This is an e-book freely available on the internet with a simple search of the title. I read it yesterday (yes, can finish in a day, just a 100+ pages) and I would like to write a short review for keepsake.
According to Wikipedia, there was controversy over whether he really made those money because nobody had been able to verify the details of his brokerage accounts. He claimed to have made $2.2M within 18 months, from a capital of $10,000, and he documented all the key transactions in his book.
As he was travelling to different countries to dance, he relied on just a weekly Barron's subscription that details all the stock details he needs, and his daily telegram from his broker. Although he claimed that he doesn't need to analyse the fundamentals of companies, I suspect that he was downplaying the role of fundamentals. He merely stated earnings growth as his main fundamental criteria.
He also learnt from every transaction. He analysed why he made profits and losses. He read up a lot to understand how the stock market works. All these are important traits to learn from. He sums it up by saying that you can only trust yourself. He shuts himself out from all news, rumours, people, and just focuses on analysing the numbers. Something still applicable to this day is never ever be emotional about the price.
His box theory that made him famous believes that following price momentum will insure yourself against not being able to know what insiders are doing. Stock prices fluctuate in boxes and move between boxed. If it moved one box up, he would buy, and he would place a stop loss at a price below the box. The main selection criteria for him to start monitoring boxes was a spike in volume compared with previous days/weeks. This is a logical reasoning because when there is an insider rumour/information, usually the volume will spike first, before the official release of information. The problem with this approach is that you will also be buying blind -- purely based on the stock movement. And when prices increase and you are thinking whether to sell, as long as the momentum is still on an uptrend, there is no reason to sell.
He would also spead his purchases into 4 or 5 parts. A proof of concept to buy 5% of the intended total, then when he sees that the price is following his projected path, he adds another 20% each time, then he will just wait and see. When the volume drops, or when the price starts to fall to the lower box, he will sell.
He also acknowledged that this method will only work when the stock market is active. If there are many people sitting out of the market, there won't be enough stock movement for you to follow. To be understood his context, he came up with his theory in the height of a bull run, and his stop loss orders saved him from the 1957 "market crash" where stocks dropped by 50%. He was also lucky because the market recovered within a few months (which suggests that the crash was just a correction and wasn't caused by fundamental economic slowdown), and he rode the upwave for the next 1 year to reap the $2M profits. He also borrowed agressively -- 70 to 90% margin -- to fund his stock purchases. Margin purchases are risky on all counts.
His method likely only works in this one-off scenario. If somebody had done something similar in 2008-2009, he would also have been able to reap similar profits. I doubled my capital too in those years, and I am a nobody. If I had leveraged 90%, I would have multiplied my capital 10 times and will be a millionaire now. His method will also fail to work in the 1997 crash because recovery was prolonged and price fluctuations were erratic because of low volume.
Overall, it is still a good read to learn about market cycles.
