havecome to know over the years. From that I have synthesized what I think isan  important  overall  concept  for  us  to  consider  regarding  the  next  stockmarket up move.
What I believe will happen as the next bull market begins to roar tothe upside is that frustrated, pent-up investors (people who lost money orthose  who  wish  they  had  made  money  in  the  last  bull  market)  will  hopaboard like we have never seen before.
I do not believe that at any time in history of mankind there have been
67
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 68
68
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
more people more interested in future stock prices than now. Being an in-vestor is now not only popular but easy. In the old days it seemed to take acertain  acumen  to  become  an  investor.  You  had  to  know  something—bepart of an informed minority. Brokerage ﬁrms were, to some extent, out ofthe  reach  of  the  average  person.  That  is  no  longer  true,  as  now  you  cantrade from anyplace at any time. What was once privy to the few now hastwo television channels.
It is almost as though we went from an industrial revolution through atechnological revolution to an investor revolution. The revolutionaries ofyesteryear  have  become  investors.  Everyday  conversations  now  focus  onthe  stock  market,  with  the  stock  exchanges  sponsoring  sporting  events,and brokerage ﬁrms sponsoring golf tournaments and such. Wall Street hastaken on the popularity and depth of McDonald’s!
There is a tidal wave of investor money on the sidelines just waitingfor an excuse or reason to purchase stocks, and nothing makes investorsmore  impatient  than  a  market  that  rallies  when  they  are  not  long.  Atsome  critical  point  they  just  can’t  stand  it  any  longer.  The  up  move  inprices will conﬁrm to them to start a bull market and the ﬂoodgates ofcash will open. Stocks will be purchased, in record numbers. It’s going tobe awesome!
Couple this, if you will, with the basic nature of mankind, which is tohave more, to be greedy, to enjoy money, and to want to work for it. Thepublic has seen the incredible amounts of money to be made in the stockmarket, and they will not be held in check. The huge Nasdaq rally and itsmany success stories, even though many turned into failures, whetted thepublic’s appetite for stocks. No longer is the public ignorant of the market-place. While it is true they may currently be on the sidelines, they’re readyto suit up and come to play.
This may get the point across to you a little better: When I began trad-ing stocks, the Wall Street Journal was very much a niche newspaper withprecious few lay subscribers and even fewer newsstand sales. Its customerswere brokers and investors. Compare that with now, when the Wall StreetJournal is available in grocery stores and news racks throughout the world.The Journal has gone from about 20 pages a day up to almost 100 pages tofulﬁll investors’ needs for more market information.
On top of all this we have an investor base that now has money. Wehave not seen a major economic recession for almost 30 years; hence, capi-tal has been building. Whether it is in retirement funds, bank accounts, ormutual funds, there is now money in circulation, more than ever before in
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 69
LESSONS OF THE PAST
69
the history of mankind. And that’s all it takes to start the bull market stam-pede—money!
We know history is the past, and the past never repeats itself precisely.Yet the public mind believes the future can and will become almost identi-cal to the past. So they look back at the price activity of a few select stocksand see that a meager investment of $10,000 or so could have been turnedinto millions. Their interest is piqued. They want some of that action, andthey will come into the next bull market.
Unfortunately, I don’t think they will be there at the start of the bullmarket.  That  doesn’t  make  sense.  The  public  never  buys  at  the  marketbottom;  they  get  in  midway,  then  become  heavy  buyers  of  the  top  of  amarket.  That’s  ﬁne—because  I’m  going  to  show  you  how  to  use  that  toyour advantage.
LESSONS OF THE PAST
The  ﬁrst  lesson  from  the  past  it  appears  that  the  public  has  learned  isthat stock market investing can create massive sums of wealth, the typeof wealth people dream about—and spouses nag about not having. Thiscreates a huge potential demand for stock, gallons and gallons of fuel tobe added to the ﬁre.
While I do not expect these investors to buy even close to the low pointof  the  marketplace,  they  will  come  into  the  game  at  some  point.  Risingstock prices create a feeding frenzy with both the public and pros. So, let’sask ourselves, when they come in, what game will they want to play?
The answer to this can also be learned from a study of the past. Someof these people are experienced. They have been around the track a time ortwo,  and  are  as  aware  of  the  run-up  of  the  market  as  they  are  the  run-down of the market. The public mentality, regardless of how you measureit or how you slice it, has changed from being infatuated with high-tech,new economy stocks to being downright frightened of the same issues.
