The Right Stock At The Right Time - Prospering In The Coming Good Years (Wiley - 2003) (pdf)
This book would never been possible without books and research that
went before. I want to specifically thank Yale Hirsch, of the Stock Traders
Almanac, and Steve Moore and Nick Colley of Moore Research.
THE RIGHT STOCK
AT THE RIGHT TIME
THE RIGHT STOCK
AT THE RIGHT TIME
Prospering in the
Coming Good Years
LARRY
WILLIAMS
JOHN WILEY & SONS, INC.
Copyright © 2003 by Larry Williams. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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ACKNOWLEDGMENTS
This book would never been possible without books and research that
went before. I want to specifically thank Yale Hirsch, of the Stock Traders
Almanac, and Steve Moore and Nick Colley of Moore Research.
The high-yield strategy could not have been accomplished without the
efforts of Bill Aronin, Joe Getts, and Lisa Liang at Qualitative Analytics.
Without my able assistant, Jennifer Wells, this book, and all my other work,
would never get done. Nor would this book have seen the light of day with-
out the support and attention of Pamela Van Geissen. Tom DeMark was a
great sounding board for many of the ideas and my best cheerleader. Finally,
a personal note of thanks to Harvey Levine, who kept me running in more
ways than he knows, and Louis Stapelton for the title idea.
We are all indebted for the assistance these wonderful people, espe-
cially Carla, provided in helping me present my vision of what will happen
in the next few years.
And finally I would like to point out what my best five investments
have been: my children, Kelley, Jason, Sara, Michelle, and Paige. Thanks,
gang, for many years of the best returns of my life.
v
CONTENTS
PREFACE ix
CHAPTER 1
The 10-Year Pattern in the United States Stock Market 1
CHAPTER 2
The Four-Year Phenomenon 15
CHAPTER 3
The Amazing October Effect 29
CHAPTER 4
How to Know for Sure the Bottom Is Here 41
CHAPTER 5
The Next Move Up: Why It Will Be So Spectacular 67
CHAPTER 6
The Purpose of Investing 85
CHAPTER 7
How to Supercharge Your Investment Return 97
CHAPTER 8
The Old Economy Is the New Economy 105
vii
viii CONTENTS
CHAPTER 9
Measuring Investor Sentiment for Individual Stocks 123
CHAPTER 10
The Investment Challenge You Face 145
CHAPTER 11
Putting It All Together for Long-Term Investment Success 157
CHAPTER 12
Money Management: The Keys to the Kingdom 193
CHAPTER 13
Final Thoughts: Nonrandom Thoughts on a Random Market 205
INDEX 217
PREFACE
This story begins in 1962, the year I first began studying stock market
prices. I had no knowledge of why the stock market crashed that year,
other than what was released in the newspapers: President Kennedy had at-
tacked the steel industry, prohibiting any increase in steel prices. That bit
of bad business news knocked the stock market down hundreds of points.
The newspapers, then as now, were filled with horror stories of people los-
ing money, and of how bad the economy was. Many cried that this was the
beginning of another 1929-like era.
In hindsight, however, it was not a time to sell stocks; it was a time to
buy stocks. October 1962 began a huge up move that would not culminate
in a top until February 1966 when the Dow Jones Industrial Average sur-
passed 1,000 for the first time in history—what some felt was an “astro-
nomical level.” Frankly, it’s hard to recall anything that long ago, but the
one thing I do remember is that nobody in the fall of 1962 was advising
people to buy stocks or to take any kind of shot at the market. In retro-
spect that’s what everyone should have done. What was present was one of
the greatest buying opportunities that I’ve been fortunate enough to have
lived through.
Ten years later, 1972, saw a similar situation. Stock prices had been
low, the economy was bad, and things looked bleak. Then lo and behold
on one bright day the stock market, as measured by the Dow Jones Indus-
trial Average, began to rally. As is usually the case, the savants and sages of
Wall Street did not herald in this buy point. However, 1972 was not quite
like 1962, a point that needs to be fixed in every investor’s mind. Seldom is
one rally or year exactly like the prior period. Although there was a
tremendous rally in the fall of 1972, it quickly gave way to a decline in
1973 and 1974 before the next substantial bull market began.
