As someone who has spent a lifetime researching stocks and the American economy, do you have any opinions about the quality of research provided by Wall Street firms? An article in
Financial World found that top-rated analysts generally un-derperformed the S&P average. One
major problem is that 80 percent of brokerage firm research is written on the wrong companies. Each industry analyst
has to turn out his or her quota of reports, even though only a few industry groups are leaders in each cycle. There is
insufficient screening to determine which reports should actually be written. Another major problem with Wall Street
research is that it seldom provides sell recommendations.
I would assume, given the consistency of your success as a stock investor for over twenty-five years, that you don't think very much of the random walk theory. The stock market is neither efficient nor random. It is not efficient because there are too many poorly
conceived opinions; it is not random because strong investor emotions can create trends.
In the most general sense, trading success requires three basic components: an effective trade selection
process, risk control, and discipline to adhere to the first two items. William O'Neil provides a perfect illustration of
the successful trader. He has devised a specific strategy for selecting stocks (CANSLIM), he has a rigorous risk control
rale, and he has the discipline not to deviate from his selection and risk control strategies. In addition to the specific
stock selection methodology detailed in this chapter, traders and investors should find the advice regarding common
mistakes, listed near the end of the interview, particularly useful.
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