They have seen fortunes lost as high-tech ideas collapsed and washedashore onto the desert island of proﬁts. Originally that desert island ideawas simply to ﬁnd some great high-tech stocks to own that, even if youwere on the desert island, by the time you were rescued would have madea  fortune.  There  is  still  an  assumption  this  can  take  place,  though  in-vestors of the future, I believe, will be more judicious and less willing totake high risks.
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 70
70
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
At some point this will change. Close to the top of the next bull marketwe will again see massive public buying that will create a frothy wave ofprice activity. Keep that in mind. It will happen. But as the market beginsits rally once the public sees the trend has resumed to the upside, that thegame is back in town, when they ﬁrst enter they will be buying quality andvalue as opposed to getting carried away with speculative issues. Let me beclear  about  this:  Later  in  the  game  they  will  turn  their  attention  to  specstocks,  shortly  before  things  collapse.  Highﬂiers  of  the  day  will  prevailagain, but not as the bull market starts to become known to the public.
When? Well here’s what I wrote in the ﬁrst draft of this book in 2001,
just as presented to thousands of traders and investors:
If I’m correct in this view, and I certainly think I am (check it outfor yourself, however), it means the stocks we want to buy at theOctober  2002  low  are  quality  stocks  that  will  be  attractive  andfeel safe, warm, cuddly, and fuzzy to the public investor who willbuy enough of the stocks to drive the prices higher, thus enhancingour investment returns. We want to get in early on the stocks thatall this public money will pour into. It’s as simple as that.
Well, 2002 has come and gone. I’ll let you judge the prediction.
I believe the funds will turn their attention from stories and rumors ofa new economy to shopping around looking for good growth companies.This means companies that have earnings, companies that pay dividends,companies that do have bricks and mortar, machinery, equipment, employ-ees, and real physical assets as opposed to computers acting as store. Oh,sure, there will be high-tech stocks that do well, but by and large the bulkof investor gains will come from the tried-and-true, proven, so-called oldeconomy stocks.
Companies with earnings, growth, and dividends are the ones that willprosper. These are the ones the public will seek out. And there will be morethan just the public lifting these prices ever upward. Mutual funds them-selves have learned the same lesson.
The only way a mutual fund can stay in business is to have some typeof positive performance for its shareholders. No positive performance, noshareholders—that’s  the  basic  math  of  mutual  funds.  Managers  of  thesemutual  funds  are  just  as  susceptible  to  the  path  of  least  resistance  as  therest of us, and when they see that a particular type of investment is suc-ceeding over another they go in that direction. It’s human nature.
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 71
LESSONS OF THE PAST
71
Let’s look at how these guys do. A study I did of the top 25 growthand income funds, for the six months ending in August 2001, showed theirperformance  was  downright  miserable.  Only  ﬁve  of  the  top  25  fundsshowed proﬁts for 2001.
Yet, if we look at the top 25 value funds for the same time, all but oneof  them  showed  proﬁts  for  their  shareholders.  What  a  difference!  Valueprevailed;  growth  did  not.  Finding  proﬁts  in  growth  has  become  a  mostdifﬁcult thing to do.
How badly the funds have been doing reﬂects on how much they willchange their investment strategies. In July 2001, the largest reporting ser-vice on mutual funds, Lipper Inc., revealed to investors that 4,120 of the5,208 United States stock funds it followed lost money!
That is an incredible ﬁgure. It means almost 80 percent of the mutualfunds were in the red for the year. They will have to change their strategy.It is almost as though these funds have no choice but to invest in qualityat  this  particular  time  in  history.  They,  too,  just  like  the  public,  will  gointo a state of rapture later in the bull market and resume their bad habitof buying rumors and future growth. But right now the big word on WallStreet is value as expressed by earnings dividends and companies that doreal business.
The slide of 2002 was not handled any better by the funds. In Decem-ber, so-called growth funds were down 23.6 percent and technology fundswere down 39.5 percent while value funds were tagged for only a 15.8 per-cent  loss.  Overall  mutual  funds  were  down  25.6  percent  while  the  S&P500 was down only 21.2 percent! Again the funds on average did not bet-ter the market. You can do better, and that’s exactly what you will learn inthis book.
You  are  getting  off  easy  reading  a  book  about  learning  this  lesson.Contrast that with the folks who began the IPO and New Era Fund in Au-gust 1999. Life for this fund started with a bang: In its ﬁrst three months ofdoing business it was up 89 percent on the some $10 million under man-agement the founders had attracted to their concept. Their concept? Buynew  offerings  and  be  aggressive  purchasers  in  high-tech  stocks.  One  oftheir supposed strengths was that they were based in San Francisco, highatop skyscrapers where they could carefully monitor the money machina-tions of Silicon Valley.
