money and invest it, earning, say, 20 percent a year, ratherthan  losing  that  amount  of  money  to  an  insurance  company  or  healthprovider. It’s just like leasing a car. The leasing companies make 18 percent
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per  year  on  the  car  you  lease.  That’s  a  great  rate  of  return,  better  thanmany mutual funds do in the stock market, and better than many realtorsdo with their own investments.
You want to have your money earning that 18 percent a year as op-posed to paying that 18 percent a year to banks, leasing companies, andthe like.
Remember when I talked about the ideal fundamental setup for com-panies?  I  talked  about  the  importance  of  companies  having  no  or  lowdebt. It’s true in our lives as well. The more credit card debt, lease debt,even home debt you have, the less opportunity you have to build a portfo-lio or nest egg to invest with. Buying now, debt now, spending now, ulti-mately creates less, especially less for those retirement years when thingsreally do matter.
A LOOK AT THE COMMODITY MARKETS
While Wall Street may have caught your fancy, you may also want to turnyour attention to LaSalle Street. That’s the street in Chicago where you’llﬁnd the Chicago Board of Trade—the futures markets where investors andtraders speculate on real things. When you stop to think about it, nobodyneeds a share of Microsoft or a share of IBM. You can live the rest of yourlife without owning a stock.
But you can’t live the rest of your life without cotton, copper, wheat,soybeans, soybean oil, silver, gold, and a wide variety of other commoditiesthat are traded on these exchanges. Thus, we have better supply and de-mand ﬁgures in these markets than we do in the stock market. If you studythe history of futures and commodities you’ll see they have been primarilyin large downtrends the past several years. At some point the situation willhave to change. Farmers and ranchers can produce food for this nation andthe  world  only  so  long  without  making  much  money.  At  some  point  thescales will tip. It may be because there’s a drought or demand exceeds sup-ply. For sure at some point this imbalance will have to change. When thisdoes,  there  should  be  some  wonderful  bull  markets  in  these  natural  re-source commodities.
You may not have to purchase commodities directly to take advan-tage of this. You may want to follow companies that are commodity dri-ven,  such  as,  say,  Starbucks  in  terms  of  coffee;  ConAgra,  a  large
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commodity company; Archer Daniels; Hershey’s; General Mills; and onthe list goes.
One can usually determine when there’ll be a shortage of a commodityin one of two ways. The ﬁrst and simplest of these we will want to followcomes  from  data  reported  by  the  U.S.  government  each  week.  Theseweekly reports show how much buying and selling was being done by var-ious members of the investment community. Each week we can ﬁnd out ifthese commercial interests were buying or selling and in which commodity.When  they  get  extreme  in  their  position,  that  is,  they  are  predominantlylong, markets most often rally. By the same token, when they are heavilyshort markets most often decline.
Figure 13.2 of corn provides just one more example of this powerfulrelationship. At the beginning of 2000 the commercials were heavy shortsellers in this marketplace, and that’s why corn declined, in my opinion. Inthe  middle  of  the  year  the  commercials  built  up  a  large  long  position  asthey began buying this market in an aggressive fashion. Lo and behold, the
Figure 13.2 Corn versus Commercials
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price  of  corn  rallied  until  the  start  of  2001  when  the  commercials  wereback to the short side. As the year opened they were only 15 percent longin terms of the way I measure their activity. That means 85 percent of themwere  short  at  that  time.  So  guess  what.  The  price  of  corn  declined  untilmidyear when the grain markets shot to the upside in a brief ﬂurry of bull-ish activity.
If we look at the same data in the gold market we can see what power-ful inﬂuence these commercial people are. At the end of the ﬁrst quarter of2000 gold staged a strong rally, yet the commercial interests reﬂected a po-sition of 92 percent short and 8 percent long. It’s no wonder the price ofgold then declined into June 2000 when the commercials were 58 percentlong,  setting  up  a  rally  that  lasted  until  the  commercials  went  short  themarket with an 86 percent net short position. They again reach a high buy-ing level in November 2000, and of course gold prices rallied.
