In 1987, I walked in on Investor’s Daily front page editor Steve Ludwig and pitched him an idea for covering a telecom convention in Washington, D.C. He bought it, I got a PR client to stake me to an airplane ticket, and I published the first of what became more than 50 articles in Investor’s Daily’s “Leaders and Success” feature.
Since then, when the paper had a circulation barely nudging 100,000, it has grown up. Now called Investor’s Business Daily, its ABC-audited circulation is 310,000, with 93 percent accounted for in subscriptions, Monday through Friday. (IBD publishes only on days the New York Stock Exchange is open.) It has always reflected the investing and (to some extent) the political ideas of its founder, William J. O’Neil, the author of How to Make Money in Stocks (now in its third edition, from McGraw-Hill Trade). IBD has a front-page news roundup (mostly market-related), a conservative if not terribly original editorial page, some profiles of successful business people, and then the meat of the matter: the O’Neil system for investing, as reflected in the exclusive O’Neil tables and databases tracking stocks and bonds.
Like the daily Racing Form, the paper gives the winning (or losing) records and characteristics of the issues it covers. It has a bent toward long investing, it relies on technical rather than fundamental analysis of issues, and it vastly favors stocks over bonds.
Far easier to read than stock listings in the Wall Street Journal or any regular daily newspaper, IBD’s stock tables include several ratings exclusive to the newspaper: A Smart-Select Composite Rating ®, Earnings Per Share and Relative Strength (all expressed as percentages; a stock rated 90 for EPS earns more per share than 90 out of 100 stocks); then letter grade ratings A through E for Industry Group Relative Strength (how well does the group of stocks perform to which an individual issue belongs); a combination of Sales, Profit Margins, and Return on Equity (SMR); and an Accumulation-Distribution Index (A means lots of institutions are buying it; E means institutions are selling it).
All these ratings reflect O’Neil’s basic investing principle: History, he says, proves that stocks make their biggest price gains just after breaking into new price highs, while showing recent technical characteristics that can be seen on a chart of an individual stock’s price and volume record, day by day and week by week.
In other words, don’t buy low and sell high. Buy at the point where a stock begins to go high, and then go higher.
In the 15 or so years since I used to write for the paper, it has developed a far more active, hands-on counseling approach to investing. If it does not exactly recommend individual stocks, it does feature about 25 per day on the NYSE and the NASDAQ that may be worth buying, and points up those that conform to IBD’s winning ways. And, in its “Big Picture” column, the paper explicitly claims to be able to point out market bottoms and tops, and, in a recent series of front-page feature stories, has documented the “Picture” having done so.
So what does IBD counsel now? Simple. The markets are, if not going down, at least languishing and not going up. 200-day and 50-day trendlines still point down. And three-fourths of stocks do what the market does. So stay in cash till the turnaround comes.
The contrast between IBD and conventional investment counseling could not be more stark. Lawrence Kudlow, for example. wrote, in a recent column on National Review Online (“Buy, Buy, Buy”), that the underlying economic fundamentals were good, and that beaten-down categories of stocks offered tremendous investing opportunities. He specifically said that “Cyclical stocks , big-cap techs, commodities, industrials, and consumer discretionary stocks are all ripe for the picking today.”
Let’s refer to Investor’s Business Daily’s stock tables. A typical cyclical is Georgia-Pacific. According to the March 5 IBD, its Earnings Per Share rating is 33, its Relative Strength, a mere 17. Its industry group rates a B+; its Accumulation-Distribution Index is a D (institutions are selling it). “Big-cap techs” would include those old 90s favorites, MicroSoft and Intel. MicroSoft: EPS 85, Relative Strength, 38; Group, A+, accumulation-distribution, C. Archer-Daniels-Midland can stand for the commodities group, with March 5 IBD ratings of 36, 32, B-, and D-. A typical industrial? Caterpillar: 55, 53, C-, B+.
There is some agreement between Kudlow and IBD on consumer discretionaries, which may include restaurants and apparel makers. Coach, the high-end leather handbag outfit, has been an IBD “Featured Stock in the News” in recent weeks, and so have restaurants Panera Bread and Applebee’s.
For the most part, however, Kudlow’s recommendations would violate one of William O’Neils axioms: “Buy leaders, not laggards.”
I look back today on the 1990s and squirm that I missed the market opportunities. (In 1983 and 1984, I was writing ads for Intel, for example; it was right under my nose.) Kudlow is right to say there’ll be a new bull market. And I’m not going to miss this one. I expect Investor’s Business Daily to help me spot it.
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