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A BUSINESSWEEK BESTSELLER! Anyone can learn to invest wisely with this bestselling investment system! Through every type of market, William J. O’Neil’s national bestseller, How to Make Money in Stocks, has shown over 2 million investors the secrets to building wealth. O’Neil’s powerful CAN SLIM® Investing System—a proven 7-step process for minimizing risk and maximizing gains—has influenced generations of investors. … More >>
How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition
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{ 5 comments… read them below or add one }
William O’Neil the author has just published his magnum opus and its a wonderful book to show the small investor how to attain wealth in an effective and systematic fashion.
This book is a guide to understand how the Stock Market really works. William O’Neil perfected his CAN-SLIM method in the 1960’s to make himself a multi-millionaire. He felt that his investment system was something most people could learn so he launched a newspaper in 1984 called Investment Business Daily (IBD) to teach small investors how to invest well and increase their net worth significantly.
During the go-go Bull market years of the 1990’s IBD reached a subscription level of over 300,000 subscribers and competed head-on the the venerable and established Wall Street Journal (WSJ). I am convinced IBD is the superior newspaper because it specifically teaches the small investor how to outperform Mutual Funds by using the small investor’s main advantage – the ability to get in and out of the market quickly. This advantage when properly used allows the small investor to avoid the major damage of a huge Bear market downturn such as in the case of 2001-2002 and also in 2008. Mutual Funds being so heavily invested with billions of dollars of stocks are not so nimble; consequently they usually take heavy losses during large market downturns such as in 2008.
His system is called CAN-SLIM. It is a complex set of rules; so allow yourself two years to learn the basics. You will have to master the reading of technical charts and understand fundamentals of various companies. You need to understand concepts such as Sales, Earnings, Return on Equity (ROE) , how Mutual Funds operate, accumulations, distributions, relative price strength (RPS), cups and handles, breakouts, 50-day moving averages, base failures, puts, calls, pivot points, double bottoms, growth stocks vs value stocks, accumulation days etc. Understanding these concepts is not for the faint hearted; there is a lot to learn.
O’Neil will show you the way with his book. Unfortunately the rules are very, very counter-intuitive and contrary to so called “conventional investment wisdom” and what most investment pundits advise. It will probably go against everything you have been taught in life. That is why most people have difficulty applying CAN-SLIM methods because it is so counter-intuitive. For example: What really works well is to buy high and sell higher. We are conditioned to buy low and sell high. This latter approach is not effective in the stock market but most people buy in the “conventional wisdom” manner and in many cases get clobbered. 98 % of individual investors buy stocks this way and it is not effective. You also need to know when the Bear Market is coming so you can exit and go to cash for safety. IBD provides the early warning indicators when the Bear is near.
There is much to learn in order to win against the Stock Market and how it really works. But it can be done ! To do so you need to be a hard worker and be able to learn from your mistakes. Learning CAN-SLIM is similar to learning upper-level math courses such as statistics. There are no royal roads or shortcuts in learning and applying CAN-SLIM rules. It is not an easy subject to learn. You should also have access to the Enhanced Daily Graphs to see both the Fundamental and Technical Analysis displayed on one page. You will need these tools to win this financial war; these tools provide the key financial intelligence to let you know what is really occurring in the world of the stock market.
I also recommend you keeping notes in a journal of some type. This will help you to learn the skills needed. You must also develop a skill in reading the charts to understand the psychology of what is happening in the market place. There are about 100 charts of past winners to study which provide the guide for picking future stock winners if you are able to recognize the patterns. If you can read the past history well you can predict the future. It will appear like you are looking at Latin and Greek symbols at first and will seem unintelligible for awhile but after much practice you will readily start seeing patterns. These patterns provide the entry and exits points for effective stock buys.
Why is learning this method so hard ? Here are some of the key CAN-SLIM rules that must be mastered if you do not want to financially hurt by the Stock Market:
1) Buy stocks above $ 20 per share at the optimum pivot point in a buying surge during a strong Bull Market and sell at a higher price.
