Guest Author - Guido Deboeck

Any one who is a fan of Bill O’Neil, who subscribes to Investors Business Daily (IBD), or who has attended one of the workshops of IBD knows that reading the column The Big Picture is a daily requirement to know at least the M in CAN SLIM. The M stands for market direction; CAN SLIM is the approach William O’Neil is promoting for stock picking and The Big Picture column in IBD is the one that discusses on a daily basis where the M is (not where it is heading). Like I wrote in my article ”…who has the ball”, if you invest and do not know where M is or who has the ball, your chances of making decent returns are less than one in five.

Like many other O’Neil fans, or CAN SLIM-mers, I have been reading The Big Picture daily for several years. Most of the time The Big Picture focuses on the main market indices, the trends in price and volume, and some selected stocks that broke out either to the upside or the downside. On occasion there is a sentence in the column about market sentiment, about economic or political events assumed to affect the mood in the market. As different authors write the column, not all Big Picture summaries are of equal quality.

It remains one of the best summaries of market direction that any one should read on a daily basis. Having said all that, it is also important to point out that zooming out of the Big Picture is mandatory. What do I mean by zooming out?

Review the Big Picture columns for the last week, the last month, over even the last few months. What can you find on Europe, the Pacific, the Emerging markets? What do you find about market directions in say China and India? Very little or nothing! Hence, when you read The Big Picture in IBD, you need to realize that O’Neil’s IBD editors are focusing entirely on the US and most of the time blind to anything happening outside the US.

This is fine if the markets in the US are the leading markets in the world; however if the markets in the US are the laggards compared to the rest of the world, then The Big Picture column is grossly inadequate to inform you about what the market direction is.

Take 2006, we are in week 16. With close to 1/3 of the year over we observe that the S&P500 is up 4.7%, the Dow is up 4.7% and the NASDAQ is up 6.7%. Compare that to the global stock market or Vanguard Global International Stock index fund (VGTSX) which is up by 11.1%, the Vanguard European Stock Index (VEURX) which is up by 12%, and the Vanguard Emerging Market Index (VEIEX) up by 15%.

In short, any money you would have put in any of these three funds that invests outside the US would have given you a return that is twice to three times what you could have made in the US so far this year.

Why is the Big Picture silent about other markets? Because the philosophy of Bill O’Neil is that “there are plenty of good American companies to invest in”. He is right but his philosophy ignores that the there are also plenty of good companies outside the US that are good buys. To be fair, on occasion some Chinese, Indian or other country companies appear in the IBD 100 list or are highlighted in other articles.

As someone who has traveled extensively abroad I guess it comes more natural to me than to Bill O’Neil to think about markets outside the US, to check daily what markets in Europe and Asia are doing, what emerging markets are advancing the most, how money flows in and out of the US into overseas markets. So far in 2006 this has been rather profitable.

You can do the same by zooming out of the Big Picture and checking daily some of the main ETFs, e.g. IEV for Europe, ILF for Latin America, EEM for emerging markets. The references below may help to find some others. Zooming out of the Big Picture will actually provide you with a more accurate view of global M.