This  fund  was  supposedly  a  new  breed  of  cat.  To  show  how  honestand open they were, all of their purchases were listed on a web site. Theyeven went so far as to mount a Web camera in their trading room to offer
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 72
72
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
investors a personal look into precisely what their traders were doing. Youdid not have to be an investor in the fund to watch and/or debate the posi-tions with managers and traders of the ﬁrm.
Some  good  it  did.  In  August  2001  they  had  to  shut  the  operationdown,  as  they  had  lost  half  of  the  funds  under  management,  thus  beingforced to close shop and return what was left of the funds.
That  is  exactly  why  in  2003  and  for  several  years  to  come  the  bigword on Wall Street will be value as expressed by earnings dividends andother ratios I will teach you. Our proﬁts will come from companies thatdo real business.
This trend will be with us for some time, leading me to believe that asthe ﬁrst buyers of the new bull market we want to buy what is going to at-tract these people. It sure seems clear to me they will want to buy what weare going to own, at least if we follow the advice in this book. Our goal isto own good long-term growth stocks that ﬁt value molds in the variousforms discussed in this book.
The headaches and heartbreaks of the bursting Nasdaq bubble will bewith  investors  for  the  next  three  to  ﬁve  years.  After  that  time  they  willmost likely have forgotten the importance of consistency; greed and jeal-ousy  will  get  them  again  as  they  see  rapid  rises  in  the  issues  where  theyhave  no  positions.  That’s  exactly  what  causes  investors  to  throw  goodjudgment to the winds as hormonal greed glands overrule thoughtful logic.Seeing someone making money when you’re not, seeing someone outper-form  you,  is  the  worst  kind  of  pressure,  the  kind  of  pressure  that  causesemotion to overtake logic.
We are in an economic environment with cash-heavy investors from allages and all walks of life. Yes, the 1999–2002 crash was real, and lots ofpeople  lost  lots  of  money.  But  it  was  paper  money—paper  proﬁts.  Therewere also people who took their proﬁts, left the game early, and have cash.The decline “cost” investors $6 trillion, but that money did not all evapo-rate. Much of it is still there, awaiting the next bull market. That money isburning a hole in their pockets; they have a hangover effect from specula-tive Nasdaq proﬁts they did not participate in or did not nail down. That’sa dynamic combination to produce upside activity in value stocks.
But there’s more to the story. We’re not talking about just the UnitedStates anymore. The U.S. stock market has become the premier investmentvehicle for people from all over the world. While America may have lostsome of the dominance in terms of world inﬂuence, it has not in terms ofeconomic clout. Sure, we’ve had our Enrons and Adelphias, but our stock
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 73
LESSONS OF THE PAST
73
market  is  less  tarnished  and  more  regulated  than  any  other  exchange  onthis little planet. Couple that with this simple fact: The best investment op-portunities—ideas—are still developed here, in the good old U.S. of A., andyou  know  there  is  a  huge  future  ahead  of  us.  In  2002  the  corporate  ac-counting  scandals  may  have  tarnished  our  image  but  capitalism  is  stillmore  transparent  in  the  United  States  than  almost  anywhere  else  in  theworld.  Money  may  have  temporarily  ﬂed  the  view  of  the  Department  ofJustice but it will be back.
The  Yankee  dollar  is  the  yardstick  by  which  all  other  currencies  aremeasured. More great business ideas have come out of this country than allthe others combined. We are terribly unique in that we are one of the fewcountries of the world where business is not conducted by bribery. Yes, wehave bad eggs in the United States, but they are the exception, not the rule.Things are done here for the most part aboveboard, which gives investorsthe opportunity to see what is really happening.
Notice how the U.S. dollar, as shown in Figure 5.1 has fared over the
Figure 5.1 U.S. Dollar 1986–2002
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 74
74
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
past 17 years. It was in a steep downtrend from 1986 into 1995, yet theAmerican economy steamrolled upward. Currently it has had about a 50percent correction of the 1995–2001 bull market. The Yankee dollar stillreigns supreme. I see no reason that will change.
I have lived in Europe and the Middle East, and have conducted busi-ness in Asia, and I assure you that how we do business is not exactly howbusiness is carried on there. Corporate raiders and critics don’t have a clueas to how well-off we are here in America.
Who does have a clue are large foreign investors. That means anytimethere is a signiﬁcant bull market within United States equity markets, theirmoney leaves home and comes to our shores, into our marketplace, drivingprices even higher. The European banking system loves American stocks. Ibelieve there are several reasons for this; one was cited earlier, and anotheris that the growth of corporate America is based more on business and theproﬁt motive than stodgy European family ties.
