[...]... what a stock' s true value should be The second thing we look for is a market- adjusted decline of at least 50 percent I say market- adjusted because if the market is down 50 percent, then the stock being down 50 percent doesn't mean anything If the market is down 10 percent, 1 want to see the stock down 60 percent I find that interesting, because I know that statistical studies show that buying stocks... these stocks? Market sentiment The market was getting very excited about conceptual IPOs—stocks with a dream and a story but no earnings When stocks like these go sour, they can go down 70 percent or more very quicldy It was as if a tornado had swept through my portfolio I was down 12 percent for the month and decided to liquidate everything One stock that I bought at 18 , I sold at 2 If these stocks... it at 200 percent, and bought the stock That was the low point in my life The $75,000 I had put into my S11MHRT W A I T O N house was my entire savings The thought that because of some gambling 1 could lose everything that I had built up in ten years of saving really scared me It was the black abyss The stock went from $10 to $17 , and I got out After I liquidated, the stock reached as high as the low... now; I sold it $10 lower." I may have done that in earlier years, but now buying back a stock at a higher price doesn't bother me at all To me, the successful stock is not one that I bought at 10 and held to a 10 0, but one where I picked up 7 points here, 5 here, another 8 here, and caught a major part of the move But it sounds as if it would be easier to just buy one of these blessed stocks and hold... For the most part I immediately started trafficking in quality growth names I bought the stocks that went up more than the market when the market was going up I figured those were the horses to bet on I forced myself to buy these stocks on down days I found these stocks would often go up five points in a week, whereas I would have been lucky to get five points in a year in the low-quality stocks I had... a historically high price/earnings ratio of 40 to 1 , 1 still cannot come LAUEIi up with an implied market capitalization greater than $15 to $20 billion Yet the market currently values AOL at about $ 16 0 billion, and it was as high as $200 billion This figure is higher than the entire ISP Internet business is going to be for some time to come If a stock routinely has daily trading ranges of 20 percent... clinic—and you could get an appointment right away—and the market is valuing the stock at over $1 billion! It was absurd We sold the stock at around $ 31 to $32 After I got short, I didn't like the price action, and I was concerned about a short squeeze I ended up covering the position at around $35 to $36 The stock eventually collapsed to $1 I had it nailed I was dead right in my analysis, but let's... rates had always led to lower stock prices, and I assumed the same pattern would repeat this year The market, however, chose to look at other factors 1 didn't wait for the market to confirm the fear of higher interest rates, and I lost money very quickly I was down 7 percent in March, which is a pretty big one-month drop for me Any other mistakes come to mind? In January 19 9 81 invested in a bunch of small-cap... stronger than the market average—tend to do better than the general market Yet you are only buying stocks that are relatively weak Relative weakness is a gradual Chinese torture-type of decline I'm not talking about relative weakness; I'm talking about a catastrophic plunge To use the example of one of our recent holdings, Tektronix, when a stock goes from nearly $50 to $15 at the same time the market has... sell a 10 0-million-share position, what is going to happen to the stock particularly since many other funds will suddenly become likeminded, exacerbating the supply? You just asked for the numbers on Dell I assume that is another company whose stock you consider overvalued That is an understatement Dell recently was selling for a market capitalization greater than the entire sales of the PC market . Inc., 10 East 53rd Street, New York, NY 10 022. FIRST EDITION Designed lay Fearn Cutler Library of Congress Cataloging-in-Publication Data Schwager, Jack D., 19 48- Stock market wizards. is hereby expressly disclaimed. STOCK MARKET WIZARDS. Copyright © 20 01 by Jack D. Schwager. All rights reserved. Printed in the United States of America. No part of this book may be used or. (Finance)—United States—Interviews. 4. Futures market United States. 5. Financial futures—United States. I. Title. HG46 21 .S28620 01 337. 64'0973—dc 21 00-05 815 4 In memory of my mother, Margaret