Wednesday, July 2, 1997
Gooroo Perils
by Roger Dooley
([email protected])
As a self-confessed Fool I'm timid about making dogmatic short-term pronouncements. I wish there were more Foolish people.
On April 29, William O'Neil, chairman and founder of Investor's Business Daily, began a series of three stories on general market conditions. Written as an interview, O'Neil answered the first question, "Are we in a bear market?" with an unequivocal "Yes." In hindsight his timing was so bad that it takes my Foolish breath away.
On the second day of publication, April 30, the markets were roaring ahead and a question was tacked on the end of the interview about conditions changing. O'Neil was ambiguous in his response. Did he feel the slippery slope of short-term predictions? On the third day, May 1, he commits the un-Foolish sin of rationalization. Faced by overwhelming evidence that market conditions were changing, O'Neil dismissed the evidence. He explained away the rally by reporting that only a few of the large-cap stocks had benefited. So the rally wasn't real.
Two weeks later it was a bit embarrassing for a Fool to read a new story by IBD reporter Walter Hamilton. In this story, "How to know when it's time to jump back into stocks," Hamilton pushes the benefits of IBD's General Market Indicators page. Confirmation rallies for both the Dow Jones and Nasdaq stocks were completed on April 29, according to Hamilton. He actually states that that these rallies are something that "savvy investors can ill-afford to miss." I wonder if his boss felt any less savvy? Or maybe O'Neil didn't read the paper that day.
This mishap does not significantly diminish my Foolish admiration for William O'Neil. He does more than just about anybody to encourage small investors to enjoy the benefits of equity investments. I have personally benefited from his C-A-N-S-L-I-M stock selection method. Nevertheless, this incident does reinforce my view that the shorter the outlook the more vulnerable it is to error, no matter who is doing the forecasting.