How to Make Money in Stocks: A
Winning System in Good Times or
Bad by William J. ONeil
A Comprehensive (And Demonstraby Successful) Investment Approach - Beyond Mere
Stock Screening
From the school of unemotional investing comes the classic How to Make
Money in Stocks, by Wall Street analyst and publisher William ONeil.
Readers new to securities will find it an excellent primer, one that relies on
time-honored indicators such as quarterly earnings, market capitalization,
and daily indexes. ONeils study of winning stocks stretches back to the
1960s, and he shares his insights here, describing what characterizes a
growth stock, when to cut your losses (at 7 or 8 percent, no more), and
how to spot a market top. The techniques in How to Make Money in
Stocks are hardly revolutionary, but therein lies their strength, as ONeil
claims his is a winning system in good times or bad. Investors interested
in Net stocks might be disappointed--the authors 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.) ONeils
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 ONeil promises to stand firm. --Demian McLean
Personal Review: How to Make Money in Stocks: A Winning
System in Good Times or Bad by William J. ONeil
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".
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