Click here to get a PDF of this post
Finally for all those investors and traders trying to implement the CAN SLIM investment methodology by using William O’Neil’s book “How to Make Money in Stocks” along with Investor’s Business Daily, here is your users manual. Matthew Galgani has done an excellent job with this book by both keeping it simple and easy to read but also getting all the vital elements needed to bring all of O’Neil’s teachings together as a cohesive whole for implementation as an actionable strategy you will understand how to use in real time.
This is the very first kindle version of a book I have bought and read and I found all the links that were available inside the book that went to the investors web site very useful for video lessons to expand on the authors points without making the book excessively long by trying to incorporate everything in writing.
The kindle edition of the book is filled with pop out historical charts of the biggest winning stock charts in history along with recent ones that I had actually traded in the past few years. The charts are very valuable to actually understand visually what the big winners look like to avoid thinking they are “too high priced” as they play out in real time.
The lessons of this book are many, here are a few:
The keys to winning in the stock market is to only buy stocks during market up trends, focus on the companies with the biggest earnings growth, and buy stocks being accumulated by institutional investors.
How to use the IBD market pulse to determine the markets current trend. I really liked the strategy that the author suggested for trading a stock index using their market trend identification model. He showed how their simple indicators of “market is in an up trend” “market under pressure” or “market in correction” would have saved buy and holders from the vast majority of the 2008 plunge and got them back in after the 2009 reversal. Very easy to implement trend following method for investors.
The book shows how to find the best potential performing monster stocks based on fundamental criteria that matched the biggest winning stocks of all time by using the tools on the IBD investors website and by using the IBD paper.
The author shows the key high probability times to buy the right stocks as they come out of the best patterns: double bottoms, cups with handles, break outs from bases, etc. Also how to create your own watch list and be ready to buy these stocks by setting buy stops.
The book covers the vital point of risk control and to cut all losses at 7%, 8% or less when the stock fails to trend after a buy point. Also it gives a graph on how many stocks an investor should own based on the size of their capital. The suggestions are for a very concentrated portfolio, which I agree with but it is crucial to split up your stock positions into as many parts as they suggest. I would advise if they say you should own 5 stocks for your size of capital then only use 20% of your capital on any one stock position to limit losing a big percent of your total trading capital on any one trade.
Let winners run up to 20% to 25% profits before selling or farther if they just rocket.
I am glad that Matthew explained that one of the primary keys that make the CAN SLIM method a winning model is the 3/1 risk reward ratio by having
20%/25% gains and only 7%/8% losses. You can win once and lose twice and still make money.
If you have been a student of the book “How to Make Money in Stocks”, the Investors Business Daily Newspaper,and the Investors website they run, this should be the book that brings it all together for you.
Just a great informative, easy to digest, actionable plan for successful growth stock investing and trading.