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2

can teach a few people the basics of hitting.

There is a lot more involved, however, than just learning the basics. Even the best hitters have slumps, and some sparkling college players cant cut it in the

Table P2 Net Performance Record: Monthly Gross Trading Profit and Loss

1972 im 1974

1975

1976 1977 1978

1979

January

February

March

April

June

July

August

September

October

November

December

Rebate

transfer tax

$ 17.016$ 37.913$ <4.088> 13.261 15.730 16.187 16.752 <27.539> 34.630 35.000

15.693 30.002 7.737 21.804 11.272 21.893

8.090 33.002 37.078 44.081 54.005 56,577 53.662

6.551 103.999 269.300 25.593 61,805 81,116 13,001

*** *** ***

<i46,983>$25.6i3 90,634 37,498 113.225 33,900 38,247 <59.548> *** 95,333 39.792 $ <79.290> 46,777

196,086 47.836 33.041 3,142

10.637

26.222

9.824

18,058 **♦

5.464 16.843 40.190 232.182 97,910 16.145

$ 29.482 $ <44.926> ** 122,894

<7,567> 1.008 17,869 90.872 78.507 <7.884> 50.974 56.421 22,639 <i3.625>

105.375 116.010

52.369 36,884

<14.817> 67.280 14.961 103.094 48.854

60.952 10.140 <2.222> 11.065 64,812

TotaVYear $108,401 $366,535 $636,187 $391,271 5188.773 5408.878 5605,60 $465,517

"Figures show net income and loss from trading before office ex penses. *Began trading Ragnars firm account in July of 1972.

**No trading during this period-interim restructuring of Raenar Options Corp. ***No trading-liquidating Ragnar Options in preparation or move to Weeden & Co. ""Time off in preparation of move to Interstate Securities.

major leagues. If I have learned anything in my career, it is that knowledge alone is no guarantee for success. In addition to knowledge, you must have a management plan to implement it and the emotional discipline to consistently execute according to your plan in a way that keeps you free of psychological turmoil. Thats what this book is all about: defining the means to be a success in the markets, both personally and financially.

Unfortunately, for the sake of economy, I have to assume that the reader has a basic knowledge about the workings of the financial markets. Ive written the book primarily for aspiring professionals seeking an off-campus PhD in speculation, but also for the amateur who isnt satisfied leaving market decisions solely in the hands of a broker or money manager and for the established professional who is looking for vital information on economic and market forecasting.

There are market players and value players, both in sto cks and commodities. The market player relies on his knowledge of price movements in the market as a whole to make money. The value fundamentalist looks for buy-and-hold opportunities in specific stocks or commodities that are likely to appreciate in value over time. Most consistently successful pros are both, but more the former than the latter. The same is true for me-Im primarily a market player. Consequently, my primary focus in this book is how to predict market price movements in general and how to m anage risk in any market, equities or commodities. Of secondary importance is a method of selecting groups of stocks that merit further analysis



1981

1982

1983

1984

1985

1986

1987

$ 22.813

$78,221

$ 148.97!

$201,650

$166,573

$ 6.816

$ 40.890

$ <27,634>

56,200

89,813

140.334

43.703

31.699

62.110

15,620

<30.045>

4.347

156.169

<14.856>

87,672

65.600

11,039

30.527

<38.935>

86,402

91.46!

42.442

%.229

<I,7I8>

4,063

30.124

71.802

25,512

41.006

<29.870>

<5.497>

<26.188>

121.643

16.958

16.397

86,440

54.504

173,507

151,067

74,708

<27.247>

<1,219>

9.006

214,345

17,744

<93.95l>

<73.84!>

<34.668>

<20,558>

83.926

<5.755>

89.118

26.861

130.856

107.170

84,441

11.360

<9,490>

<40.270>

68,554

<3.I94>

180.533

69.610

93.368

19,102

84.629

33.933

74.167

<29,924>

853,908

18,452

104.116

36.114

<I2,050>

86.623

60,299

178.655

120,651

3,564

<349.722>

28,572

<9,471>

122,015

<3.659>

259,110

69,894

116.514

10.391

<5,125>

11.662

74,734

31.381

$984,945

$729,038

$1,911,633

$769,672

$324,721

$263,405

$265,320

$87,488

Trading capital alloted to each period: 1972 through 1976. $250,000; 1977, $500,000; 1978 through 1986, $2 million; 1987, $100,000.

and an explanation of the essential measure of when specific stock prices are likely to go up. But for detailed analysis of specific stocks, Ill defer to any of the many good books on stock picking, and to the many bright and talented analysts who spend their lives evaluating companies. Thank goodness they exist, for they provide useful, albeit often contradictory, information.