They became quite bullish, with a 71 percent reading in the winter of2001, and gold started a real hot, quick, splashy rally to the upside, thenmoved  sideways  only  to  back  and  ﬁll  until  May  when  the  commercialswere  again  98  percent  short  this  market.  Only  2  percent  of  them  werelong! I remember this time so well. Subscribers of mine, and particular thegold bug camp, were screaming about how the price of gold was going toat  long  last  begin  the  huge  rally  the  gold  bugs  had  been  looking  for  allthese years. That was possible; it could have happened.
But it would have been unlikely because the majority of the time whenthe commercials are excessively long prices rally. The majority of the timecommercials are excessively short, as in this example, prices decline.
The ensuing down moving in gold came as no surprise to any of the
people who have followed my work over the past 30 years.
TRANSPORTATION PROBLEM
The  highly  mobile  society  we  now  live  in  has  produced  some  wonderfulupcoming opportunities in the transportation industry. Because trains areessentially dying out (the sooner the better in my opinion), the airlines havehad a wonderful opportunity to make money, yet many of them have not.Why should that be so? There are some speciﬁc reasons, such as in the SanFrancisco area, thanks to its fog, where bad weather wreaks havoc and cre-ates delayed planes and angry passengers.
But,  by  and  large,  airlines  have  not  been  responsive  to  the  needs  of
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passengers, and have huge debt. Airlines such as Southwest are ﬂying highand making money, and the prices of their stocks have been going up. Theunresponsive airlines (I would point out United Air Lines as one) have suf-fered in the marketplace.
This we know for sure; there is a huge amount of money being spent intransportation every year. Airplanes have made this an increasingly shrink-ing, smaller world. Therefore, if you see a transportation company that isdelivering the goods and the people on time and in a comfortable fashionthere is a gargantuan market for them. They will be able to increase sales,which should increase the bottom-line earnings reports. That means they’llhave  lower  price-to-sales  ratios,  higher  P/E  ratios,  and  higher  dividendyield payments—exactly what we’re looking for.
This entire area of transportation fascinates me because I don’t thinkthe  world  will  slow  down;  people  are  going  to  travel  more  in  the  futurethan they ever have in the past. Whatever company allows that to happenin the easiest and most convenient fashion is going to ﬁnd the gold at theend of the rainbow.
FINANCIAL SERVICES
The  ﬁnancial  industry  has  gone  from  an  old  boys’  network  where  dealswere done on a napkin in bars to a high-tech, highly organized, and com-puterized business enterprise. I’m certain J. P. Morgan, Dean Witter, or anyof the founders of Merrill Lynch would be both amazed and dismayed bythe current status of these organizations.
If I’m right in my hunch that there will continue to be more money inthe future, that there is no big crash or depression coming, then the fu-ture  is  one  of  many  people  having  much  money.  Unfortunately,  moneydoes  not  create  character.  But  then  again,  character  will  never  be  pro-duced by money.
Some  people  will  put  their  money  under  a  mattress.  Some  will  onlyseek savings accounts. Will that be the majority? I don’t think so. I thinkthe  majority  are  going  to  turn  to  professionals  to  invest  their  money.There are only a handful of people, like you, my dear reader, who have theinitiative,  the  driving  intelligence,  to  enter  this  world  of  investments  ontheir  own.  The  bulk  of  people  are  lazy,  complacent,  and  to  their  detri-ment, believe professionals can do a better job than they. Oh, these poormisguided souls!
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But that’s our problem. Our problem, rather an opportunity, is deter-mining what these people will do with all their money. Many will turn theirdollars over to the local banker or insurance salesperson, more will placetheir money with brokerage ﬁrms and mutual funds, and a very few will in-vest in commodity funds. The world is wide open for investment managersand people who are willing to take on the responsibility, and awesome task,of  managing  other  people’s  money.  This  should  be  an  opportunity  we  donot walk by. It means our focus can be on mutual funds and major broker-age  ﬁrms.  Their  business  can  only  grow.  The  big  ones  are  the  ones  mostlikely to stay in business and continue to expand their business, so folks likeCharles Schwab, Merrill Lynch, Bear Stearns, Goldman Sachs, and the likeneed to be followed. The bigger the ﬁrms, the bigger I believe their marketshares will become. Accordingly, you should make note of this signiﬁcantindustry. It does not have the jazz and sex appeal of high tech, drugs, andmedicine, but money is as much a part of life as getting sick. If you believein going where the money is, or will be, this is the place.
