Superperformance Stocks
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Superperformance Stocks An Investment Strategy for the Individual Investor Based on the 4-Year Political Cycle by Richard S. Love Prentice-Hall, Inc., Englewood Cliffs, Mew Jersey Special thanks go out to the guy who makes this possible I can´t say what a lucky guy I am to met you To the Individual Investor, Acknowledgments e Ar s Investment y Securit e Whos , Government s Hi y b d Manipulate Whipsawed by Wall Street Professionals, My sincere thanks to Oscar Collier for his valuable and Dominated by Institutions. l Darrel o t d an , assistance d an t encouragemen , advice Husted for his important editorial contributions. The Securities Research Company, 208 Newbury t permi o t h enoug d kin s wa , 02116 , Mass. , Boston , Street me to reproduce their charts for use in this book. I . them o t e gratitud f o t deb a e acknowledg Strategy Investment An Stocks: Superperformance Individual Investor Individual the for Cycle Political 4-Year the on Based e Lov . S d Richar y b Copyright © 1977 by Richard S. Love e b y ma k boo s thi f o t par o N . reserved s right l Al t excep , means y an y b r o m for y an n i d reproduce , review a n i s quotation f brie f o n inclusio e th r fo without permission in writing from the publisher. a Americ f o s State d Unite e th n i d Printe Prentice-Hall International, Inc., London Prentice-Hall of Australia, Pty. Ltd., Sydney o Toront , Ltd. , Canada f o l Prentice-Hal i Delh w Ne , Ltd. e Privat a Indi f o l Prentice-Hal Prentice-Hall of Japan, Inc., Tokyo e Singapor , Ltd. Pte a Asi t Southeas f o l Prentice-Hal d Zealan w Ne , Wellington , Limited s Book l Whitehal 10 98765432 Library of Congress Cataloging in Publication Data Love, Richard S Superperformance Stocks. , Speculation . 3 . Investments . 2 . Stocks . 1 I. Title. HG6041.L67 1977 332.6'45 76-57244 5 0-13-876151- N ISB The information in this book has been obtained from sources believed to be reliable. Discussion of individual Contents . only s purpose e illustrativ r fo s i s companie d an s stock Nothing in this book is to be taken as advice to buy or sell specific securities. Such advice must always take into h whic , outlook t curren d an e pric n i s change t accoun are beyond the function of any book. Parti The Search for a Successful Investment Strategy Chapter 1 Buy to Keep or Buy to Sell? 3 The Concept of Growth 4 5 h Approac l Cyclica e Th 7 e Climat l Politica e th e Evaluat Is Institutional Investment Strategy Changing? 9 Stock-Price Cycles 10 Reading the Long-Term Charts 11 5 1 l Painfu e B n Ca g Wron g Bein 6 1 h Approac y Buy-Sell-Bu e th f o s Disadvantage e Th Part II ? Stocks y Bu u Yo d Shoul n Whe Chapter 2 Business Cycles 21 Chapter 3 Washington Policies 25 y Monetar d an l Fisca h Throug l Contro c Economi Policies 26 Follow the Political Cycle 27 8 2 s Policie y Inflationar 0 3 y Realit l Politica . vs g Plannin c Economi 2 3 s Price k Stoc d an y Polic y Monetar l Federa Do Not Be Misled by Short-Term Monetary Trends 33 5 3 s Cycle l Politica e Th 4 r Chapte 9 3 2 1927-3 , Bust d an m Boo t Bigges e Th 8 1932-3 , Recession d an y Recover t Roosevel e Th 3 8 y 40 Volatilit e Pric r fo k Loo s Chapter r Postwa e Immediat d an I I r Wa d Worl 44 Stock Prices Reflect the Law of Supply and Cycle 1: 1949-53 44 Demand 84 7 1953-5 : 2 e Cycl 45 A Tale About Volatility and Timing 87 0 1957-6 : CycleS 46 Price Distortions by Stock Exchange Specialists 89 2 1960-6 : 4 e Cycl 48 Look for Rebounds 91 6 1962-6 : 5 e Cycl 49 Which Stocks Rebound? 