My search for stock market truth, which began in 1962, included an
interesting selection of books, among them Tides in the Affairs of Men by
Anthony Gaubis and Edgar Lawrence Smith (Macmillan, 1939). These
authors’ central point was that there is a 10-year pattern in the U.S. stock
ix
x PREFACE
market and economy. The thrust of their argument was that most stock
market highs come in the latter part of every decade. By that they meant
that one was more likely to find stock market highs in years ending in six
and nine, such as 1966 and 1929. Gaubis and Smith looked at the cycle
going back into the earlier part of the 1900s and presented their case in
the book.
As a young man I simply had no perspective, as well as very little con-
fidence that this long-range pattern (or cycle) really worked. I wondered if
it would hold in the future. I did not know this then, but I sure do now.
While certainly the 10-year pattern has not precisely called all major mar-
ket highs and lows, it has done a very, very good job of pointing investors
to the most probable, logical, and best times for the stock market to rally
or decline.
The ensuing years have given me much to think about as I have studied
the markets and economic cycles. As an example, the stock market deba-
cles we saw in the latter part of the twentieth century occurred in synch
with what Gaubis and Smith wrote; stocks got slammed in 1987, as well as
1989. And of course, the one no one will ever forget: 1999 was the top for
the Nasdaq’s high-flying stocks and the beginning of a 76 percent correc-
tion in high-tech issues.—a correction that wiped out many individual in-
vestors, professionals, and mutual funds.
Was it possible that the decennial pattern identified, at least in part, the
economic up-and-down swings from 1962 forward? It is an interesting
question, one I will address in this book and one I think, after you see the
data, you will agree presents a superb buying opportunity for 2002 and
2005. I am deeply indebted to Gaubis and Smith for starting my journey
on the path of looking for stock market cycles. Unlike many students of
market cycles, though, quite frankly I don’t place much value on most of
them. For sure, I do not think they are precise. Most market cycles, such as
the 18-day cycle, 200-day cycle, and all that, are at best difficult to trade or
use to invest. Yet there are several very dominant cycles that seem to hold
water, and more importantly, hold up in the future. That’s what much of
this book is about.
Additionally, I’d like to share with you some methods, ideas, and
techniques of investing I have discovered and found to be successful for
the average investor. These are easy to use and easy to follow. They can
and do get to the heart and truth of the markets. It does not matter what
a company does in terms of its product or service nearly as much as
whether the company is profitable and what its growth prospects are.
PREFACE xi
That was a problem with the roaring bull market of high-tech stocks:
Fundamentally they were not sound, so while stories carried them to
some amazing price levels, they couldn’t maintain those levels. That they
would crash was inevitable.
What I hope to show you is that fundamentals have moved stocks in
the past and will move stocks in the future, regardless of what the com-
pany does. Ultimately, it always gets down the fundamentals; it always gets
down to value. As the great baseball manager Tommy Lasorda said, “God
may delay but God does not deny.” In this business of speculating, value in
the form of growth and profitability may indeed be overlooked for a while,
but ultimately it prevails.
In 1982, I wrote a book called How to Prosper in the Coming Good
Years. It was a refutation of the negativity the purveyors of pessimism had
spread across the country at that time. I took an outrageously bullish pos-
ture on the future for two reasons. First, Ronald Reagan and supply-side
economics were coming on the scene. My study of the past showed that
every time we had such incentive-based economic programs and incentive-
oriented economic systems, the markets always went higher.
On top of this was one simple fact that had been hanging in the cob-
webs of my mind since 1962: Years ending in two usually produced the
start of bull markets . . . years ending in twos usually produced overall eco-
nomic up terms. So this book is very much a continuation of that 1982
book. The greatness of our economic system lies in front of us, not behind
us. It is not all over; the good times are coming now as they will continue
in the future. This book aims to help you pinpoint when those times are
most apt to occur.
