William O’Neil, founder of Investor’s Business Daily (IBD), says stocks are in the midst of a bull market that began in March.
“The market went through a 17-month devastation period, which probably was the third-worst bear market we’ve had in the last 100 years,” O’Neil told Moneynews.com’s Dan Mangru.
“On March 12, I think it turned, and that was the beginning of a new bull market.”
The Standard & Poor’s 500 Index has gained 41 percent since then.
“Markets are always perceptive. They’re looking ahead,” O’Neil says.
“And it usually occurs right at a time when the news is absolutely horrible. People are worried about the dollar, about inflation, about the government, about Iran.”
He says an IBD study of the worst 20 bear markets in the last 100 years shows they averaged 19 months in duration.
“We’re now way past that,” O’Neil says.
“You take such a battering that finally you have to start coming out of it, because things are really cheap. A lot of the value people have done very well. Some of the high technology cyclical stocks are coming back.”
What most people don’t understand is that business cycles “are always led by innovators, entrepreneurs, new inventions, and they’re still out there,” he says.
The bottom line is that “the bear market is over,” O’Neil says.
“We started the bull market in March. It won’t be a normal bull market because there was so much devastation, and some of the government proposals aren’t necessarily designed to create a lot of jobs.”
He adds that some of those proposals “can create some huge debt and then that may affect things and make recovery a little shorter.”
The government needs to cut back or slow down on some of these things they’re doing, and the economy will start recovering, he advises.
O’Neil offers several tips on stock investing.
First, “stocks are speculative, and you’re going to make mistakes,” he says.
“We say cut every single loss when a stock goes down 8 percent below the price you paid for it. It’s like taking a little insurance policy.”
Second, “learn to read charts,” O’Neil says.
“There are patterns that are repeated cycle after cycle after cycle. That has helped us a lot to be able to recognize that this stock is under accumulation. Something big is going on, and then you buy the ones with the best products, best sales, best earnings.”
Finally, “forget about the PE (price-earnings) ratio,” he says.
“Everything sells for what it’s worth. The better stock is going to sell at a higher PE, the poorer stock is going to sell at a lower PE.”
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