In Asia, the ﬁnancial community is replete with multitiered business re-lationships and more business angles than Minnesota Fats ever saw on apool  table.  Investors  feel  more  comfortable  knowing  that  there  is  moretruth to the American marketplace than their own.
At any given time, someplace in the world there’s a government thatis being toppled, an overthrow of a regime, an economic system or ap-proach  ruining  a  country.  That  has  not  been  the  case  in  the  UnitedStates, nor do investors think it is even a remote possibility. This conceptis intrinsic to understanding why foreign investors like our stock marketso  much.  It  is  because  we  represent  stability,  growth,  and  fair,  above-board corporate relationships.
So, in addition to private and mutual funds to spur the next bull mar-ket ever upward I believe we will also have a rush of funds from all overthe world to our shores to buy stocks in the ﬁnest United States corpora-tions. If this is to be the case, as I suspect it will, we can pretty well predictthe type of stocks they will be buying. They, too, have learned a lesson ofchasing  high-tech  growth  and  momentum  stocks  and  the  like.  This  timearound they will go for what we, hopefully, will have purchased at the nextmajor stock market low.
If you are fortunate enough to get in just slightly ahead of the largefunds  and  foreign  money,  you  should  see  much  greater  gains,  comingmuch quicker, than will those who hop aboard the train after it has leftthe station.
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 75
PATTERN FOR DISASTER
75
KEY TO UNDERSTANDING INVESTORS
It’s not too difﬁcult to ﬁgure out what investors will do. They have a verystrong habit of looking at the past to ﬁgure out what to do in the future. Bynow  they  have  learned  to  stay  away  from  the  type  of  stocks  that  turnedinto  debacles  the  last  time  around;  hence,  technology  stocks  will  not  gettheir vote.
When they look to the past they will focus their attention on the spec-tacular up moves that numerous stocks have had, stocks such as those fea-tured  in  the  Worth magazine  editor’s  choice  selections.  A  good  manyinvestors are still in those stocks, and others will put their attention on thestocks in the assumption that what was once high will again go up.
All  our  lives  we’ve  tried  to  buy  things  cheaply.  Discounts  appeal  tous—we like to make purchases of things that we think are low-priced, thatare worth more. Nowhere is this better evidenced than in the stock market.Investors get carried away with low-priced stocks thinking about spectacu-lar up moves—particularly if a low-priced stock used to be high-priced.
PATTERN FOR DISASTER
Accordingly, I want to show you the pattern for disaster—a simple chartformation  I’ve  noticed  through  the  years  that  has  been  highly  reliable.Frankly, I haven’t made money on this pattern, but I’ve used it to preventme  from  losing  money,  which  is  equally  important.  The  pattern  is  one  Iﬁrst noticed in the price of sugar in 1962.
Sugar had one of those spectacular run-ups that started from a long-term base, then turned into a straight-up exponentially rising market. For-tunes were made, happy times were here. It looked impossible for prices togo down.
Which, of course, they had to do! The top was formed with a sharpsnap setback in the marketplace, then an almost immediate and startlingrally. But the rally didn’t take sugar to new high prices. It almost immedi-ately  gave  way  to  yet  one  more  wave  of  selling,  which  took  out  the  lowthat the last-ditch rally began from.
In short, sugar had a spectacular and exponential up move, a pullback,then a rally that failed. Sugar continued declining for years, from 1962 un-til 1973.
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 76
76
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
In the mid-1960s I saw the same pattern again, this time in the priceof one of the all-time high-ﬂying stocks of that era, Syntex. Again therewas  an  exponential  rise  in  price,  a  pullback,  and  a  last-ditch  rally  at-tempt, then a break of what had been the low point prior to the last-ditchrally.  It  was  all  over.  Syntex  didn’t  come  back.  Yet  investors  thought  itwould.  The  company  was  still  in  the  same  business,  making  the  sameproducts; yet the price of the stock got so overvalued or out of balancewith reality that the high prices investors paid became a thing of the pastnever to be seen again.
In many instances, with companies such as Hoe & Co. or KleerViewor Astrodata in the 1960s, the stocks not only plummeted after the expo-nential up move pattern occurred, but the companies went out of business!It is almost as though the price can withstand only so much of an exponen-tial move without internally breaking the back of the corporate camel for along, long time.
