How To Make Money In Stocks Book Summary And Review

Almost 2 million copies of How to Make Money in Stocks have been sold globally. Investors may choose quality stocks with ease according to O’Neil’s CAN SLIM Investing method. Additionally, he offers advice to help novice investors select the best mutual funds and ETFs. Even if you’ve never owned stocks before, the book strives to teach you how to make wise investments. You’ll have a lot of questions as a novice investor, such as where to begin. What characteristics should a stock have? This manual will help you.

Table of Contents

Study chart reading

The daily price fluctuations of stocks based on supply and demand in the stock market are tracked using charts. Long-term success in the stock market depends on being able to interpret price movements on charts.

Don’t purchase a stock based only on its fundamental attributes (cash flow, ROI, history of profit retention, etc.). You may assess a stock’s strength and value by looking at charts that show its price and volume history.

Before making an investment, always perform a technical analysis on a company utilizing its price chart. An analysis can help you decide if it makes sense to buy or sell a stock at a given price. To forecast price fluctuations, you should also learn to recognize patterns on the price chart. You can get a good sense of strong entry and exit points from price patterns and technical indicators.

The CAN SLIM Method for Choosing Excellent Stocks

O’Neil’s CAN SLIM investment technique makes it simple for novice investors to get started. The CAN SLIM acronym stands for a crucial component of stock purchase. Each variable is based on analysis of the top-performing equities over the last 100 years.

C: Sales per Share and Present Large or Accelerated Quarterly Earnings

Accelerated quarterly earnings are one of the best signs of a solid stock. Stock market values have always increased when companies report excellent results. Choose stocks that have seen a notable percentage growth year over year.

Check the Earnings Per Share (EPS) figure to do this. The amount of common shares outstanding divided by the total after-tax profits of a corporation yields the EPS. In your study, the quarterly percentage change in EPS is a crucial metric. The better the increase, the bigger the percentage. A more accurate assessment is obtained and seasonal swings are avoided when comparing EPS from the same quarters.

A: Annual Earnings Increases

Verify the company’s historical yearly earnings growth rate to ensure the most recent quarter’s increase is not an anomaly. A reasonable starting point is a growth rate of at least 25% each year. Another useful metric that assesses how effectively a corporation manages its funds is return on equity (ROE). By dividing net income by shareholders’ equity, you may determine the ROE. Concentrate on stocks that have shown rapid profit growth over the previous three years.

N: Newer Companies, New Products, New Management, New Highs Off Properly Formed Bases

The majority of profitable stocks during the last century have benefited from evolving conditions. They can include new goods and services or the use of cutting-edge technology. For instance, after introducing the new iPod, Apple’s stock prices rose sharply. The stock price of the corporation at the time was greatly increased as a result.

Stock prices of companies that engage in innovation or the introduction of new items will constantly increase. Also, take into account businesses with fresh, trustworthy management or better business environments.

For the best return, purchase a competitor’s stock during periods of price consolidation and price breakouts. Price consolidation occurs when a stock price breaks through support (the lowest recorded stock price) or resistance (the highest recorded stock price) levels and then stops going up or down. When a stock’s price moves past the two boundaries, a price breakout occurs.

What to Consider When Buying a Quality Stock

It’s crucial to comprehend the basic ideas underlying the stock market. These are crucial elements that the CAN SLIM strategy’s second half includes.

S: Demand and Supply
The daily trading volume of a stock is the strongest indicator of its supply and demand. The trading volume of the stock is a great predictor of its underlying buying and selling pressure. More trading activity is preferred since it indicates institutional purchasing pressure.

Due to their greater potential for growth, stocks with a lower supply are more likely to perform well. Due to less liquidity, small-cap stocks are also more prone to price changes. Watch out for businesses that purchase their own shares on the open market. As a result, the number of shares declines, signaling the company’s confidence in the future.

