survive do so well relative to their very low starting prices that the ugliest portfolios are the best performing among all the buckets. Portfolios of ugly, disappointing, obscure and boring stocks repeatedly generated higher returns in both the market has a hole and more strikingly portfolios of attractive, highly profitable well known in glamorous stocks. Page 22.

Overall, the statistical evidence, both for the United States and overseas markets, paints or remarkably consistent picture. Embracing stocks that are ugly, boring, obscure, disappointing in there for cheap has historically been the best way to buy stocks in which you are likely to be on the right side of the trade these are the stocks that I’ve performed the market as a whole. The uglier, more boring, more obscure, more disappointing in therefore usually the cheaper the stock the better the returns have been. Page 25

Greenwald talks about the basic human instinct that most have to get rich quick. He compares investing in glamour stocks to lottery tickets that hold out the promise of spectacularly high returns. Because of the appeal so investors are willing to pay rationally high price relative to their fundamental Values. Page 26.

The issue of size bias is more important and more interesting.
Many funds cannot invest in small companies, either because their mandates do not allow it or, more frequently, because they have too much money to manage and small companies just can't absorb enough of it to make it worthwhile. If a diversified investment company-most mutual funds—with $10 billion to invest wants to own stock in 100 companies, it needs on average to buy $100 million in each. Since the fund does not want and is often not allowed to own more than 10% of any company's stock, this limits the universe of investment choices to firms with market capitalization of $1 billion or more. The specific sizes of funds, the market capitalization of suitable firms, and the percentage of ownership will vary, but the impact of company size persists. Many funds simply cannot buy shares in small companies. For similar reasons, investment analysts within institutions will also concentrate on large capitalization opportunities. An insight into a $40 billion company that can absorb a $2 billion investment will be worth far more than an equivalent insight into a $400 million firm that can absorb only $20 million. The consequence is that coverage of and demand for small company shares will tend, all other things being equal, to be below that of large company shares, and small company stocks should be cheaper. 18 Hence, the shares in small companies are cheaper, all other things being equal, than shares in large companies. Among the "all other things" that need to be held constant, growth prospects are the most important.
Small companies typically have the opportunity to grow faster than large ones, which already control major segments of the markets in industries that are likely to be well developed. Page 31

Other business characteristics may have a more ambiguous impact on multiples. Good managements, for example, should enhance value per unit of cash flow. They will operate more carefully, lowering risk, and allocate retained earnings more effectively, enhancing future returns.
Still, overall future business performance will depend on the quality of management in the future, and how that compares to the people presently in charge. Here careful reasoning produces counterintuitive conclusions. Firms with good management see that quality embedded in current cash flow measures. They are unlikely to get better. Firms with poor management, by contrast, have substantial room for improve-ment. Given these future prospects, it is bad managements that should command higher multiples, however obtuse that may initially seem. Page 44

Pages 59-63 are very important in laying out how to think about Asset Value and Earnings Power Value and what the relationship between the two means. If EPV is far higher than AV, either the company has a sustainable competitive advantage through 1) privileged access to customers, 2) proprietary technology, or 3) economies of scale or the EPV will be brought down over time by new entrants who can afford to buy all the same assets and create the same business. ...more "

May 16, 2025 11:03PM · see review