第 1 章
The Market Maestro's Playbook
Martin Zweig's journey into Wall Street wizardry began with an unlikely catalyst-baseball cards. As a first-grader in East Cleveland, Ohio, young Zweig meticulously tracked Cleveland Indians players' statistics, developing an early affinity for numbers that would later revolutionize market analysis. When his uncle gifted him six shares of General Motors at age thirteen, Zweig was hooked-not just on the dividends, but on the daily dance of stock prices. After witnessing the devastating 1962 market crash as a college sophomore, he made a pivotal resolution: he would develop systems to anticipate market turns and protect investors from such catastrophes. This determination culminated in one of Wall Street's most remarkable records-Zweig's newsletter achieved an 898.9% return through 1995 (16% annually), and he famously preserved capital during the 1987 crash when his portfolio gained 9% on Black Monday while the Dow plunged 22.6%. His secret? A disciplined, indicator-based approach that combines monetary policy analysis, market momentum tracking, and contrarian sentiment reading-a methodology that transformed a modest investment newsletter into a financial empire managing billions.
第 2 章
Don't Fight the Fed: The Monetary Maestro's Mantra
Monetary conditions exert enormous influence on stock prices, with Federal Reserve policy being the dominant factor determining market direction. When interest rates fall, stocks benefit from reduced competition from fixed-income investments and lower corporate borrowing costs. When rates rise, the opposite occurs. This relationship forms the foundation of Zweig's most powerful indicator: the Prime Rate Indicator.
The Prime Rate Indicator uses 8% as a dividing line between high and low rates, with different rules for buy and sell signals depending on which side of this threshold rates sit. Testing showed remarkable results: 91% of buy signals produced profits, with $10,000 growing to $610,554 during bullish periods (18.7% annually) versus just $140,826 with buy-and-hold (6.5% annually). Combining this strategy with money market investments during bearish periods would have turned $10,000 into $1,913,660 over 42 years.
Zweig's Fed Indicator tracks changes in the discount rate and reserve requirements, assigning positive points for easing actions and negative points for tightening. The ratings range from Extremely Bullish (+2 or more points) to Extremely Bearish (-3 or more points). Testing from 1958-1996 showed "extremely bullish" periods delivered extraordinary returns-a $10,000 investment grew to $190,906 (28% annually) in Zweig's unweighted index.
The Installment Debt Indicator measures year-over-year changes in consumer installment debt, with the 9% level serving as the key threshold. When debt growth falls below 9%, it generates a buy signal; when it rises to 9% or higher, it triggers a sell signal. Testing showed buy periods returned 12.1% annually versus just 1.2% during sell periods.
Zweig combines these three indicators into a comprehensive Monetary Model that requires minimal maintenance. The model generates buy signals at 6+ points and sell signals at 2 points or less. All eleven buy signals since 1954 generated profits, including five with gains exceeding 50%. Had you invested $10,000 only during bullish periods and earned interest during bearish ones, it would have grown to $1,026,836 (11.7% annually)-vastly outperforming buy-and-hold's $142,636 (6.5% annually).
The model's extremes are particularly telling: at maximum bullishness (8 points), the market rose in fourteen of sixteen instances (87.5% success rate), with the two losses being negligible. At maximum bearishness (0 points), stocks fell in seven of ten cases, with the three exceptions showing minimal gains. The lesson is clear: "Don't fight the Fed."
第 3 章
The Trend Is Your Friend: Momentum Indicators That Matter
In analyzing market momentum, Zweig discovered that strength tends to beget greater strength. Every bull market begins with a tremendous rally that reverses market psychology and frustrates those who missed it. This initial surge typically feeds on itself, climbing steadily higher for six months or more-like a rocket needing sufficient power to break through the atmosphere.
The Advance/Decline Ratio tracks the relationship between rising and falling stocks. When advances overwhelm declines by a ratio of 2-to-1 over a ten-day period, it signals extraordinary momentum. Since 1953, this rare signal has occurred only eleven times, with remarkable results: three months after such signals, the S&P 500 rose by an average of 7.5%, while Zweig's unweighted index gained 10.6%. Six months later, the gains were even more impressive: 15.2% for the S&P and 19.2% for the unweighted index.
