How To Make Money In Stocks

Summary 

How to Make Money in Stocks is a comprehensive guide to stock investing, written by William J. O'Neil, a successful investor and founder of Investor’s Business Daily. The book is based on O'Neil’s CAN SLIM strategy, a proven approach to stock selection and market timing that he developed over years of trading experience. The book covers essential principles such as how to identify growth stocks, the importance of technical analysis, and the significance of market trends. O'Neil emphasizes the importance of both fundamental and technical analysis to make informed investment decisions. His system combines a focus on the quality of the company’s fundamentals, its price performance, and market timing. Through this method, O'Neil demonstrates how investors can build wealth by making intelligent, calculated stock purchases and avoiding costly mistakes.

Key Points from How to Make Money in Stocks

1. The CAN SLIM System
   The core of O'Neil’s investment strategy is CAN SLIM, an acronym that stands for:

   • Current earnings growth
   • Annual earnings growth
   • New products, services, or management
   • Supply and demand
   • Leader or laggard
   • Institutional sponsorship
   • Market direction

   This system helps investors identify stocks with strong growth potential based on both their fundamentals and technical performance.

2. The Importance of Market Timing
   O'Neil stresses that buying stocks during a market uptrend and avoiding them during a downtrend is key to success. He advocates using tools like the Market Direction index and stock price charts to help identify the broader market trends.

3. Technical Analysis for Identifying Winning Stocks
   The book explains how to read stock charts to identify patterns and trends that indicate when to buy or sell. O'Neil emphasizes looking for breakout patterns, such as the cup-and-handle formation, to make informed buy decisions.

4. Focus on Growth Stocks
   O'Neil argues that growth stocks, which show strong earnings and revenue growth, offer the best potential for high returns. Investors should look for companies with a strong competitive edge, such as new technologies or innovative products.

5. Risk Management and Loss Prevention
   One of the key lessons from the book is the importance of cutting losses quickly. O'Neil advises setting a strict limit on how much of a loss is acceptable (typically 7-8%) and selling stocks that don’t perform as expected to prevent further financial damage.