92 0 1966-7 : 6 e Cycl 4 9 g 51 Followin d Tren d an g Sellin l Emotiona 4 1970-7 : 7 e Cycl 54 Leverage 96 CycleS: 1974- 55 The Dangers in Leverage 99 i Cycsle e Stock-Pric e th f o y Summar 0 10 56 s Stock d Low-Price n i e Leverag 1 10 s Warrant n i e Leverag k Ris w Lo r fo k Loo 5 r Chapte 59 Chapter 9 Look for New Earning Power 105 Buy During the Selling Climax 59 d Tren y Primar s Market' e th h Wit e Trad 5 10 61 s Price k Stoc d an e Chang l Natura f o s Discoverie m Fro g Resultin e Chang Resources 107 7 10 s Policie t Governmen n i e Chang Part III Technological Change 109 Which Stocks Should You Buy? Growth-Stage Companies 110 2 11 s Companie e Matur 7 6 t Firs y Safet 6 r Chapte 4 11 s Stock h Growt g Selectin n Whe n Cautio e Us 7 6 e Declin o Als t Bigges e Th Good Management Is Vital 115 Price Trends of Income Stocks 68 Turnaround Situations 115 Most Stocks Are Price-Cyclical 71 A Comparison of Two Growth Stocks 116 Buy for Large Capital Gains 72 Anticipate Growth 119 A Superb Company Does Not Necessarily Have a Earnings Explosions 122 Superb Stock 4 12 7 s 2 Earning d Reporte f o l Skeptica e B g Accountin n o d Depen s Earning d Reporte 5 7 d Recor e Th : Stocks e Superperformanc 7 r Chapte Procedures 124 Features of Superperformance Pric5 e 12 Action d 77 Anticipate y Usuall e Ar s Earning r Highe Superperformance and Company Earnings e Pric e 77 Superperformanc t Affec s Trend g Earnin 9 7 e Siz y Compan d an e Superperformanc Action 125 The Role Future Earnings Play in Stock Prices 126 Superperformance and Subsequent Stock-Price Action 7 12 80 s Earning d Reporte e Evaluat 1 8 s Stock e Superperformanc f o s Characteristic Do Call Options Depress Stock Prices? 185 Chapter 10 Look for Expandable Price/Earnings 185 Ratios 129 e Cycl l Politica e th r Remembe Declines in Individual Stocks vs. Declines in the 1 13 s Price k Stoc d an y Psycholog Stock Market 187 2 13 s Value k Stoc g Establishin s Signal g Warnin e th r fo h Watc 188 4 13 s Value g Establishin n i s Problem Market Price vs. Inherent Value 134 Chapter 13 Selling Short 191 8 13 s Dividend . vs e Pric t Marke e Sal t Shor a g Timin 192 9 13 s Ratio s Price/Earning g Estimatin t Shor l Sel o t e Tim l Idea e Th 193 1 14 s Ratio s Price/Earning f o e Influenc e Th e Estat l Rea n i t Bus d an m Boo f o s Pattern 194 7 14 n Situatio l Idea e Th Profitable Short-Sale Opportunities Have Been Numerous 196 9 14 p Sponsorshi d Goo r fo k Loo 1 1 r Chapte y Systematicall s Sale t Shor t Selec 197 An Example of Sponsorship 151 s Professional y b g Sellin t Shor 200 2 15 s Investor l Institutiona y b p Sponsorshi s Sale t Shor g Coverin 203 Trend Following 161 Spotting Trends 162 The Sequence of Trend Following 163 4 16 s Price k Stoc d an , Publicity , News PartV Buy Stocks You Understand 167 The Strategy for Success Chapter 14 Sources of Information and Ideas 207 y Regularl w Revie o t s Publication 207 Part IV s Cycle e th e Recogniz o t n Lear 211 When Should You Sell? Look for Potential Price Movement 214 s Succes r fo l Crucia s I t Judgmen l Individua 214 1 17 m Rhyth g Timin e Th 2 1 r Chapte 217 3 17 s Decline t Marke k Stoc d an y Econom l Nationa e Th Chapter 15 Points to Remember Presidential Elections and the Stock Market 174 When to Buy Stocks 218 219 Watch Out for Surprises 176 y Bu o t s Stock t Wha To Hold or to Sell? 178 s Stock l Sel o t n Whe 220 9 17 s Switche y Polic l Federa o t t Aler e B A Possible Exception 180 Appendix A: Superperformance Stocks, 1962-74 223 The Pricing Rhythm 182 A Big Problem for Investors: The Stock Exchange Appendix B: Superperformance Stocks, Specialists 183 October 1974-October 1976 237 How Specialists Operate 184 27. Athlone 153 Charts 28. U.S. Steel 158 29. Burroughs 159 30. Xerox 160 31. Winnebago Industries 172 32. Outboard Marine 177 33. Avon Products 181 2 1 s Price k Stoc d an s Election l Presidentia . 1 34. MGIC Investment 195 3 1 r Moto d For . 2 35. Grolier 198 3. Metromedia 14 36. Rite Aid 199 4. Federal Budget Deficits and Surpluses 29 s Airline n Easter . 37 201 5. Durations of Stock Price Cycles 37 38. Thiokol 208 6.