Another leading example, one shown here (Figure 5.2), is the price ofgold in 1978. Again there is a huge exponential up move, the typical break,
Figure 5.2 Comex Gold 1976–1991
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 77
PATTERN FOR DISASTER
77
then last-ditch rally. Gold never came back—not in 1980, not in 1982, notin 1987; it just simply couldn’t get going again. Check out the all-time highin wheat as well (see Figure 5.3 and 5.4). I am showing numerous exam-ples of this pattern for your study (Figures 5.5 through 5.12).
The all-time “made in America” example of this pattern came with thecrash  in  1929,  which  looks  strikingly  similar  to  the  Nasdaq  crash  of1999–2000 (Figure 5.12). Look, there it is again: Those doggone nine andzero years keep popping up—or down I should say.
I  believe  there  is  a  reason  for  this  pattern  of  run-up,  pullback,  andfailed  rally.  It  is  largely  due  to  the  fact  many  investors  hold  onto  stockfrom the highest level. At some point later on they give up the ghost onthese investments and sell into virtually any rally the stock or commoditymight  see.  In  other  words,  we  have  a  tremendous  amount  of  overheadsupply,  which  acts  as  a  damper  to  higher  stock  prices.  Rallies  are  metwith  huge  doses  of  selling,  people  taking  their  licks  and  getting  out  oftheir long positions. Mutual funds also come into play in this scenario.Most of the funds have dumped their stocks by the time prices have comedown  this  far,  though,  so  they  may  not  be  responsible  for  much  of  theoverhead supply.
Figure 5.3 Wheat 1969–1987
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 78
Figure 5.4 Wheat 1990–2002
Figure 5.5 Sugar 1973–1989
78
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 79
PATTERN FOR DISASTER
79
Figure 5.6 Sugar 1979–1994
Figure 5.7 Soybeans
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 80
80
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
Figure 5.8 Platinum
Figure 5.9 Oats
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 81
Figure 5.10 Coffee
Figure 5.11 Japanese Yen
81
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 82
82
THE NEXT MOVE UP: WHY IT WILL BE SO SPECTACULAR
Figure 5.12 Nasdaq 100 Index 1998–2001
However,  they’ll  never  touch  these  fallen  angels  again.  The  institu-tional support the stocks once had, which drove them higher, no longer ex-ists.  Now  the  big  boys  don’t  want  them,  as  the  stocks  are  anembarrassment to have in their portfolios. Even if you know the prices arelow enough to represent value, nobody wants to hold losers or stocks thatare now perceived as being turkeys. Once a stock loses institutional sup-port it is very difﬁcult for the public, on their own, to drive prices substan-tially  higher.  Those  stocks  continue  to  be  laggards  dwindling  everdownward, redeﬁning the law of gravity only in that they fall at a lesserrate than before.
This  is  an  extremely  important  pattern,  one  I  hope  you’ll  burn  intoyour mind so you won’t get burned by buying these falling-dagger types ofstocks. Don’t get lured into buying by some fast-talking broker who goeson about how high the price once was. That’s the past. There’s virtually noassurance, or even an indication, that high prices of yesteryear create highprices in the future. In fact, if we look at this argument (prices are low now
CCC-Williams 2 (67-144).qxp 4/24/03 6:54 AM Page 83
A CLUE TO THE FUTURE OF THE NASDAQ
83
compared to where they once were, hence they should go back to wherethey once were), we see it is obviously ﬂawed.
The problem in discussing strictly price activity is that there’s no focuson earnings, dividends, growth within the industry, or what the company isdoing. We have short-circuited the logical rational process of making sageinvestment decisions by saying there is apparent value because prices arelow relative to where they have been. More fundamental to the situation isthat the prices are low for a reason. The back of the camel has been bro-ken, and these exponential markets don’t come back for anywhere from 6to 12 years. It takes that long for one of these stocks to get its act back to-gether, to refresh its bad name, clean up its image, and once more attractinstitutional support to its side.
A CLUE TO THE FUTURE OF THE NASDAQ
Since the sack attack of the Nasdaq, investors and friends have asked mewhat  I  think  of  this  market,  which  translates  to  “When  will  my  stockscome back?” I’d prefer not to answer the question, because I know they’dprefer not to know the answer. “The best analogy,” I tell them, “may comefrom looking at what has happened in Japan. Here,” I continue, “look atthe long-term chart of the Nikkei. Notice how similar it is to the Nasdaq.See how it had that exponential rise in 1989 (notice the decennial nine yearpattern there, too). Gee, does that look to you like the Nasdaq?” I ask.
That’s about the time their mouths drop open; then they say, “Yeah,the up move looks like the one here, but that was 