Come to think of it, more people probably get sick over money than
anything else!
ENTERTAINMENT INDUSTRY
Consumers are pretty predictable lot: They wake up in the morning, go towork, come home, and then look for something to do. Unfortunately, forthe most part, their lives are full of drudgery. They don’t have excitementand  passion,  and  what  they  do  it  is  becoming  a  humdrum  existence,whether  in  the  ofﬁce  or  the  factory.  Most  people’s  lives  are  not  verythrilling. They need to escape, to get outside of this condition.
That’s  why  entertainment  will  be  such  a  huge  market  in  the  future.Even now, we see what to me is an appalling attention placed on moviesand  concerts.  It’s  just  my  personal  view,  but  I  want  to  say,  “Get  a  life.”There’s more to do and to watch than stupid movies and so many of themnow are just that. Go to concerts for about $100 to hear the same thingyou can hear on a $10 CD? I don’t think so. But that’s just me. I’m not ofthe masses. I’m not into crowd activity. These people need some rush andexcitement  in  their  lives,  so  they  turn  to  movies  and  concerts,  television,and the like to provide for them (as well as drugs). Notice the words “pro-vide for them.” These people are so used to being couch potatoes, to beingentertained, they never consider doing something entertaining.
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There is a smaller minority of people who like to camp, hike, travel, orexercise. These are the people who participate, people who are onstage inthe great play of life. There are markets here that an investor should payattention to. But that market is not nearly as big as the market that pro-vides entertainment at home to basic couch potatoes.
Invest in Couch Potatoes
There  are  all  sorts  of  things  that  might  change  in  terms  of  the  entertain-ment business. Consider this: Currently on television, we see many rerunsof  yesterday’s  movies.  Movies  are  not  cheap  to  produce.  A  good  movienow  costs  $50  million.  But  consider  the  possibilities  of  having  a  reallygood movie done with major stars and showing it as a ﬁrst-run feature, notin theaters but on television. How many homes could you sell a movie tostarring Mel Gibson, Julia Roberts, and Tom Hanks if the price was $2 forthe movie? I suspect it would be a snap to sell to at lease 25 million homesand recap your investment all in one night.
The couch potato crowd would love this; they don’t even have to goout and rent the movie at the local Blockbuster. They simply get a ﬁrst-runmovie,  never  seen  before,  with  major  stars  for  two  bucks.  Fifty  millionhomes in the ﬁrst month nets $100 million—not bad. The beauty of televi-sion  is  it  can  deliver  so  much,  to  so  many  people,  so  cheaply.  I  suspectwe’re going to see a switch in television from the traditional news, gameshows, and junk shows to making it more similar to traditional entertain-ment, ﬁlling the role that movies, stage, and concerts have had in our lives.In any event, this is an industry we should pay close attention to. Cer-tainly stocks like Disney, MGM, the cable television giants, and such needto be monitored by savvy investors.
OPPORTUNITY ABOUNDS—ALWAYS HAS, ALWAYS WILL
Seldom do markets go straight up as they did in 1998 and 1999. The comingyears will most likely be a wild swinging affair presenting us with some won-derful bull markets that turn into declines, which give way to yet one morebull market. On and on it will go to the end of time. The best long-term betis to the bull side. I do not know exactly how it will unfold; no one does. Ihope you now know when the best times to invest are most likely to appearand what fundamentals are the most proﬁtable for us to take action upon.
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The  future  will  bring  us  changes  we  cannot  even  think  of  at  thispoint,  whether  in  corporate  proﬁts  or  great  cash  ﬂow,  price-to-book,and price-to-sales ratios. There will be wars and destruction, bad timesand good times. It is a speculator’s task to weave in and out of these op-portunities, to seek personal freedom (which is usually against the law)and prosper.
I wish you well. I wish you prosperity. The future is there. Grab it
and prosper.