Another valuable momentum measure is the ratio of up volume to down volume. When 90% or more of daily trading volume occurs in rising stocks-a 9-to-1 up/down volume ratio-it signals significant positive momentum. Every bull market in history has launched with buying stampedes including one or more 9-to-1 up days. A "double 9-to-1" signal (two such days within three months) is especially bullish, with the Dow rising an average of 17.2% one year later.
For continuous guidance, Zweig employs the Four Percent Model, which generates a buy signal when the weekly Value Line index rallies 4% or more from any weekly close, and a sell signal when it drops 4% or more from any weekly peak. This model forces you to stay with the market trend-you can't avoid buying into rising markets or selling falling ones. From 1966 to March 1996, this approach produced annualized returns of 16.2% for buys and 13.5% for sells, vastly outperforming the Value Line Index's buy-and-hold return of just 2.7%.
The model's strength lies in cutting losses short while letting profits run. The average gain per trade was 4.7% for buys and 2.4% for sells, with average holding periods of 80 and 48 days respectively. Had you traded both long and short sides since 1966, an initial $10,000 would have grown to $425,962, excluding dividends-powerful evidence that "the trend is your friend."
第 4 章
The Super Model: Combining Monetary and Momentum for Market Mastery
Having developed strong indicators based on monetary conditions and market momentum, Zweig logically combined these approaches into one superior model-the Super Model. This elegant combination starts with the Monetary Model (which grades from zero to 8 points) and adds the Four Percent Model (awarding it 2 points when on a buy signal and zero when on a sell).
The rules are simple: When the Super Model reaches 6 points or more, it gives a buy signal and the investor goes 100% into stocks. The buy signal remains until the model drops to 3 points or less, triggering a sell signal where the investor moves 100% into money market instruments. This approach allows reasonable trade-offs between monetary and momentum indicators when they aren't perfectly aligned.
The model's performance from 1966 through March 1996 was remarkable. A $10,000 investment following only the buy signals would have grown to $219,564 in about 1812 years-an 18.1% annual return. Conversely, investing during sell signals would have reduced $10,000 to just $1,746-a 14.1% annual loss. By comparison, a buy-and-hold strategy yielded only 4.6% annually.
Thirteen of fourteen buy signals were profitable, with the only loss being a minimal 1.6%. Most buy signal gains were substantial-43.8% beginning in 1966, 32.2% from May 1970, 76% from October 1974, 60.9% from September 1981, and 65.3% from October 1984. The model also excelled with sell signals, keeping investors out of the worst bear markets, including the 1987 crash when it anticipated "Black Monday" before a 30.3% drop.
Following the Super Model from 1966 to 1996 would have transformed $10,000 into $719,947-a 15.3% annualized return. By comparison, a buy-and-hold approach with the S&P 500 (including dividends) would have yielded only $85,474, or 7.4% annually. This means the model produced more than double the return while being out of the market (and at zero risk) about one-third of the time.
Zweig emphasizes that fighting major market trends is an invitation to disaster, sharing the cautionary tale of an investment advisor who turned bearish in early 1982 and missed a 400-point Dow advance by refusing to acknowledge the market's bullish signals. The fatal flaw was clinging to a preconceived market direction rather than adapting to changing conditions-a common investor trap that stems not from ignorance but from ego.
第 5 章
When to Part Company with the Crowd: The Power of Sentiment
At bear market bottoms, conditions are typically bleak. The economy is usually in recession, corporate profits are tumbling, and investors have suffered huge losses. Bad news dominates headlines, and most people can only envision the downtrend continuing. It's precisely amid this doom and gloom that bear markets bottom and bull markets begin-when the majority is most pessimistic.
As bull markets progress, many investors find themselves shut out, thinking "I'll buy on the next decline." But these declines are never large enough because too many bears on the sidelines eagerly jump in after just a 2% pullback. The flash point comes when the crowd gets so optimistic they've depleted their cash reserves-the ammunition needed to push stocks higher disappears.
