How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition

THE BUSINESSWEEK, USA TODAY, AND WALL STREET JOURNAL BUSINESS BESTSELLER!

The bestselling guide to buying stocks, from the founder of Investor's Business Daily­­now completely revised and updated

When it was first published, How to Make Money in Stocks hit the investing world like a jolt, providing readers with the first in-depth explanation of William J. O'Neil's innovative CAN SLIM investing method. Five years later, O'Neil, founder for the industry icon Investor's Business Daily, revised his classic text and provided readers with a newer glimpse on how the average investor can make money in the equities market.

This third edition of How to Make Money in Stocks has been revised and updated with new chapters designed to help investors increase their performance.

Like his international bestselling 24 Essential Lessons for Investment Success, which stayed on international business bestseller lists for close to 6 months in 2000, How to Make Money in Stocks is the best reference for the individual investor in how to stay afloat and ahead in the rocky and volatile equities markets of the 21st century.

The techniques in How to Make Money in Stocks are hardly revolutionary, but therein lies their strength, as O'Neil claims his is "a winning system in good times or bad." Investors interested in Net stocks might be disappointed--the author's first rule is that a company must show a pattern of growing profits, which disqualifies many dot coms. (Try Rule Breakers, Rule Makers for a different take.) O'Neil's approach to stocks is, above all, rational, and he pays little heed to market hype.

Those new to investing would do well to read this book before embarking, and even more seasoned traders may find How to Make Money in Stocks a refreshing return to basics. Markets may swing bull and bear, but O'Neil promises to stand firm. --Demian McLean

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All Customer Reviews
Average Customer Review:
0 of 0 people found the following review helpful:

My second reading of the same book, and still great., 2009-06-24
This is my second reading (the other was the 2nd edition) of How to Make Money in Stocks within two weeks. What is different this time is that I made extensive notes from each chapter and typed them up. Now, I will begin studying the CAN SLIM system and start applying them to see if it works. The biggest improvement of this book from the 2nd edition is the introduction of Investor's Business Daily newspaper and website and how they work. I just recently enrolled myself for a free trial for both, and I like the website but haven't received a copy of the paper yet. So far, I really like the book, and I can see the wisdom contained within the book. I haven't yet begun buying stocks on a full-scale because I want to be a student of the market first in order to arm myself with necessary knowledge and tools. All in all, I am glad to have discovered How to Make Money in Stocks the first time around at a cheap price which was a buck and the more I read the book, the more informative it is.


0 of 0 people found the following review helpful:

A comprehensive (and demonstraby successful) investment approach - beyond mere stock screening, 2009-06-14
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".


0 of 0 people found the following review helpful:

How to make money in stock, 2009-05-31
I found this book very valuable and useful in understanding trading and stock business. The bookseller sent book in very good condition and in time. I would again would purchase book from this seller.


1 of 2 people found the following review helpful:

Best websites that follow O'Neil's CANSLIM, 2009-05-21
The best websites that follow O'Neil's CANSLIM strategy are www.gilmoreport.com, run by two market wizards, and www.canslim.net. Though not CANSLIM, I also like www.decisionmoose.com.


1 of 2 people found the following review helpful:

A Good Book for the Passive Investor, 2009-05-02
This book is very cheap. It offers a few insights that are significant for individuals who are just starting to become interested in the stock market. The specific strategies that are offered in this book are not very effective. (Although O'Neil does demonstrates the important concept of not letting your losses run)

For example, a stock that has lost 50% of its value would require it to double in order for the original investor to recover his money. Therefore, it is important that the investor listens to the market over his or her own perceptions. It took me a while to understand this concept. The market is very narcissistic and tends to listen only to itself.

Aka "Never catch a falling knife"

The only thing that I disagree with O'Neil is that he is not a fan of shorting or opinions. It is impossible to simply go long all the time. Although it is impossible to time all the rallies correctly or even the majority of them, you only need to get a few correctly to be very well off. A put or call option can seriously help an investor as long as they are buyers and not sellers.

He doesn't give you a good idea of how to follow the paper trail. For conservative investors, I would recommend The Aggressive Conservative Investor.

For traders, I would recommend Riding the Bear and Sold Short : Uncovering Deception in the Markets

I think its important not to completely follow whats the book and it is always important to see how the markets react. The market knows more about itself than everyone else. None of these books are perfect, but it is suppose to give the individual a better idea of the stock market. No one can win all the time, so its important not to let your losses run while you always should let your profits run (investor) or take it without being too greedy (trader).

The most important aspect of this book can be summurized in a few points.

1. Never let your losses run (Don't forget this)
2. Never answer a margin call (Make sense 90% of the time)-Then again, if you are getting a call, it means you forgot rule 1.
3. It is better to be an investor of a failing company in a rally rather than an excellent one going down (Chase rallies at the right time)
4. The market doesn't always care what everyone believes it right. (This includes news channels, gov't, you, or the "experts"
5. Don't buy options that have little time value.
6. Buy stocks at their 52 week highs (Bull high and sell higher)
7. (me) Short stocks at their 52 week lows (Short low and cover lower)

William J. O'Neil is pretty flexible. He has a rule where you take a 25% profit and get out with a 7% loss. This is a controversial strategy. He also demonstrates the concept of buying stocks at their 52 week highs and avoid them at a 52 week low. I think the most important thing in trading or investing that he doesn't go through is the concept of learning to sacrifice profits. Sometimes, it is necessary to sacrifice some profits in order to risk a lot when the odds are in your favor.

(I don't follow this strategy, but it makes sense to go long on growth stocks without dividend in a bull market and short them down on a bear one.)

I would recommend individuals to practice with a only little bit of money (a few hundred for traders). It is better to lose money making a right decision than winning money by chance. For investor, you can try a thousand. Oh yeah, don't ever gamble with money that you will need or you can't afford to lose. Play with money only if you are ready to lose it.

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