How to Make Money in Stocks Book Review

How to Make Money in Stocks: A Winning System in Good Times or Bad. The author of the book is - William J. O'Neill.
William J. O'Neill is an American stockbroker and author. William J. O'Neill is also the founder of the famous business newspaper Investor Business Daily.

Top 5 learning in this book:

The 1st learning is that if you want to learn how to pick good stocks, then the best way is to analyze companies who gave good returns in the past. That is, you can learn a lot by constantly studying the price patterns of compounding stocks and the factors related to the business.

This book also gives charts of 100 such stocks which have given very good returns from 1880 to 2008. The author of the charts also explains the reasons why the stock is in stock that has led to a big price movement.

With the help of the factors that the author has mentioned in the chart, you can know the factors to be considered while choosing the stock.

The second learning of this book is CANSLIM strategy:

The book has compromised a strategy called CANSLIM which is a techno-fundamental strategy. Let these strategies help you pick good stocks. Although this strategy is very big we will understand it in short.

If you want a dedicated video on CANSLIM strategy then do comment and let us know. The CANSLIM strategy has 7 characteristics.

According to the author, one should invest in stocks that follow these 7 features. C in CANSLIM strategy stands for 'Current Quarterly Earnings. The EPS of the current quarter of the stock should be at least 20% higher than the EPS of the same quarter of the previous year.

One means annual earnings that is the annual earnings of the stock have increased by a minimum of 25%. In CANSLIM strategy, N stands for - New Products and New Management.

That is, if a company is launching new products with the demand of the market, then it is a positive sign for your company. S means - supply and demand.

That is, if the trading volume of a stock is increasing very rapidly, then there is a strong buy signal and the stock price can move more. L means leader or laggard. That is, you should invest in leading stocks of the industry.

During a crisis, such companies can survive and can give good returns in the long term by taking over the market share of smaller companies. I stand for Institutional Sponsorship.

That is, if institutional investors like mutual funds, insurance companies, etc. are investing in a stock, then it is a positive sign for the company. Lastly, in CANSLIM strategy M stands for - Market Direction.

That is, you should invest in those stocks which follow the trend of the market. You can watch the trend of indexes like Sensex or Nifty to find out the market trend.

As per the author, the outlook of the market is always bullish in the long term and stocks that follow market trends can perform well in the long term. So here was an overview of the CANSLIM strategy.

Now we have learned how to buy stocks. But it is more important than buying stocks to sell them at the right time.

The third learning of this book is when to sell stocks:

As per the writer, you should sell at a ratio of 3 to 1 when sharing. That is, if you are ready to sell a stock after getting a 20-25% return, you should sell the stock when it reaches 7 to 8% from its purchase price.

For example, if you have bought a stock for Rs.100 and your target is to sell it for Rs.120-125. According to the ratio of 3 to 1 when the stock comes to Rs.92-93 level then you are ideally out of the stock. Must go out. However, before taking entry in any stock, you should keep your risk profile and target in mind.

'Cousin Stock Theory' in the fourth lesson of the book:

For the author, if one industry is performing very well, and if a company supplies products to that industry, that company will also do well. The concept is known as the cousin stock theory.

The author cites examples that the airline industry was doing very well in the mid-1960s. Lots of new Boeing jets were being built. At the same time a company 'Monogram Industries' supplies chemical toilets to airline companies.

The company has shown us very good earnings at the time and given very good returns. So the conclusion is that when an industry is growing very fast then you should analyze well that such companies supply products to our industry.

The 5th learning of the book, we will see 3 such points that we must keep in mind while investing:

As per the author, we should not invest in any stock by directly looking at the dividend to PE ratio. We should also consider other factors like sales growth, earnings, ROE, profit margin, economic gap, etc.

We should learn how to read charts so that we can invest in stocks at the right time. And lastly, while buying any stock, you should always plan your selling strategy so that you exit your stock at the right time.

So these were the top 5 lessons of the book.