Read the investment classics by Jesse Livermore, Gerald Loeb, Benard Baruch and Nicolas Darvas. They are the pioneers in this field and the teachers that William O’Neil discovered after reviewing over 2000 stock investment books in the early 1960’s. Only few authors such as Jesse Livermore and Gerald Loeb were deemed worthwhile. William O’Neil learned their methods, added some of his findings and crafted their wisdom into a complete and effective but complicated system called CAN-SLIM.
2) Always cut your losses at 7 – 8 % when buying.(Most important rule).
3) If initially successful; pyramid your buying up.
4) Stay in cash during a Bear Market.
5) Never argue with the Stock Market; it is always right.
6) Concentrate your stock buying and watch your stocks closely.
7) Do not over diversify.
9) Keep your ego in check. Stay objective. Don’t celebrate too much when you win; Don’t get depressed when you get losses.
10) Keep your gains big & Keep your losses small.
11) Buy high and sell higher (very counter-intuitive !)
12) High diversification of stocks ensures mediocrity; Concentration in the right stocks leads to large gains.
13) Yearly gains of 20 – 100 % are possible in strong Bull markets while in Bear Markets your capital is preserved.
I have also subscribed to the Wall Street Journal (WSJ) for twenty (20) years. But the WSJ does not provide the information that is in IBD. IBD is unique and is an investment education conduit for people who are active learners and who wish to increase their net worth significantly.
The WSJ has some good in-depth articles on business news but doesn’t inform the small investor when to be in or out the market or how to pick the best growth stock leaders. This is the gap which IBD fills ! I am convinced IBD is by far the more valuable newspaper for the small investor.
Effective use of the IBD tools is like a financial light sabre that will allow you to make significant financial gains especially in the first year of a strong Bull Market.
These methods are for those who do not mind hard work. You must be able to learn from your mistakes and be tenacious in learning the complexities of the Stock Market. If you are looking for an easy way to make significant money you need to look elsewhere. You will not be happy trying to learn very complex and counter-intuitive concepts. If do you pursue this study; it will probably take you at least 2 years to learn CANSLIM well. It is an art as well as a science.
What about actual results ? I am a Chief Engineer in Aerospace and the skills and knowledge I have picked up in the last 5 years with O’Neil’s system has added about $100,000 each year to my savings since 2006. The time I spend on it each week is about 3 to 4 hours so it is like having a second job. I have not quit my day job but with the extra savings I have more peace of mind and with three children to send thru college in the near future I am confident I will be able to do so. In short – I may not be on easy street yet but I feel like I am out of the salt mines. This CANSLIM approach has worked well for me and I hope to improve my skills in it by continued study. I plan to get better at this. This system does work well.
Thank you Mr. O’Neil……you are a great teacher and wonderful philanthropist for the small investor. Highest recommendation for you, the reader to use this system to make money in the stock market.
Rating: 5 / 5
A comprehensive (and demonstraby successful) investment approach – beyond mere stock screening, June 13, 2009
By William L. Lyman “FreeMarket” (ATLANTA, GA USA) – See all my reviews
(REAL NAME)
The CANSLIM stock investing methodology outlined in “How to Make Money in Stocks” is a time tested method that incorporates how the equity (stock) market(s) really work – for the passive, minority, outside investor. It is a 80/20 approach (with William O’Neil’s approach, proprietary metrics and tools you can achieve 80% of the success with 20% of the effort) and explicitly rides the coattails of the market (read and react – don’t fight/argue with the market). This system *IS* designed for the individual investor and small professional investor – I’m not sure it would scale for $250 million portfolios and above (but I’m not sure that it wouldn’t either).
CANSLIM is part fundamental (here earnings growth is the primary focus), part structural, part timing/technical and part money/risk management (this part is **crucial** to investment success). The vast amount of other investing books will typically provide only a screening/selection approach, but “How to Make Money in Stocks” provides a comprehensive investment approach including stock selection, portfolio composition, selling criteria and money/risk management.
In short – buy stocks that have a reason to go up (a new product/management catalyst, a leading stock in one of the top 20% of the 196 IBD industry groups, strong earnings growth (>25%), solid Return on Equity (> 17%), reasonable leverage, etc.) when the stock is poised to breakout (strong and increasing institutional shareholder support, has outperformed at least 80% of the market over the previous 52 weeks, the stock is consolidating after a price run-up and breaks-out on trading volume that is significantly higher than the average trading volume over the last 50 days, etc.) and finally – and this is important – scale into your positions, pyramid up in the first 5% or price appreciation and cut you losses when the stock moves against you at 7-8% from your purchase price – NO QUESTIONS/NO EXCUSES/NO RATIONALIZATION.
