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Author: dbphoenix Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 23026  
Subject: Re: Investing in a down market Date: 2/18/2001 9:49 AM
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<<...and that generally, O'Neil would be against investing in the midst of a bear market.>>

What you say is true, as far as it goes. But you must always be cognizant of the fact that our perception of the market is determined by the words we use to describe it. Our language creates our reality. Therefore, if one characterizes the current market as a bear market, which of course it is not, then every other perception of his will flow from that. Rather than open doors, he will close them, one by one, until he is operating in a reality that is completely out of sync with those in which everyone else is working and profiting.

The same goes for "new highs". There are quite a few CANSLIM devotees who cling to it with an almost religious fervor (the Buffett people, along with the Buffett/Fool hybrids, can be equally as fervent, if not more so). In fact, some of them have read no other book but HTMMIS. And all of this may be fine. However, if one is going to read no other book but HTMMIS and adhere so religiously to what he thinks he's read, he must be sure that he understands what he has read and isn't just seeing what he wants to see to fortify whatever construct he created during his first reading, or even before.

Even though I've asked several times over the past months, for example, about the conditions surrounding the potential purchase of a stock "at or near" a new high, no one ever responded until Just Me At the Sea (Post 12717). The diehards who claim to be expert give you only the first half of the principle, even though that first half is often nonsense when put into practice. This is not, however, the only case in which the literalists miss the point. They also fail to understand the interrelationships among the length of a cup, the depth of a cup, the extent to which it recovers, the length of the handle and so on. They translate "should" into "must". They accept as fact what is often only statistical error.

(They also fail to rectify or even accommodate all the of the logical inconsistencies and fallacies in the book, such as the fact that the success rate claimed for the "cup with handle" is based on the fact that the cup with handle exists only if it is successful; otherwise it is a double top. Nor do they understand -- even Tharp -- the 8% "rule". Nor do they fully understand the use of PE or relative strength.)

"Buying at new highs" is one of those precepts that sound good until one begins to think about it in a more than superficial way. For example, one could easily make a case that CANSLIM investors should have been out of the market entirely from 1963 to 1980, since it took that long for the Dow to "make a new high" (and hold onto it). One could use 52-week highs, but why? Why not two-year or six-month? Do all funds dump their positions every 52 weeks and eliminate overhead resistance? And if one finds a stock that has a proprietary technology and an aggressive management -- along with the requisite earnings and sales history -- and is not just a pea in a pod, must one wait until its group and market segment are both up before buying it? If so, then there's no point in considering Nasdaq stocks at all, or even the S&P, unless one takes the "long-term view", in which case both market market segments are still in uptrends, still above their long-term MAs.

There is nothing simple and clear about any of this, no matter what the literalists would have you believe. Most of it, in fact, is pretty muddy. If, therefore, HTMMIS is going to be one's only resource, he should know the book line by line, backwards and forwards, and be very careful about pronouncements with regard to what is or is not "CANSLIM". As I said at the opening of this, your comment regarding O'Neil and investing and bear markets is "true". However, it contains three loaded and undefined words: investing, bear, and market. Assuming that everyone agrees on the meanings of these words and will react in common is the first and most formidable roadblock to communication (and is, by the way, what propaganda is all about).

Pick apart these things as you go along. Take any comment that begins with "O'Neil says..." with a grain of salt, including those which I make. Try to avoid establishing any principles until you have read widely, or, if you must begin formulating principles in order to organize your thinking, do so very tentatively. The simplicity for which one should strive comes not from intentional ignorance, but from reading everything one can get his hands on, then selecting only those few principles which seem to ring with truth and clarity, and there are so few of these that one ought to be able to recite them impromptu, without hesitation.

--Db
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