What kind of things did you learn by keeping your trader's diary? Not buying overextended stocks, using О'Neil's criteria for stock selection, and being as disciplined as
possible. The more disciplined you can get, the better you are going to do in the market. The more you listen to tips
and rumors, the more money you're likely to lose.
Has keeping this diary been an important part of your success? Absolutely.
Can you describe your procedure for selecting stocks? I start out by going through the stock charts and writing down the stocks with strong technical action. In
other words, I write down all the stocks
I want to take a closer look at.
Your company follows 7,000 stocks; you can't possibly look at 7,000 charts on a regular basis. I don't look through 7,000, but in a week I probably go through about 4,000 charts. So, I see a majority of
the data base. Keep in mind there are probably about 1,500 to 2,000 stocks that trade under $ 10, and I don't like to
look at those anyway.
Is that a good rule: Avoid stocks under $10? Yes, because they are usually down there for a reason.
Doesn't that knock out a lot of the OTC stocks? Yes, a lot of the smaller OTC stocks.
But aren't those sometimes the best buys—the stocks that no one is paying any attention to? Sometimes. But many of those stocks stay down there for years and years. I would rather wait until they
prove themselves by moving up to the $15 to $20 range.
After you have reviewed the charts and written down the stocks that interest you, what do you look at next to screen your selection? I look at the five-year earnings growth record and the last two quarters of earnings relative to the previous
year's levels. The quarterly comparisons show you if there is any deceleration in the earnings growth rate. For
example, a 30 percent growth rate over the last five years may look very impressive, but if in the last two quarters
earnings were only up 10 percent and 15 percent, it warns you that the strong growth period may be over. Of course,
those two factors—the five-year earnings growth record and the earnings during the past two quarters—are combined
in our
earnings per share (EPS) rank. [See the O'Neil chapter for a detailed explanation of the EPS.]