Check out the independent and unbiased American Association of Individual Investors ([...]) – they have tracked the monthly performance of 56 stock screens since January 1998 (now 11+ years) and the CANSLIM screen is consistently in the top 3 screens with a compounded annual growth rate (CAGR) over that time in excess of 25%. While the AAII “recipe” for CANSLIM (and other screens for that matter)is a simplified approach and does not implement a strict constructionist approach (and contains buy rules only – no sell rules, just monthly re-screening – and no money/risk management techniques), it is an OUTSTANDING educational tool to learn about the pros and cons of the various stock screens and provides a starting point for anyone considering CANSLIM for their portfolios.
I personally have used CANSLIM with tremendous success since the late 1980s and participate in our local Meetup ([...]) where we utilize the CANSLIM approach. While most people assume this approach generates outstanding returns in the go-go bull markets (and it does), it really earns its keep in the down markets by utilizing the 7-8% stop loss on a stock by stock basis as part of a concentrated portfolio. It was a financial life safer in 1999/2000 and again in 2008/2009. Value investors (mutual funds), by contrast, were obliterated in 2008 – down some 50-60%! If that great “margin of safety” doesn’t pay off in that environment – when does it?!
This growth/momentum approach differs substantially from a valuation driven approach (e.g., the Morningstar 5-star system based Morningstar’s estimate of “fair value” of the stock compared to its current stock price). But if you trade based only on your (or a 3rd-party’s) estimate of fair value, be prepared for some roller-coaster rides. In fact, check out Morningstar’s own performance of their 5-star ranking system for the 2,000+ stocks that they cover and for their tortoise and hare portfolio – it pales in comparison to CANSLIM. The valuation only approach is for full-time professionals only – and even then – only the best of the best have been able to produce reasonable returns over time. Like the choice embedded in the title of Ned Davis’s book “Being Right or Making Money”, CANSLIM allows you to make money, while the purist value investors will argue about “being right” with *their8 discounted cash flow calculations (if only the market marched to that tune).
And finally, yes, the book discusses the Investors Business Daily (IBD) newspaper (and of course, CANSLIM) as the IBD newspaper and associated website ([...]) have the tools to easily implement the CANSLIM methodology (SmartSelect(TM) ratings and other proprietary metrics). And William O’Neil is not just another financial author – he is a very successful investor, entrepreneur and financial data services provider.
I wholeheartedly endorse this book and methodology – and recommend it to EVERYONE who is considering investing directly in common stocks. Even if they pursue another style of investing, there are many excellent lessons to embrace from “How to Make Money in Stocks”.
Rating: 5 / 5
I have been an active CANSLIM investor since 2005 now and subscribe to their IBD, eIBD and their Daily graphs research tool. My investment return have beaten s&p 500 by many folds in the last 5 years thanks to IBD.
One of the best investment book in stock is How to Make money in stocks.
Some of the valuable insights inside the book are
1. First 100 pages of 100 charts of the biggest winners of the last 100 years this itself is worth more than the money of the book and shows the exact buy points sell points and how to hold on to the winners.
2. There is a correlation between the market in 2009 and the market in 1938 and what will happen in the next few years.
3. Thanks to IBD big picture as always I entered into the market in 2009 during the March 12th follow up and have since gained more than 60% as of date.
4. Biggest winners of mine during this rally of March 12th 2009 are Nettease, Shanda Interactive, Visa, Vistaprint, Priceline, Netflix, HDFC bank.
5. After going through IBD I have stopped reading other publication or switching on TV to watch other finance programs.
6. Their CANSLIM approach kept me out of the bear market of 2008 and fully invested in cash except for few tradings of Continental resources when the oil commodity went up.
7. People say you cant time the market. I say you can time the market with IBD. Just read the IBD big picture and you can mark your entry and exit out of the market with good returns.
