Monday, 5 November 2007

How to Make Money in Stocks - A Winning System in Good Times or Bad

I guess some of you may have come across this book, "How to Make Money in Stocks - A Winning System in Good Times or Bad". This book is written by William J. O’Neil. For those who have heard of the acronym CAN SLIM, it actually came from this book. I have briefly summarise what does the acronym CAN SLIM means? Remember the simple acronym CAN SLIM. Each letter stands for one of the seven basic fundamentals of selecting outstanding stocks.

Most successful stocks share these seven common characteristics at emerging growth stages, so they are worth committing to memory.
  1. C equals Current Quarterly Earnings per Share: They must be up at least 18 or 20 percent. The higher, the better. Also, quarterly sales must be accelerating or up 25 percent.

  2. A equals Annual Earnings Increases: Require significant growth for each of the last three years and a return on equity of 17 percent or more.

  3. N equals New Products, New Management, New Highs: Look for new products or services, a new senior management team, or significant changes in industry conditions. Buy stocks as they begin to make new highs in price.

  4. S equals Supply and Demand: It doesn't matter whether a company has a large capitalization or a small cap, as long as it fits all of the other CAN SLIM rules. Look for big volume increases.

  5. L equals Leader or Laggard: Buy market leaders and avoid laggards. Buy the No. 1 company in its field. Most leaders' Relative Price Strength Rating will be 80 or 90 or higher.

  6. I equals Institutional Sponsorship: Buy stocks with increasing institutional ownership and at least a few sponsors with top-notch recent performance records.

  7. M equals Market Direction: Learn to determine overall market direction by accurately interpreting daily market indices' price and volume movements, and the action of individual market leaders. This can determine whether you will win or lose. By using this simple, proven, and extremely powerful method, you can make money in stocks in any type of economy.

The reason that CAN SLIM continues to work, cycle after cycle, is because it is based solely on the reality of how the stock market actually works, rather than personal opinions, including those of the experts on Wall Street. Further, human nature at work in the market simply doesn't change. So CAN SLIM does not get outmoded as fads, fashions, and economic cycles come and go.

I would seriously recommend investors to borrow or buy the book if you wish to know more about how CAN SLIM can work for you. The 3rd edition also includes a chapter on "Nineteen Common Mistakes Most Investors Make".

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