Zweig tracks several sentiment indicators to identify these extremes. The mutual funds' cash/assets ratio reveals institutional investors' positioning-high cash percentages signal extreme pessimism (bullish for stocks), while low reserves indicate extreme optimism (bearish). From 1956-1996, there were 34 extremes in this ratio, and in 26 cases, the Dow moved opposite to what funds expected-a net loss of 4,538 Dow points for those following the crowd!
Similarly, investment advisors' opinions serve as a contrary indicator. Investors' Intelligence has monitored advisory services since 1963, and their record is dismal: in 66 instances of extreme sentiment over 31 years, advisors were wrong 63 times-a 91% failure rate. When bullish sentiment drops below 40%, it often signals buying opportunities, while readings above 75% typically precede declines.
Zweig also tracks bullish and bearish advertisements in Barron's magazine, finding that low counts of bullish ads (around 7 or fewer on a four-week basis) often precede bull market advances. Secondary stock offerings provide another sentiment clue-their proliferation during bull markets signals excessive speculation, while their scarcity indicates pessimism that often precedes bottoms.
These indicators combine into Zweig's Sentiment Index, which ranges from 0 (completely bearish) to 200 (completely bullish). Readings above 140 show excessive pessimism (extremely bullish for stocks); 120-139 are bullish; 100-119 are neutral; 76-99 are moderately bearish; and 75 or less indicates excessive optimism (extremely bearish). The most valuable readings occur at extremes, when investor sentiment becomes overwhelmingly one-sided.
第 6 章
Seasonal Patterns: Timing the Market's Calendar Quirks
If markets were purely rational, we wouldn't expect abnormal behavior around holidays or specific calendar periods. Yet Zweig's analysis reveals extraordinarily consistent patterns that defy random movement theories.
The most startling observation involves the last trading day before major holidays. Over 223 pre-holiday trading days, the market rose 193 times (83%), fell only 28 times (12%), and was unchanged 12 times (5%). The most bullish tendencies appear before Labor Day (market up 31 times, down only twice) with an average gain of 0.64%, and New Year's (up 31 times, down once) with an average gain of 0.53%.
Had you invested $10,000 on just pre-holiday trading days since 1952, you'd have $27,188 by 1985 despite being in the market only 233 days total-less than one full trading year. This represents an extraordinary 189.7% annualized return.
Day-of-week effects are also significant. While the Dow rises 52.5% of all days, Mondays lag significantly at only 41.6%, while Fridays outperform at 59.8%. This Friday strength aligns with pre-holiday weekend patterns, while Monday weakness likely reflects the common "blue Monday" emotional syndrome.
Monthly seasonal patterns show December as the strongest month, with the Dow rising 71.7% of the time, followed by January (65.6%), August (64.6%), and July (61.6%). September performs worst, rising only 40.4% of the time. Looking at percentage changes, July leads with average gains of 1.85%, followed by January (1.62%), December (1.44%), and August (1.20%).
The market also shows remarkable strength during month transitions. Norman Fosback's study found stocks perform abnormally well during the last trading day of the month and first four trading days of the following month. From 1928-1975, investing $10,000 only during these five-day periods would have grown to $569,135 (43.8% annualized).
The presidential election cycle significantly impacts performance too. Pre-election years (two years before an election) produce the highest returns, averaging 7.0% annually with markets rising 70% of the time. Election years follow with 4.8% average returns, while post-election years underperform at 3.3%, and midterm years perform worst at just 0.3%.
第 7 章
Spotting Major Bull and Bear Markets Before the Crowd
The most significant profits and losses occur during major bull and bear markets, though these dynamic periods are relatively rare-only about 20% of market time is spent in active bull phases and 10% in severe bear markets. The remaining 70% consists of neutral trading ranges or minor movements. Understanding this time distribution is crucial for investors, as it highlights the importance of being properly positioned during these critical market phases.