8. In a general uptrend one can make 25% easily and if compounded over 3 good stocks from IBD’s 100 , 85-85 list and NASDAQ on the move one can double their money ina single year which no mutual fund will ever give.
9. This is one book which doesnt give opinions but only facts and its for one self to do the research and implement it when they invest.
Daily routine of 30 mins and 2 hours on weekend to profit immensely fromt the CANSLIM methodology described in the book .
1. Read IBD big picture.
2. Watch Daily stock analyis on the Investors.com website.
3. Watch market wrap at the website.
4. Read stocks on the move.
5. Read Nasdaq stocks on the move.
6 Invest in Nasdaq stocks they are the biggest movers.
7 Investors education at B1 of the paper.
8 Read the IBD 85-85, IBD 100 and Big Cap 20
9. Read the base reader column in IBD paper in B3.
10. Go through the research table and identify top 5 sectors and the leading stocks in that group from stock check up in investors.com.
11. Read Bill O Neil books every 3 months they are the only investment
book I ever read.
12. Read other books by Jesse Livermore, Nicholas Darvis, Gerald O loeb.
13. Dont over diversify your portfolio.
14. Three growth stocks with accelerating earning over past 3 quarters,
good ROE, accelerating revenure over past 3 qtrs and touching new high and coming out of a base and purchasing at the correct pivot point is all what is needed to get the portfolio of 3 good stocks.
15. One doesnt need to be invested at all times.
16. Time the market with IBD big picture and sit out during correction.
17. Attend IBD workshop atleast 2 times a year to rehearse the system .
Do the above and see your portfolio grow.
Thanks William O Neil for all the 100 charts this is a good addition to the chart school worksbook I have from level 3 course. Please keep the good work and congratulations to IBD for their 25th anniversary and for many more 25 years to come.
Good luck to all the investors who have a dream and who rely on Investors Business Daily to make their dream come true along with the 3 Ds in investing which I have learnt over the years from IBD which is Discipline, Dedication and Desire.
Rating: 5 / 5
I read this at the urging of a friend. As background, I’m a retired professional investment advisor, have been through the Chartered Financial Analyst curriculum, and have decades of investing experience. I am therefore instantly suspicious of a book that promises on its back cover that “Anyone can learn to invest wisely with this bestselling investment system!”
Granted, O’Neil clearly spends all his time with his charts, and otherwise must not get out yet. He comments that NASDAQ an OTC trading venue, not an exchange, when in fact NASDAQ gained exchange status in 2006. He thinks that air traffic accidents are investigated by the Civil Aeronautics Board, which lost its safety responsibilities to the FAA in 1978. Most tellingly, he writes, “Unfortunately, no original or thorough research on price pattern analysis has been done in the last 78 years.” Even a brief perusal of the academic journals on investing and finance would have shown him that this isn’t true.
Much of the book focuses on chart reading. O’Neil includes many historical charts that clearly show his patterns. Unfortunately, many of the patterns are only clear in retrospect. For example, he describes a double-bottom pattern, shaped like a “W,” where you should buy in as the right side moves up past the middle point of the W. Then he describes a double-bottom with handle, where the right side of the W is followed by a modest decline, and then you want to wait to buy until it reaches the top of the right side of the W. However, he describes no way to tell in advance whether the pattern will have a handle. By the time you know that there’s a handle, you’ll have already purchased on the right side of the W.
As another example, he shows patterns for detecting market bottoms. However, you can look to the left of where he marks the bottom, and often see a false bottom that meets exactly the same criteria. I suspect that O’Neil, given his experience, has other ways to gauge the validity of these stock patterns. Unfortunately, if he can’t describe them, it greatly reduces the value of the book.
That probably explains why he adds the caveat that it takes years for someone to start reliably making money using his “system.” Some people, with experience, will develop the same ability to figure out when the chart patterns are correct. However, it’s very misleading to describe the book’s contents as a “system,” which in the investing world means a set of rules that can be strictly followed. Instead, it’s a set of guidelines and philosophies on which you will have to add your own hard-earned experience to create a system.
