How to Make Money in Stocks
A Winning System in Good Times and Bad
Book Edition Details
Summary
In the ever-fluctuating world of stock markets, "How to Make Money in Stocks" stands as a beacon for both novice and experienced investors seeking to master their financial destinies. William J. O’Neil delivers a powerhouse guide that unveils the secrets behind his renowned CAN SLIM® Investing System, a robust seven-step strategy designed to minimize risk while maximizing potential gains. Drawing from an exhaustive analysis of market successes spanning over a century, this bestseller arms readers with the tools to identify promising stocks before they soar. Enhanced with fresh insights and 100 illuminating charts, it also offers critical advice on sidestepping common pitfalls. O’Neil’s wisdom, celebrated by financial luminaries, offers a timeless blueprint for navigating the unpredictable tides of investing with confidence and acumen.
Introduction
The stock market presents one of the greatest wealth-building opportunities of our time, yet most investors struggle to achieve consistent profits while watching others seemingly effortlessly multiply their money. The difference isn't luck, connections, or even superior intelligence—it's the systematic application of proven principles that have guided successful investors for over a century. Behind every market legend lies a methodical approach that focuses on identifying exceptional companies at precisely the right moment when institutional money begins flowing in and major price advances are about to unfold. This journey requires abandoning popular misconceptions about buying low and selling high, instead embracing a disciplined methodology that recognizes winning patterns before they become obvious to the masses. Your path to financial independence doesn't depend on predicting the future or timing the market perfectly, but rather on understanding and applying the timeless characteristics that separate extraordinary stock performers from mediocre investments.
The CAN SLIM Formula for Winning Stocks
The foundation of successful stock investing lies in a systematic approach that identifies the seven critical characteristics shared by virtually every major stock market winner throughout history. This methodology emerged from analyzing over 1,000 of the greatest stock success stories, revealing patterns that consistently precede explosive price movements. Consider the remarkable case of Syntex Corporation in 1963, a pharmaceutical company that had developed "The Pill," a revolutionary birth control product destined to transform society. When this stock first appeared on screening systems, it displayed every element of what would become the proven formula for success. Current quarterly earnings had exploded 300% compared to the same period the previous year, while annual earnings growth had averaged over 100% for three consecutive years. The company's new product represented genuine innovation addressing a massive market need, and with only 5 million shares outstanding, institutional buying would have maximum impact on the stock price. The transformation was swift and spectacular. From its breakout point around $100, Syntex rocketed 451% higher in just 25 weeks. This wasn't market timing magic or lucky speculation, but rather the predictable result of fundamental forces aligning perfectly. The earnings acceleration provided fuel for the advance, the revolutionary product created enormous demand, the limited share count amplified every dollar of institutional investment, and the bull market environment allowed the stock to reach its full potential without interference from general market weakness. To implement this systematic approach effectively, begin by screening for companies showing current quarterly earnings growth of at least 25%, though the best performers often display much higher acceleration. Verify that annual earnings have grown consistently over the past three years with return on equity exceeding 17%. Look for businesses introducing innovative products or services, or those with new management teams driving positive change. Focus on stocks with reasonable share counts and building institutional sponsorship, but avoid companies that have become overowned by too many funds. Most importantly, ensure the general market is in a confirmed uptrend, as even the best individual stocks struggle during bear market conditions. Remember that this approach requires patience and discipline to wait for all elements to align rather than forcing investments in companies that meet only some criteria. The greatest fortunes are built by those who identify exceptional opportunities early and hold them through multiple years of expansion, always ready to sell when fundamentals deteriorate or market conditions change.
Perfect Your Timing with Charts and Patterns
Chart reading represents the X-ray vision of successful investing, revealing the hidden forces of supply and demand that drive stock prices long before fundamental changes become apparent to casual observers. Just as medical professionals rely on imaging technology to diagnose conditions invisible to the naked eye, smart investors use price and volume patterns to identify when stocks are under professional accumulation or dangerous distribution. The story of Microsoft in 1986 perfectly illustrates this principle in action. When most investors dismissed it as just another technology stock trading around $31.50, the daily chart revealed something extraordinary happening beneath the surface. On the day Microsoft broke out of its cup-with-handle base pattern, trading volume exploded to 545% above the average daily level. This massive volume surge wasn't random market noise but rather the unmistakable footprint of large institutional investors recognizing the company's revolutionary potential and positioning themselves for the advance they anticipated. The transformation in Microsoft's chart pattern told a complete story of accumulation and preparation. After forming a proper base over several months, the stock demonstrated classic characteristics of a winning setup: tight weekly closes near the correction lows, volume drying up dramatically during the consolidation phase, and then explosive volume accompanying the breakout to new highs. Those who understood these technical signals and purchased shares at the precise breakout point witnessed an extraordinary 13-year bull run that transformed a split-adjusted cost of 10 cents into $53.98 per share. To master this essential skill, start by studying weekly charts of stocks that have already completed major moves, focusing particularly on the cup-with-handle pattern that resembles its namesake when viewed from the side. Look for clear uptrends preceding the formation, corrections of 12% to 33% from peak to trough, and handles that form in the upper half of the overall pattern. Most critically, watch for volume to diminish near the correction lows and then surge 40% to 50% above normal levels on the breakout. Practice this analysis daily with both current opportunities and historical examples, gradually developing the ability to spot accumulation patterns before they become obvious to the investment crowd. Your goal isn't to buy at the cheapest possible price, but rather at the precise moment when your probability of success reaches its highest point based on institutional buying patterns and technical momentum.