Zweig identified two key ingredients that combine to signal major bull markets: the Super-Advance/Decline Ratio and the Super-Bullish Fed Indicator. The Super-Advance/Decline Ratio occurs when advancing stocks outnumber declining ones by 2-to-1 over ten days, indicating broad market participation and strong momentum. The Super-Bullish Fed Indicator activates when the Fed Indicator rises from zero or negative to +3 or higher, suggesting favorable monetary conditions. When these conditions occur within three months of each other-a "double-barreled buy signal"-they've consistently flagged the early stages of significant bull markets. This combination effectively captures both technical market strength and supportive monetary policy.
Since 1932, these rare double-barreled buy signals have appeared just twelve times, with notable occurrences in 1942, 1949, 1962, 1974, and 1982. Without exception, they've come early enough to catch substantial portions of bull market advances. The S&P 500 has averaged gains of 26.1% twelve months after these signals, with some instances producing returns exceeding 40%. Remarkably, all of the market's gains since 1926 have occurred in the eighteen-month spans following these signals, while the market actually lost money during all other periods. This pattern demonstrates the signal's historical reliability and the concentrated nature of market gains.
For bear markets, Zweig identifies three critical conditions that have been present during every significant decline of the past seven decades. The first is extreme deflation, marked by a 10% drop in producer prices, which often signals severe economic distress. The second is ultrahigh price/earnings ratios, specifically when the S&P 500 P/E reaches 18 or greater, indicating overvaluation. The third is an inverted yield curve, where short-term interest rates rise above longer-term rates, historically a reliable recession predictor. Only one bear market (1929-32) had all three negative conditions present, and it was the worst in history, with the market losing nearly 90% of its value. Four others had two conditions and averaged a 38.5% decline, significantly exceeding the 29.4% average decline of bear markets with only one negative factor. These indicators provide valuable early warning signs, typically appearing several months before major market downturns.
The effectiveness of these indicators lies in their ability to combine multiple market perspectives - technical analysis, monetary policy, valuation metrics, and economic indicators - to provide a comprehensive view of market conditions. Successful investors can use these signals as part of a broader strategy to adjust their market exposure during critical turning points.
第 8 章
The Art of Stock Selection: Finding Winners in Any Market
Zweig's stock-picking procedure focuses on four key variables: strong growth in company earnings and sales, reasonable P/E ratios relative to growth rates, insider buying (or lack of heavy selling), and strong price action. The process begins with scanning daily financial newspapers for quarterly earnings reports, looking for companies showing reasonable gains in both sales and earnings.
When evaluating P/E ratios, Zweig examines earnings trends over several years, avoiding extremely high P/Es as they leave no room for error. Companies with moderate, steady growth rates (around 15%) can actually be advantageous investments, as ultra-high growth attracts competition that eventually destroys profit margins. He considers debt levels carefully, as companies with high debt have fixed interest costs that can devastate earnings during business downturns.
After screening for fundamentals, Zweig evaluates a stock's price action. In strong markets, he eliminates stocks that aren't keeping pace. If the market is up 15-20% over six months, he's skeptical of any stock significantly underperforming. The best candidates show clear uptrends with a series of higher highs and higher lows, with ideal buying opportunities coming during short-term pullbacks of 5-10% that don't violate recent prior lows.
Insider trading provides another valuable filter. Zweig's 1974-1976 study showed stocks with insider-buy signals gained 99.5% over six months while the Dow rose only 24.3%. About 62.5% of these insider-buy stocks beat the market. Conversely, stocks with insider-sell signals gained just 3.6%, with only 37.1% outperforming the market.
Real-life examples illustrate Zweig's methodology. He recommended Durr-Fillauer Medical in May 1980 at $7.50 per share, attracted by its stable business, excellent long-term growth, and bargain P/E of only 8. The stock performed well, and he sold in mid-1981 for a 105% profit. CACI, Inc., a provider of analytical and computer software techniques, showed spectacular earnings growth-up 118% in one quarter with a five-year annualized growth rate of 64%. Despite this growth, the P/E was only 10. Zweig sold half at a 46.3% gain and the remainder at a 200.9% profit-before the stock eventually collapsed to just $2 per share in 1984, proving that selling "too soon" was actually the right move.
