Scott S. Smith:You started out as a stockbroker and learned what really worked in picking stocks. That led you to start firms that provided information useful to investors. But it's an audacious leap to go from that to challenging the near-monopoly of The Wall Street Journal. What made you think you could succeed?
William J. O'Neil: Because we knew from our 25 years' experience building models of all successful companies and providing research to institutional investors that The Wall Street Journal tables and stats could not help anyone make money in the market; all they provided were quotes, dividends and P/Es [price-to-earnings ratios]. Our research proved P/Es were overrated and misunderstood, and dividends really weren't relevant. Our models discovered seven variables were key, none of which the Journal carried in their Associated Press Tables. The seven variables are:
A-Annual earnings per share should increase materially for each of the past three years.
N-The company has a New product or service and is about to hit a new price high as it emerges from a broad basing (price consolidation) area.
S-Supply and demand: number of shares outstanding in the floating supply and big volume demand
L-Leader in market with relative price strength in top 20 percent of all stocks
I-Stock possesses good Institutional sponsorship and is part of a leader sector group in the market.
M-Market, knowing when you're in an up trend or major down trend in the general market by interpreting the general market averages.
Dating back to 1953, we've studied the most successful companies each year-the ones that not only doubled or tripled in price but also went up tenfold and more-and we continue to find these same seven common characteristics among winning stocks. That provides investors important guidelines in their search for top stocks.
Smith:But people are so resistant to telemarketers and junk mail. How have you been able to reach potential subscribers with your message?
O'Neil: Our marketing efforts resonate with a specific audience. We've targeted people who are self-starters and early adopters of techniques and information. There's a population of these independent thinkers that's attracted to an investment tool that's based on research rather than opinion and that allows them to make informed decisions.
Smith:You went into publishing without a background in that field. What have been the surprises in trying to succeed in a new market?
O'Neil: We were surprised that it cost twice what we thought to build and grow the paper-but we've been able to handle that. My advice to those going into business: Make sure you've got plenty of reserves, and double what you think your expenses will be.
Another surprise was that ad agencies are not very interested in obtaining good leads or product sales for their clients but settle for older-line publications with wide reach, which in many cases are very expensive, less efficient, and never really measured in terms of sales results. We got Dell Computer advertising five years ago because they measure everything and found out that we out-pulled most major newspapers.