PEOPLE PROFILE: Market Maker
Investment guru William O'Neil has parlayed his self-taught knowledge of the stock market into a variety of businesses, including Investor's Business Daily.
By CLAUDIA PESCHIUTTA
Despite a general decline in ad spending, the newspaper recently invested in a redesign and announced plans to add more contract printing facilities. While IBD has not been a moneymaker, other O'Neil companies have done well.
Question: How did you become interested in the stock market?
Answer: When I was a young kid and graduated from college and got married, I suddenly became interested in how to get ahead in life and that's when I started reading up on investments.
Q: What did you study in college?
A: I was a business graduate from SMU (Southern Methodist University) I didn't learn anything about the stock market or investing from college, they just teach you how to think a little bit. You have to learn (the stock market) on your own. It's a very complicated subject so it takes a lot of time and, as you can see, most people haven't figured it out. In the last couple of years, a lot of people got hurt.
Q: Where did you take your lessons?
A: I bought a library of books. There were 2,000 of them, all on investing, so everyone and their brother's written a book on the market. Out of the 2,000, there were about eight that were really sound and good, written by people who had made money in the market and who had it figured out. I think the big problem in the market today is entirely too much information. You can get it on the Internet and turn on your TV and everybody's got a program on the market and they're just giving personal opinions.
Q: What people or books have had a big influence on you?
A: The first book I read on the market that seemed to be sound and helpful was (Gerald) Loeb's "The Battle For Investment Survival." He was a tape reader, a technical person, and he made millions of dollars over the years and one of the things he always advocated was you must cut every loss at 10 percent.
Q: What's your policy?
A: Our policy is you cut them at 7 or 8 percent. Most investors do not really understand that basic principle. They're not told by their brokers that all stocks are speculative and any stock can go anywhere. Our estimate is that 80 percent of investors lost 50 to 75 percent in the last few years from the top of the market and they were buying on the way down. You don't buy stocks on the way down and you don't average down, but people like to buy things cheap so a lot of people got clobbered.
Q: On what do you base your investment advice?
A: We do an enormous amount of historical research and we've built models of every single stock that was outstanding each year for the last 50 years and we study those and determine what works based on pure fact. We don't care what somebody on Wall Street is saying.
Q: What have you learned about the stock market?
A: The fascinating thing is there really is not that much new. Most people think the market is changing all the time but it isn't because there are basic principles that work when a company is doing well and then, when they get into trouble, there are other principles that work. The reason the market is pretty much the same all the time is that it's driven by human nature. If you buy something, you hope it's going to go up and if it goes down, you hope it's gonna come back up. Well, what you hope has nothing to do with reality. So it's the human emotion that keeps investors making the same mistakes over and over again.
Q: Why did you start Investor's Business Daily?
A: Well, it wasn't my idea. It was one of my institutional sales peoples' idea that you really couldn't get anything that helps you in the market out of The Wall Street Journal. We had all this research and had been highly successful with it and we could create a superior product that would really help people. I kind of laughed at the thing to begin with but after a while I realized that it was true and we decided to do it.
Q: What was the paper like in the beginning?
A: We were very naive and we didn't even really realize it was the advertising business so it took us a year or two to figure that out. I hope this doesn't sound sexist, but we looked around and took all the secretaries and clerks and people that we didn't have to have upstairs and we put them downstairs in the newspaper and that was our ad/sales department, that was our circulation department. And, here's the fascinating thing we were gaining a share of market on The Wall Street Journal with our third string.
Q: How do you think IBD compares to the Wall Street Journal and other papers?
A: It's totally different and a lot of people in the advertising community haven't figured that out yet. We're not copying anybody. We're innovating. We're creating a superior product. We sell it at a higher price and its price will probably go up (but) it helps people make money and we think that's unique. It's based more on success. We don't have a bunch of negative stories in there.
Q: How much money have you put into the paper over the years?
A: We don't give that figure out because it's so much we'd probably be embarrassed. But it is a substantial amount.
Q: Are you the sole investor?
A: I'm the dominant investor but we have a number of people who own stock in our holding company and we've given out options and things like that.
Q: Is the paper profitable?
A: The way you would normally figure out accounting, no, because it's very expensive to increase the circulation across the country. On a cash-flow basis, yes it is, because we know how to invest.
Q: Do you think IBD has influenced financial coverage?
A: The L.A. Times has put some things in their tables they never had before. They copied us. The Journal copied quite a number of things. We were the first ones to take tables and boldface something in the table or underline something in the table. Well almost everybody copied that because that's easy to do.
Q: How about in terms of editorial content?
A: There's some of it but I don't think so much on the editorial side. I don't think you can really call us a newspaper. It's a national business newspaper but we're really a source of ideas that work. It's a positive paper and that's contrary to the way the newspaper business is set up.
Q: What's your assessment of the market today?
A: We think it hit bottom in late September and we think it had its first rally up off there for whatever it was, several months, and then it pulled back for several months and we think that's normal. We think that the next year or two it will be doing better, however. We don't agree that just because it hit bottom, it's necessarily going to be that strong. So much damage was done in the technology sector that we think it will take a lot more time and it will be a lot slower in its recovery process.
INTERVIEW: William O'Neil
Organization: William O'Neil and Co. Inc.
Born: Oklahoma City, 1933
Education: Bachelor's degree in business from Southern Methodist University. Some further business studies at Harvard University
Career Turning Point: Reading books on investing
Most Admired Person: Thomas Edison. "He's probably one of the most productive men that ever lived."
Personal: Wife, Faye, four children
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