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How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition

 

How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition

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THE NATIONAL 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. Based on a major study of market winners from 1880 to 2009, this expa

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  1. Edmund P. Leigh "Chief Aerospace Engineer" says:
    267 of 286 people found the following review helpful
    5.0 out of 5 stars
    William O’Neil Shows the Way to Gain Wealth Systematically, June 23, 2009
    By 

    Verified Purchase(What’s this?)
    This review is from: How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition (Paperback)

    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.
    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…

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  2. William L. Lyman "FreeMarket" says:
    69 of 71 people found the following review helpful
    5.0 out of 5 stars
    A comprehensive (and demonstraby successful) investment approach – beyond mere stock screening, June 13, 2009
    By 
    William L. Lyman “FreeMarket” (ATLANTA, GA USA) –
    (REAL NAME)
      

    Verified Purchase(What’s this?)
    This review is from: How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition (Paperback)

    A comprehensive (and demonstraby successful) investment approach – beyond mere stock screening, June 13, 2009
    By William L. Lyman “FreeMarket” (ATLANTA, GA USA) –
    (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 (AAII Dot Com) – 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 (AAII-atlanta Dot Com) 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 (Investors Dot Com) have the tools to easily implement the CANSLIM methodology (SmartSelect(TM) ratings and other proprietary metrics). And William O’Neil is not just another…

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  3. Tony Ursillo says:
    131 of 141 people found the following review helpful
    4.0 out of 5 stars
    Somewhat idealistic, but lots of good tools, March 23, 2002
    By 
    Tony Ursillo (Norwood, MA USA) –

    I read this book about 10 years ago and generally gained a greater appreciation for buying healthy stocks. Make no mistake – this is a momentum strategy. But O’Neil has created a very specific formula and process for his style of momentum investing. I also learned a lot about technical analysis and some of the other elements that affect stock movements (sentiment, market psychology, etc.). And O’Neil spends a good deal of time telling you how to sell a stock, whether at a profit or a loss. I think this is perhaps the hardest part of investing, but after reading this book, you should have no excuse for letting a huge gain slip away or digging a huge hole for yourself. Above all, the book provides dozens of examples to support many of the techniques advocated in the book. One gripe I have is that when it comes to finding certain patterns in charts (head and shoulders, cup with handle, etc.), beauty can be in the eye of the investor – I wasn’t always comfortable with what qualified as an acceptable pattern, and, of course, these “iffy” charts all demonstrate money-making stocks AFTER the fact. I also believe that there are other investment approaches that can yield good results, especially in a trending market like we have found ourselves in more recently. But on the whole, this book provides a wealth of information in a concise, well-supported manner. It definitely belongs in your investment library. A bonus is that the newspaper O’Neil founded, Investor’s Business Daily, can provide an ongoing educational follow up to the book, so the approach you learn in the book will never become outdated. I read it regularly.

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