I would like to personally welcome you into my world of speculation,
into the art of divining the future, into the art of living not in the past but
in the tomorrows in today’s be-here-now world.
LARRY WILLIAMS
Rancho Santa Fe, California
February 2003
THE RIGHT STOCK
AT THE RIGHT TIME
1
THE 10-YEAR PATTERN IN THE
UNITED STATES STOCK MARKET
“It’s about time.”
—My U.S. senatorial campaign slogan, 1978
What did the fall 2002 buying opportunity really mean? Are more fortune-
making buy points coming in 2005, 2006, 2007, and 2008?
In this book I will go into detail explaining what I think will be the best
buy points over the next 10 years. That’s quite a claim. Can it be done, and
if so how?
I’d like to first catch your attention with this: If one were to look for
the best buying points of the twentieth century one could not help but no-
tice that these stellar opportunities came in 1903, 1912, 1913, and 1920
into 1923. The ultimate best buy point came in 1932. This was followed
by wonderful buy points in 1942, 1952, and 1962; 1972 wasn’t bad
(though 1973 was better), and, of course, 1982 was perhaps the second
best buy point of the twentieth century. That was followed by another su-
perb buy point in 1992. Notice that for the past 100 years, these ideal buy-
ing points came in years ending with a two or a three.
If you had invested in just these years you would have substantially out-
performed the investor who chose to continually buy stocks. I find this
rather amazing and, better yet, to be hard evidence that indeed there’s some-
thing going on in the U.S. stock market—something that shows us when the
1
2 THE 10-YEAR PATTERN IN THE UNITED STATES STOCK MARKET
best buying opportunities tend to occur. They are usually to be found in the
first part of the decade—namely, years ending in twos and threes.
Figures 1.1 through 1.6 are of historic stock market activity and are
well worth your study. The first, the Axe-Houghton index of stock market
averages from 1854 until 1935, is from my personal files. The next group
of figures, from Moore Research Centers, Inc., shows price activity for the
101 years from 1900 to 2001.
THE PAST IS THE FUTURE
The 1800s were no different from the 1900s; they presented a very similar
scenario. Stocks roared in 1862 and 1872; 1883 was very close to a won-
derful buy point, which came in early 1884. Along came 1893, which pre-
sented another good buying opportunity. I do not mean to imply that all
one has to do as an investor is buy stocks every 10 years. I wish it were that
easy! But it certainly helps to have a concept and time zone of when one
wants to make a major play in the stock market. My concept of this is that
years ending in twos and threes are most likely to turn out to be gargan-
tuan buying points. It is almost as simple as that.
THE ROAD MAP TO MARKET SUCCESS
As a very young man, I followed the work of Edson Gould, who published
an advisory service called “Finding and Forecasts.” How I wish I had paid
more attention to what Edson had to say. While it is true he had many ar-
cane forms of forecasting, he consistently relied on the action of the Fed-
eral Reserve Board and what he called the 10-year pattern for stock prices.
Although I did not know it at the time, I’d been handed, figuratively
speaking, the keys to the kingdom of stock market forecasting. The irony of
the situation is that I spent the next seven years trying to determine how to
forecast stock market prices out into the future. I studied the works of W. D.
Gann as well as those of R. N. Elliott, several leading astrologers, and so on,
which all turned out to be a waste of time. I was fortunate enough to eventu-
ally meet Gann’s son, who was a broker in New York City and who ex-
plained to me that his father was simply a chartist. He asked why, if his dad
was good as everyone said, the son was still “smiling and dialing,” calling up
customers to trade.” It seemed he was somewhat disturbed by his father’s
THE ROAD MAP TO MARKET SUCCESS 3
Figure 1.1 Market Averages from 1854 to 1935
Source: Axe-Houghton.
4 THE 10-YEAR PATTERN IN THE UNITED STATES STOCK MARKET
Figure 1.2 Dow Jones Industrial Average, 1900–1925
Source: Moore Research Center, Inc.
Figure 1.3 Dow Jones Industrial Average, 1920–1945
Source: Moore Research Center, Inc.
