Outperforming the Market: A Case Study Approach to Selecting by Larry MacDonald

By Larry MacDonald

Outperform the marketplace provides a sequence of case stories that describe occasions in monetary markets the place the chance for major profits or losses has been current. The insights that emerge may also help each investor-whether newbie or skilled pro-to higher determine destiny monetary chances. utilizing united states, U.K., and Canadian monetary markets, Larry MacDonald illustrates a variety of funding methods.

Topics contain: basic research, Technical research, Cyclical shares, Growth-by-Acquisition shares, Growth-by-Geography shares, Growth-by-Product shares, Turnaround occasions, area of interest businesses, brief promoting, industry Cor- rections, taking advantage of monetary Crises, and possibilities within the subsequent Decade.

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The mood was very bearish and everyone was selling. It seemed to Livermore that it was reckless selling, by herd instinct. He noticed a lot of outstanding short sales in the market. With his buying power, he thought he could buy up enough cotton to force the shorts into buying back their positions, producing a rally in prices during which he could cash out for a nice shortterm gain. Ten days of heavy buying finally caused prices to creep up. Rumors of Livermore buying began to surface. A newspaper picked up on them and published a front-page article, reporting that he was cornering the cotton market.

Actual sales of vehicles fell about seven million units behind expected sales. That amounted to a huge build-up in demand, which was subsequently unleashed from 1984 to 1988. Some investors may have been tempted to take their profits in Chrysler and other auto companies after the first year or two of their uptrend. The gains were quite large. But if they were following the units of pent-up demand indicator, they would know that there was still more to come. 5i O U T P E R F O R M I N G THE MARKET Lessons from the Stelco and Chrysler Cases * market conditions for the products of cyclical companies are often a leading indicator of a rebound in share prices — for example, price discounts come off, prices start to rise, and senior executives point to product shortages; * the uptrend in the share price of a cyclical company usually starts in earnest after one of two earnings surprises dispel the skepticism; * during the recovery period, the behavior of share prices one or two weeks before the quarterly release of earnings can signal a "good news" report; buying shares on an upward drift in share prices just prior to a quarterly earnings release is almost as good as having insider information, and can sometimes be a good way to get into the shares just before a big jump occurs; * the risk of a cyclical company going bankrupt in a recession is quite real, so check the balance sheet carefully — for example, the $i billion in cash and government guarantees reassured Lynch that Chrysler had a cushion; * valuation levels are not a good guide in selecting cyclical stocks — at the end of a boom phase, their price-to-earnings ratios and other valuation measures will typically be very low, while at the end of a recession, they will typically be very high; * cyclical stocks are like blackjack: stay in the game too long and eventually the player gives it all back; they are not long-term holds; the severity of the previous recession determines how long cyclical stocks should be held — a mild recession means a fairly short hold, while a severe one like 1981-82 means a longer hold.

Among other things, he built half a dozen high-rise apartments in Burnaby. When the recession of 1981 hit, his real estate empire nose-dived. Loewen managed to sell off his holdings and to recoup just enough money to pay off his debts. 5 million. All the while, Loewen had held onto his fourteen funeral homes. His phone was often ringing with offers to sell funeral homes — it seemed that the sons and daughters of funeral directors were usually not interested in following in their parents' footsteps.

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