第 9 章
Managing Risk: The Stop-Loss Secret to Sleeping Well
Even the best investors make mistakes. The key is having a system to limit losses while letting profits run. Since the Hulbert Financial Digest began rating investment advisories in 1980, Zweig never had a down year-a claim only one other service among 145 could match. His secret? He used stop points on every single recommendation.
A stop order instructs your broker to sell your stock "at the market" once it hits your predetermined trigger price. As Jesse Livermore wisely noted: "A loss never bothers me after I take it. I forget it overnight. But being wrong-not taking the loss-that is what does damage to the pocketbook and to the soul."
Zweig typically set stops 10-20% below purchase prices, giving more room to volatile stocks and less to conservative ones. Stops prevent catastrophic losses-a 20% drop requires a 25% gain to break even, but a 90% drop would need a 900% gain to recover. He often placed stops just below previous lows or trendlines, though this art isn't perfect. Sometimes he got stopped out right before a stock rebounded, but far more often, stops protected against further declines.
The second use of stops is to lock in profits after a stock rises. Zweig gradually raised the "trailing stop" as the stock climbed, protecting gains while allowing room for normal fluctuations. When determining where to place trailing stops, he considered multiple factors: overall market conditions, the stock's trading behavior, previous minor reaction lows, and upward trendlines.
His First Data Resources trade exemplifies this approach. After purchasing at 15 with a 1334 stop, he progressively raised the stop as the stock advanced through various trading ranges and breakouts. When FDRI hit 27, he raised his stop to 2234, both to limit potential losses to less than 20% and to position it just below the upward trendline connecting previous lows. Fortunately, American Express acquired FDRI at $38.25, yielding a 155% gain.
Even when stops occasionally took him out near a minor reaction's bottom, Zweig maintained this discipline. In the long run, stops enable investors to cut losses to reasonable size and let profits run-nothing is more important in money management.
第 10 章
The Intelligent Investor's Playbook: Zweig's Final Wisdom
Zweig emphasizes using his timing models-Monetary, Four Percent, and Super Model-to identify bullish and bearish market trends. He warns against buying on significant declines when markets act poorly for extended periods, though minor dips in strong markets can present buying opportunities. Even in bullish environments, periodic portfolio maintenance remains essential, particularly when companies report mediocre earnings, insiders sell, or P/E ratios climb too high.
During neutral or mildly bullish market conditions, Zweig recommends being less than fully invested and favoring conservative stocks with earnings stability and low P/E ratios. When indicators are mixed, he prefers defensive positions and holding cash equivalents. When indicators are very negative, he advises being mostly out of stocks.
Diversification is essential, with the appropriate level depending on portfolio size. For under $5,000, Zweig recommends no-load mutual funds instead of individual stocks. For $5,000-$20,000, buy 4-5 stocks; for $50,000, aim for 8-9 stocks; at $100,000, about a dozen positions; and at $250,000, roughly 20 stocks. Academic studies show that diversifying across different industries provides about seven-eighths of total diversification benefits once you reach eight stocks.
While reviewing all earnings reports in daily newspapers is ideal, investors can filter according to their preferences. Conservative investors might focus only on NYSE listings, while aggressive investors could concentrate on over-the-counter stocks with less competition. Another approach is screening by quarterly sales-above $100 million for larger, established companies or as little as $10 million for smaller, more aggressive plays.
Most importantly, never hold positions that keep you awake at night or are too large. Small losses can be recovered, but big losses are devastating-losing 10% requires an 11% gain to break even, while a 90% loss requires a tenfold increase to recover. Conversely, in bull markets, hold onto profitable positions and consider buying more. Don't sell too soon and miss major gains, like those who sold in December 1990 or January 1991 and missed doubling their money in the following months.
Zweig's final rules: Buy strength, sell weakness, and stay in gear with the tape. Following these principles won't guarantee millions, but should help you consistently come out ahead while sleeping soundly-a worthy goal for any investor navigating the perpetually uncertain waters of Wall Street.