MORE FUEL TO THE FIRE
Finally, here’s a most innovative chart from Tom McClellan that looks atmoney in circulation by the Fed (M3), divided by the rate of change of theDow Jones Industrial Average.
Going back to 1962, you can easily see that when the rate of change ishigh, there is money in circulation and stocks have been a solid buy. Hispoint, and it’s a good one, is that value alone is not enough to create a bullmarket—money is what fuels the rallies.
Clearly, in April 2003 there is money—or fuel—for a bull market.
March 27, 2003
Chart courtesy of TomMcClellan, as published in:The McClellan Market Report.M3 data source: St. Louis Fed.
Dow Jones Industrial AverageLog Scale
M3 Money Stocks Divided by DJIA12-Mo. Rate of Change
4.1
3.8
3.5
3.2
2.9
2.6
0.6
0.4
0.2
0
–0.2
–0.4
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
© 2003, McClellan Financial Publications, Inc. www.mcoscillator.com, (800) 872-3737.
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INDEX
Advance, reasons for, 108–109AIM Funds Aggressive Growth, 
189
Allen, Paul, 118–119American Express, 90Applied Materials, 91Archer Daniels, 211Art, collecting, 86Asia, 74Astrodata, 76Avon Products, 90Axe-Houghton index of stockmarket averages, 2, 3, 12
Barron’s, 47Bear Stearns, 214Bernstein, Jake, 124Black Friday, 58–59Blume, Martin, 188Boeing Company, 142, 144Bond market:
October rally in, 35, 36stock prices and, 35, 36using to predict stock market,
53–54
volatility index and, 55–61, 
62
option traders and, 128–129reversal of price and, 125–128Bull market, next, as spectacular,
67–69Burns, Arthur, 43Business and creation of wealth,
86–87
Buy-and-hold strategy, fallacy of,
89–93Buying points:
best, 1–2, 12, 14, 37conditions for, 23selection strategy, 186–187
Call, writing, 135–136, 141Carlisle Companies, 114–115Casinos, 38–39, 98–99, 103,
194–195
Charles Schwab, 91, 189, 214Chicago Board of Trade, 210Cisco Systems, 91CMGI, 91Coca-Cola, 142, 143Coffee, 81Commercials:
corn and, 211–212gold and, 65–66, 212
Borrowing to trade or invest, 47Broadcom, 91Bullishness:
excessive, reasons for, 129–131measurement of, 124–125
Commodity Futures TradingCommission, 196
Commodity Quote Graphics, 144Commodity trading, 136, 140,
210–212
217
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218
INDEX
Company debt, 117–118Compounding effect, 99–100ConAgra, 210–211Concept stocks, 207Consistency, rewards of, 94–96Corn, 211–212Cyclical moves, 102
Davis, Ned, 124Dean Witter, 189Debt:
company, 117–118investment and, 146personal, 209–210real estate investment and, 87–88
DeMark, Tom, 50Descartes, René, 125Destiny 1 or 2, 189“Discount,” buying at, 109–116Disney, 90, 132, 215Disorder, 127Doll, Bob, 107Dollar, U.S., 73–74Don’t Sell Stocks on Monday
(Hirsch), 6–7, 10
Dow Jones Industrial Average
(DJIA):
decennial pattern, 1900–1999, 8decennial pattern, 1970–1999, 9measures of stock value in,
171–173
net working capital, 167–1681900–2001, 4–6portfolio example, 164price-earnings ratio, 106price-to-book ratio, 177price to net working capital,
169–170
price-to-sales ratio, 172, 181
proﬁt margin increase strategy,
165
return on, 174–181return on equity, 178sales per employee, 179seasonal pattern of, 30yield on, 42–43, 173Dow Jones Utility Average,162–163, 184–185Drawdown as asset, 198–199Dreman, David, 151Drew, Garﬁeld, 123, 134Dysart, Richard, 124
Earnings:
of company, 106market success and, 44–45return on ﬁve highest DJIA stocks,
175, 176
return on ﬁve lowest DJIA stocks,
180
