Sunday, July 18, 2010

How To Make Money In Stocks Book Review

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Today, I wanted to review what I consider to be one of the best stock market investing books of all time - How To Make Money In Stocks by William J. O'Neil. I can't remember the first time I read this book but it might have been with the second edition. It's now an updated fourth edition. I have bought each one as it has updated. While there is not a lot of difference in the editions, there are some subtle changes in some of the stock screens he recommends. This book is also used best in conjunction with the Investor's Business Daily which I also subscribe to.

At the heart of the book is his study of the greatest stock market winners of all time. He analyzed and compared those stocks to see what was similar about them. By knowing how a great stock performs, you are more likely to spot it again the next time because history and human behavior repeat itself.

What he then developed was the CANSLIM theory of investing. With CANSLIM, he merges both fundamental analysis with technical analysis. He uses the fundamentals to identify stocks that are strong in several areas but primarily in earnings per share and sales growth. After he finds a fundamentally strong company, he uses technical analysis, or charting, to obtain specific buy points called pivot points. By buying at these precise times, you increase your chances of finding a winner. Because all stocks eventually come down in price, timing your buys and your sells are extremely important to preserve and grow your capital.

Also important to his strategy is the fundamental law of the markets, the law of supply and demand. He teaches you that you as the small investor have little impact on the price of a stock. It's the big institutional money that drives prices upward because once they starting buying a stock, the stock's price has to increase. By zoning in stocks they are buying you can ride their coattails to stock gains.

While the book is awesome, the hard part is in applying what he teaches. That's why you'll also need to study what he teaches and if you become a CANSLIM investor, you'll find yourself reading the book over and over if you want to master what he teaches. If you are a beginner, you might want to also find some other books that go over how to read stock charts, how to read charts and how to understand the fundamentals of companies, this book should have a place on your bookshelf as O'Neil is one of the masters you should definitely study.

The stock market today is highly volatile. To help you, I highly recommend this book.

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