Which brings me back to the overinflated claim that, “Anyone can learn to invest wisely with this bestselling investment system!” It’s absolutely false. So much is left to discretion that it will require someone with particular aptitudes to be successful at it. If you enjoy doing extensive analysis, have an innate skill at identifying visual patterns, and have the patience to study and learn chart reading, then you will probably be successful with O’Neil’s approach. Someone who doesn’t meet those criteria will almost certainly fail.
Rating: 2 / 5
Along with O’Neil’s excellent THE SUCCESSFUL INVESTOR, this book is one of the best introductions to growth stock investing available. He proposes a method (CANSLIM) to discouver what are the best candidates for investment and measure overall market health. BOTH are required for his method to work. The fact that it encourages the use of Investor’s Business Daily (IBD) is not a drawback to my mind because market and industry trends change so frequently that you need a daily source of information to keep up with possible CANSLIM candidates. That being said, readers should realize that this method requires that you familiarize yourself with charts and that you be willing to take responsibility for your choices. Not everyone is willing to spend 10-30 minutes a day reading IBD. Many too, prefer to rely on brokers or a guru to make choices because it gives them somebody to blame when there are losses. IBD is useless for such investors.
If I had to summarize the CANSLIM method in a single sentence, I would say that it is a technique that allows individual investors to piggyback on the ebb and flow of institutional money. O’Neil strongly believes that markets rise and fall because of the daily collective decisions of thousands of domestic and foreign financial institutions (mutual funds, banks, insurance companies, hedge funds, etc.) moving billions of dollars around in search of growth. Compared to these corporations, individual retail investors have no influence. Also, institutional investors are much better informed about future trends than you or I can be. It follows that we as individual investors can greatly reduce the chance element in stock selection by focussing only on institutional-quality companies currently in favour. Avoid penny stocks. Seek the industries whose market price has risen the most during the last 6 months. And within these industries, focus only on the “leading” stocks showing the best fundamental (earnings and sales growth, healthy margins, industry-changing new products) and relative strength (upward percentage movement in the last year). Above all, do not avoid stocks because they have risen too much or have high price/earnings ratios. The biggest winners every year, the ones that double and triple, are forever hitting their 52-week highs. So look there and do not waste time with stocks hitting new lows. These “bargains” mostly sink lower and destroy your capital.
A few caveats: assuming the market is not in a bear phase or in correction, O’Neil encourages you to search for these “leaders” as they break out of sound bases. Then you must buy in within 5% of their breakout “pivot points” IF their volume is well above average on that day. To help you find these leaders, IBD lists 100 candidates every weekend that satisfy CANSLIM criteria. Some have not yet broken out. Others may be too extended from their most recent breakout. Unfortunately, 10-15% of the IBD 100 are replaced every week. So that in hindsight it is easy to point out how this or that stock did well “because” it was a leader, but there are many many more examples of CANSLIM candidates with excellent bases and fundamentals that suddenly drop large percentages after proper breakouts simply because market psychology has shifted. It follows in hindsight that they were never true leaders. Meanwhile, there are plenty of companies with excellent charts, but questionable fundamentals, that do as well or better than his CANSLIM leaders. This can be very frustrating.
Secondly, for Canadian investors looking for CANSLIM candidates in the TSE, it is well to remember that our heavy reliance on resource stocks means that their fundamentals are often terrible just before they perform best. Resource stocks rise most dramatically when the market perceives that the commodities underlying these stocks are poised to rise in value after a period in the dumps. CANSLIM is therefore a poor guide in this area.
To sum up, CANSLIM works best with young companies offering new products, often in tech industries. That way, their sales, earnings and margins show the steady rise that gives them a high fundamental score in the CANSLIM universe. At the end of the day, however, the market is a maelstrom of fear and hope where fleeting perceptions of future potential far outweigh past fundamentals. CANSLIM can help you narrow your list of choices, but it can also give you a false sense of security until the day where your “leader” suddenly loses favor. CANSLIM leaders are NOT “buy and forget about it” stocks. CANSLIM has nothing to do with Buffett or his methods. If your stock pick drop 8% below your purchase price, you are strongly advised to sell. If it falls below its 50-day moving average after doing well, you are strongly advised to sell and preserve your gains. The point is, you must monitor them and the major indexes on a daily or at least a weekly basis. Leadership is a tricky business.
Rating: 4 / 5