Best advise from William O Neil

I am re-reading William O Neil classic book “How to Make Money in Stocks” for any serious investor it is a must read book.

Some excerpts that resonated with me this time

Diversify or Not

The best results are usually achieved through concentration, by putting your eggs in a few baskets that you know well and watching them very carefully.

Most people with $20,000 to $200,000 to invest should consider limiting themselves to four or five carefully chosen stocks they know and understand. Once you own five stocks and a tempting situation comes along that you want to buy, you should muster the discipline to sell your least attractive investment. If you have $5,000 to $20,000 to invest, three stocks might be a reasonable maximum.

The key is ability to select & watch them carefully, if you can’t then invest in index or mutual funds

Averaging up your winners

If the company performs and meets your expectations you should average up, often the best investment is that one that you already own

If the market price was 20 points over my average cost and a new buy point occurred off a proper base, I bought more,

Using this follow-up purchasing procedure should keep more of your money in just a few of your best stock investments.

I have been very poor at this and I am slowly learning this trait and would definitely like to improve on it. A recent example is Aditya Vision, I picked them when company was delivering but I never followed up my purchases even though I had several opportunities as you can see in below chart and they were decent good quarterly numbers

Be rule driven rather to avoid bias

We get in love with our stocks, sometimes holding them for too long with wrong reasons, Instead of thinking rationally we act emotionally, that’s why having rules takes emotions out of this work

The time between your buy and your sell could be either short or long. Let your rules and the market decide which one it is. If you do this, some of your winners will be held for three months, some for six months, and a few for one, two, or three years or more.

Remember, good gardeners always weed the flower patch and prune weak stems.

When you have 2 crore to manage dont behave like someone who is managing 20,000 crores

Learn to read Charts

It pays to monitor your investments’ price and volume activity. That’s how you stop losing and start winning.

I now treat charts as an additional point before making investment decisions, as a checklist item while reviewing portfolio. Also learning to read charts and price volume action helps is assisting to generate new ideas also it helps in learning to make overall sense of markets

Remember the objective is

best possible stock at the best possible time.

nothing less

Advise on IPOs

The safest time to buy an IPO is on the breakout from its first correction and base-building area. Once a new issue has been trading in the market for one, two, or three months or more, you have valuable price and volume data that you can use to better judge the situation.

One good example of above was Data Patterns in 2022

Ignore High Income (Dividend) stocks

If you need income, my advice is to concentrate on the very best-quality stocks and simply withdraw 6% of your investments each year for living expenses. You could sell off a few shares and withdraw 1½% per quarter.

I made a video on how investing in growth can support retirement even if the decision was made in worst possible year, you can watch it here

Invest in yourself

you need to educate yourself so that you’re not dependent solely on someone else for sound advice and investments.