L: Laggard or Leader

The best-performing stocks in a certain industry are called leaders. The laggards are those who lag behind their rivals. Purchase the top two or three stocks in any category; these companies will be market leaders in their specialized fields. This may not necessarily refer to the biggest or most well-known businesses. instead, those with the strongest foundations. Concentrate on the stocks that have the best return on equity, largest profit margin, and strongest yearly growth in earnings.

Stay away from sentimental stock purchases and plays. For instance, it is a sympathy play and a warning of danger when news from a rival impacts a company’s stock price.

When the loss is minimal, sell the stocks in your portfolio that have performed the worst. Keep your top performers in place to see whether they develop into your best-performing stocks. Selling your successes and holding onto your failures will almost always result in greater losses. If you invest in underperforming companies and experience a loss, get out and reduce your losses at 8% below your purchase price.

I: Institutional Sponsorship

Shares of any stock that are owned by institutional investors are referred to as institutional sponsorship. This covers hedge funds, government organizations, mutual funds, and insurance firms. Institutional sponsorship has two key advantages:

In the event that you decide to sell your investments, it offers buying support.
It keeps the market stable by providing constant liquidity.

Therefore, avoid investing in stocks that are “overowned” by institutions. Massive selling may result from excessive institutional sponsorship. This is typically observed during a bear market (when stock prices fall). Thus, only invest in equities that have at least a few institutional sponsors and a track record of superior recent performance. Selected stocks ought to have gained institutional investors recently.

M: Market Direction

If you predict the market incorrectly, you’ll probably lose money. Having said that, you don’t have to be clairvoyant to succeed in business. By examining price charts and volume indicators, keep your attention on what the market has done in the past. You will have sufficient knowledge of long-term trends as a result to succeed in the stock market.

The right time to sell your stock is when?

Sell your stock without fail the moment it loses 7% or 8% of its value from the price you paid for it. A formula for catastrophe is holding onto your losses in the hopes that the stock will rise again. In fact, you’re more likely to incur big losses. Imagine that you lost 20% on a stock. To get back to the price you paid for the stock, it would need to increase by 25%. Similarly, to break even on a 33% loss, a 50% gain is needed. The math will work against you more and it will be more difficult to get your money back the longer you wait.

In the stock market, success is not determined by how often you get it right, but rather by how much money you lose when you do. Understanding when to reduce your losses is just as critical as knowing when to buy a stock, if not more so. As a result, keep your losses to 7% or 8% of your investment.

Recognize that occasionally you might choose the wrong stocks or trade at the wrong time. It is essentially difficult to consistently make the right stock market predictions. Even the most seasoned investors occasionally choose the wrong stocks by following the market’s trend. It’s crucial to take your losses seriously and your gains more gradually, not the other way around.

How to Make Money in Stocks Book Review

“How to Make Money in Stocks” by William J. O’Neil is a comprehensive guide to investing in the stock market. The book covers a range of topics, including the basics of stock market investing, how to analyze stocks, and how to identify potential winners.

The author, William J. O’Neil, is the founder of Investor’s Business Daily, a leading financial news and research organization. He is known for his investment strategy, the CAN SLIM system, which is based on the seven characteristics of winning stocks: current earnings, annual earnings growth, new products, new management, supply and demand, leader or laggard, and market direction.

One of the strengths of this book is its focus on technical analysis. O’Neil emphasizes the importance of analyzing charts and identifying price and volume patterns to identify trends in the market. He also stresses the importance of understanding market cycles and using this knowledge to make investment decisions.

Another strength of the book is its emphasis on risk management. O’Neil emphasizes the importance of setting stop-loss orders to limit losses and protect profits. He also provides advice on how to diversify a portfolio and manage risk by investing in a variety of stocks across different sectors.

One potential weakness of the book is its heavy reliance on O’Neil’s CAN SLIM system. While the system has been successful for many investors, some readers may find it too prescriptive and rigid for their personal investment style.

Overall, “How to Make Money in Stocks” is a valuable resource for anyone interested in investing in the stock market. It provides a comprehensive overview of the principles of successful investing and offers practical advice on how to apply these principles to the real world. Whether you are a novice investor or an experienced trader, this book is a valuable addition to your investment library.

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