stock price and, 109–116See also Price-to-earnings (P/E)
ratioeBay, 91Economy as consumer-driven, 208Elliott, R. N., 2Energy sector, 208–209Enron, 91Entertainment industry, 214–215Europe, 74Exit in September of the nine year,
1879–1999, 26
Fabian, Richard, 189–190Federal Home Loan, 112–113Federal Reserve Board:
October effect and, 35–36valuation for stock prices, 43–45
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INDEX
219
Feeding frenzy, 108Fidelity funds, 189Financial Digest, 188Financial services sector, 213–214Fixed Fractional Trading, 
199–201
Forbes, 188Ford Motor Company, 89Forecasting techniques, 38Foreign investment in U.S. stock
market, 72–73, 74Formula Research, 190Four-year phenomenon:conﬁdence in, 16–18forecasting, 18–19, 22–24,
205–206
history of, 21–22overview of, 15–162002 and, 19–20Freeburg, Nelson, 190Freud, Sigmund, 148
Games of chance, 98–99Gann, W. D., 2, 6Gates, Bill, 118General Mills, 211Genesis Financial Data Service, 
144, 204
Goal of investment, 100–103Gold, 63–66, 76–77, 212Goldman Sachs, 214Gould, Edson, 2, 6–8Gould, Samuel Elliott, 147Government bonds, 88Graham, Benjamin, 147Greed, 72, 155Growth companies, 70, 90–91, 
Haller, Gil, 54Harley-Davidson, 110–112Heiby, Wally, 124Hershey’s, 211Highﬂiers, see Hot stocksHillenbrand Industries, 113–114Hirsch, Yale, 6–7, 10, 31, 140Hoe & Co., 76Honeywell, 90Hot stocks, 92, 93–96, 98Howard Johnson, 90How to Prosper in the Coming Bad
Years (Ruff), 22–23How to Prosper in the Coming
Good Years (Williams), 22–23,37
Hulbert, Mark, 188Hype and hope stocks, 154, 207
IBM, 136, 137, 140–141Initial public offering (IPO), 
207
Insider buying and selling, 118–121Institutional support, loss of, 82Insurance, 87, 209–210Intel (INTC), 136, 137Intention, 85–86, 96Interest rates and stock prices, 35,
53–54
International Paper, 139Investment advisers, monitoring,
51–53
Investor revolution, 68Investor’s Business Daily:
charts in, 52, 188as information source, 160,
186–187
93
mutual funds information in, 47,
Growth funds, 94–96, 120–121
107
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220
INDEX
Investor sentiment:
bullishness as measurement of,
124–125
discounts and, 75ﬁltering, 131–133option traders and, 128–129overview of, 49–51price ﬂuctuation and, 134–135reasons for, 129–131seasonal inﬂuences and, 136,
selection strategy, 206–207telling when stocks areundervalued, 41–43
Market capitalization, 157–158The Mathematics of Money
Management (Vince), 197
Merck, 127, 128–129, 133–134Merrill Lynch, 189, 214MGM, 215Microsoft, 118–119, 129, 130, 
140–144
140
short selling, 133–134trading with index of, 135–136,
137–140
weekly charts depicting, 125–128
Investors Intelligence, 51, 
124
Millenium Pharmacies, 91Miller, Paul, 150–151Momentum play, 94, 106Money management:
approaches to, 195–196Fixed Fractional Trading,
IPO and New Era Fund, 71–72
199–201
Japanese yen, 81Jones, Ryan, 199–201J. P. Morgan, 126
Kaufman, 189Kelly formula, 195–196, 197KleerView, 76
Lessons of past, 69–74Livermore, Jesse, 92Long-term investing, fallacy of,
89–93
March buys from 1878 to 1998, 
25
Margin debt, 47–49Market bottom:
formulas for, 197–199, 200hit-or-miss approach compared
to, 194–195
largest losing trade, 202–203overview of, 193–194success of, 196–197Williams formula, 203–204
Morningstar, 187–188Motivation, basic law of human, 45Mutual funds:
cash on hand, 46–47pattern for disaster and, 77, 82performance of, 70–71, 146, 182,
183
selection strategy, 187–189stocks in, 107timing and switching, 189–191
of bond market,