David Ryan – Treasure Hunt

David Ryan – Treasure Hunt

This article is part of our ‘Guru’ series – profiles of successful traders, with takeaways for the UK private investor.
You can find the rest of the series here.

Today’s post is a profile of Guru investor David Ryan, who appears in Jack Schwager’s original Market Wizards. His chapter is called Treasure Hunt.

David Ryan

David Ryan

David Ryan

David Ryan began to invest at the age of thirteen, when his dad bought him 10 shares of a firm that made candy bars.

By the time he was sixteen, he was subscribing to a weekly chart service and attending investment seminars by William O’Neil.

O’Neil appears in Jack Schwager’s original Market Wizards.

  • His chapter is called Treasure Hunt.

Schwager says:

In college, he read every book on the stock market he could find.

Ryan recommends quite a list:

On top of the list is O’Neil’s book, How to Make Money in Stocks.

Others include:

  1. How I Made Two Million Dollars in the Stock Market by Nicholas Darvas
  2. Reminiscences of a Stock Operator by Edwin Lefevre
  3. How to Trade in Stocks by Jesse Livermore
  4. Super Performance Stocks by Richard Love
  5. Profile of a Growth Stock by Kermit Zieg and Susannah H. Zieg
  6. Winning on Wall Street by Marty Zweig
  7. Secrets for Profiting in Bull and Bear Markets by Stan Weinstein (which we’ve covered here).

I’ve ignored a couple of books on Elliott Wave analysis.

All those books are good, but you learn the most from the market itself. Every time I buy a stock, I write down the reasons why I bought it.


Ryan idolised O’Neil and managed to get a job at his firm after college in 1982.

  • It wasn’t an analyst job, but Ryan studied hard at night and at weekend.

I studied historical models of great winning stocks to ingrain in my mind what a stock looked like before it made a major move.

His first account at running his own account went well for a while, but he played a bear market too aggressively and gave all the winnings back.

I also made the mistake of buying stocks that were overextended. I was buying stocks that had already moved 15 to 20% above their price bases. You should only buy stocks that are within a few percent of their base.

The single most important advice I can give anybody is: Learn from your mistakes. That is the only way to become a successful trader.

After four years he as a VP and O’Neil’s assistant.

in 1985 he won the U.S. Stock Investing Championship, with a return of 161%.

  • The next year he came second with 160%.
  • In 1987 he won again with more than 100% for the third year in a row.
Selection process

Ryan sees investment as a game – a treasure hunt.

I start out by going through the stock charts and writing down the stocks with strong technical action.

In a week I probably go through about 4,000 charts. Avoid stocks under $10 – they are usually down there for a reason.

I look at the five-year earnings growth record and the last two quarters of earnings relative to the previous year’s levels. The quarterly comparisons show you if there is any deceleration in the earnings growth rate.

He uses O’Neil’s EPS (earnings per share rank).

I want it as high as possible – at least above 80, and preferably above 90. A lot of stocks I buy have an EPS rank of 99. In my experience, markets usually anticipate.

People think that the price of the stock would run up well before the earnings growth starts to be extremely positive. Looking at the biggest winners, we found that in many cases, the earnings had been on the table for a while.

The relative strength is very important. Again, I look for at least above 80, and preferably above 90.

Schwager wonders how Ryan avoids stocks that are about to top out (which would have good relative strength).

I am usually able to avoid that because I generally rule out stocks that are overextended from their base. The higher the relative strength the better. Once the relative strength starts falling off, I usually get out of the stock.

I would probably place relative strength first, then EPS. Many times the relative strength takes off before that big earnings report comes out. I also want the industry group to be in the top 50 [of 200, for relative strength].

I am looking for stocks with less than thirty million shares outstanding and preferably only five to ten million shares. Stocks with more than thirty million shares have more supply, so it takes a lot more money to move them.

You want some institutional ownership, because they really power a stock higher, but you don’t want too much sponsorship. I would say 1% to 20% is the ideal range. There should also be something new that attracts people to that stock.

On average, there are probably only about seventy stocks that meet the criteria. Then I cut those seventy down to about seven. I pick those stocks that have all the characteristics plus a great-looking base pattern.

I also look at how the stock has done in the past. A lot of the stocks I buy have already doubled and tripled before I buy them. That shows me there is something very unusual going on, and if the situation is that good, a doubling may just be the beginning.


Schwager notes that Ryan’s approach is basically the O’Niel CANSLIM methodology.

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