My experience in the markets dates back to 1966. Thus far, it has been a very rewarding career. I have developed a way to make money in the financial markets without pouring over countless corporate financial statements or trying to balance the many divergent opinions of "the experts."z In the first part of this book, Ill explain the knowledge behind my approach to playing the markets -thats the easy side of it. In the second part, Ill explain what it takes to put all the knowledge together and make it happen-and thats the tough side of this business.

There has been an unusual, yet common, occurrence that has taken place since this book was originally published: the markets have remained the same because they always change. The stock market has become an institutionalized "bubble" type of investment instrument. The years I learned to trade were populated by volatile, up-and-down markets. During the years 1966 through 1974, there were four up years and five down years. Since 1974, the market has been up 15 years and down only 3. The extent of these three drops were minor, with only a 7.3% drop in 1977, 4.9% in 1981, and 3.1% in 1990 (based on the total return of the S&P 500). In the last 10 years, the total return for the S&P 500 has been 19.1 % per year annualized. The stock market, like the real estate market from the 1940s to the midl980s, has become a "guaranteed" investment vehicle.

Because of this, CD investors have chosen the stock market over a 396 yield in CDs. The "no lose" psychology in the public and institutional mind will eventually cause the greatest losses in peoples wealth since the 1930s. The reasons are not difficult to understand. In 1975, the Fed and President Carter chose inflation as the way to return "growth" to the U.S. economy. In the 1980s, inflation was replaced by debt to create "growth." In the 1990s, President Clinton is trying to return to inflation. The reasons the stock market did well between 1990 and 1993 are simple:

1. Lower tax rates for corporations from an average f 43% to 37%.

2. Lower interest rates, with the Fed Funds rate dropping from 10% in March 1989 to 3% in the last quarter of 1992. This caused a guaranteed increase in earnings to corporations. Take note that America is a leveraged instrument-for every one dollar of pre-tax profit, corporations (in 1990)



had 70 cents in interest expense, which has since dropped to 50 cents. 3. Increased productivity (people were fired)!

This is not a growing U.S. economy, but rather a temporary increase in corporate earnings. This will result in a major blow to corporate earnings under Clinton, as interest rates and tax rates rise! I suggest you read carefully Chapter 9 and 10 for an understanding of what is going to occur fundamentally. Also, the technical chapters (6 and 7) fully apply to todays markets.

I sincerely hope that this book helps those who read it, and wish you the best of luck. In my opinion, for the remainder of the 1990s, youll need it!

ACKNOWLEDGMENTS

I was stimulated to write this book when I saw the movie Wall Street. The media often present such a distorted view of what life is like in this business that I wanted to counter that view. With a lot of hard work, some good decisions, a couple of laughs, and a few good friends, it is possibl e to be both a happy and successful market professional without turning into the kind of villain presented in the movies.

What started as an idea after watching a movie turned into a much larger project than I expected. Without the help of my family, friends, and employees, I couldnt have done it. First of all, I want to thank T. Sullivan Brown, whose writing ability and similar philosophic beliefs made it possible to produce a book I am truly proud of. I am also grateful to my partners, Norman Tandy and Douglas Kent, whose help and recommendations are part of the book.

I can never thank my wife Teresa enough. Without the dedication, patience, and 1 oyalty she has shown throughout my career, I couldnt have developed skills worth writing about. I also want to thank my two daughters for their love, understanding, and interest in the project.

Thanks, too, to all my employees, past and especially present, who have helped me in so many ways, too numerous to mention. And thanks to all those friends whose care and concern has been an integral part of my personal growth and achievement.



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