The founder of Investor’s Business Daily, Bill O'Neil, believes that the U.S. economy is "stabilizing," and that there are investments worth making now.
O’Neil recently published the fourth edition of his book, “How To Make Money In Stocks: A Winning System in Good Times and Bad.”
He told Newsmax.TV that he thinks the market has already hit bottom, meaning another significant correction like that seen in March is not likely.
Yet, simply heading back into the market without an understanding of how to invest is risky, whatever the direction of stocks from here, he says.
“Most people had a lot of trouble in 2000 to 2003 and in 2008 and, if nothing else, they should realize that if they really lost a lot some money, and I think a lot of people did, they need to sit down and get serious and really studying and learning about what they are doing.
Although the bear market rally which started in March has pulled back a bit, it’s not too late for investors to partake in the overall rally, O’Neil says.
Two key ideas stand out, among the rules explained in the book.
“We have one simple rule … and that’s to cut losses short. Our number is 8 percent and that’s based on studying cycle after cycle.”
As for which stocks to buy, that’s easy, too. They need to make money, and that income has to be growing.
“Earnings, the rate of increase in earnings per share …that’s essential in all of them,” he says.
Innovative companies which have strong earnings growth — not just strong price to earnings ratios — are the firms which will lead the return to a bull market, he says.
"The economy is stabilizing a bit, but still has problem," said O'Neil. "Part of this is the government-caused problem."
O'Neil observed that the federal government unwisely forced banks to make loans on the subprime market, a pattern that accelerated in the late 1990s.
"The government itself brought about this severe correction," O'Neil says. "That is something the market is coping with now."
The Federal Reserve and its chairman, Ben Bernanke, have done a good job of stabilizing the banking system, but the Congress and the White House are not helping jump start the real economy, he said.
“I think Bernanke has done an excellent job. He stepped in and stopped the panic in the banks. The banks are not going to go bankrupt,” O’Neil says.
He says that the government is "not helping the private sector," with its $9 trillion dollars in new spending, which is something that "a lot of people are now starting to realize."
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