Smart Money Management and Selling Rules
The difference between occasional success and consistent wealth building lies not just in selecting winning stocks, but in managing positions with mathematical precision and emotional discipline. The most profitable investors understand that controlling losses takes absolute priority over maximizing gains, a principle that seems counterintuitive but proves essential for long-term financial success. William O'Neil's personal experience with Sea Containers in 1975 demonstrates the power of proper position management and selling discipline. This marine leasing company had formed a massive cup-with-handle pattern over 46 weeks, correcting nearly 50% during an intermediate market decline that scared away most potential buyers. While conventional investors would have been frightened by such a deep correction, the pattern showed all the right technical characteristics: volume dried up dramatically near the lows, the handle formed in the upper portion of the base, and tight weekly closes indicated that strong institutional hands were quietly accumulating shares. When Sea Containers finally broke out of its base at the precise pivot point, volume surged and the stock began an extraordinary advance that would ultimately carry it 554% higher in just 101 weeks. However, success required following buy and sell rules with unwavering precision. Purchasing too early, before the actual breakout occurred, would have meant enduring months of frustrating sideways action. Buying too late, more than 5% above the pivot point, would have reduced profit potential and increased risk during normal corrections that affect all advancing stocks. The selling rules proved equally crucial for preserving gains when the advance eventually ended. When Sea Containers finally topped after its spectacular run, it exhibited classic climax characteristics: massive volume without corresponding price progress, and exhaustion gaps that signaled the end of institutional accumulation. Those who recognized these technical warning signals and sold their positions preserved substantial profits that others gave back during the subsequent decline. To implement these rules successfully, identify proper chart patterns and mark exact buy points before placing any orders, never chasing stocks more than 5% above their pivot points regardless of how attractive they appear. Set automatic stop-loss orders at 8% below your purchase price to limit damage from inevitable mistakes and changing market conditions. Watch carefully for climax top signals after major advances, particularly three weeks of heavy volume with stalling price action, or gaps up on huge volume that quickly reverse direction. The key to long-term success lies in developing the discipline to follow these rules consistently, especially when emotions suggest otherwise or when popular opinion contradicts your systematic approach. Start with smaller position sizes while learning these patterns, gradually increasing investments as your pattern recognition skills improve and your confidence grows through successful application of these time-tested principles.
Build Wealth Like Professional Investors
The path to substantial investment success requires adopting the mindset and methodology of professional money managers who consistently outperform the market by focusing on facts rather than emotions, following systematic processes, and maintaining unwavering discipline during both euphoric and fearful market periods. These professionals succeed by concentrating their efforts on finding exceptional companies at optimal entry points rather than trying to predict short-term market movements or following popular investment themes. Consider the approach of legendary fund manager Peter Lynch during his remarkable tenure at Fidelity Magellan Fund in the 1980s. Lynch didn't rely on complex economic forecasts or sophisticated market timing strategies—instead, he focused relentlessly on identifying companies with accelerating earnings growth, innovative products, and strong competitive positions in expanding markets. He discovered future winners like Dunkin' Donuts, Taco Bell, and The Limited when they were still small, rapidly growing companies rather than waiting for them to become obvious success stories that everyone recognized. Lynch's extraordinary success stemmed from recognizing that the best investment opportunities often hide in plain sight, requiring careful analysis rather than insider information or complex theories. While other investors sought elaborate strategies or tried to predict macroeconomic trends, he simply looked for businesses he could understand that were growing faster than their competitors and gaining market share in expanding industries. He held these positions for years rather than months, allowing the power of compound growth to work its magic and generate returns that consistently beat the market by substantial margins. To adopt this professional approach, focus your research on companies demonstrating earnings growth of at least 25% annually with strong returns on equity exceeding 17%, indicating efficient management and profitable operations. Concentrate on businesses with products or services you can understand and evaluate, avoiding complex industries or business models that even experts struggle to analyze accurately. Build substantial positions gradually in your highest-conviction ideas rather than spreading money thinly across dozens of mediocre opportunities that lack the potential for significant gains. Most importantly, think in terms of years rather than quarters when evaluating your investment timeline, understanding that the greatest wealth is built by those who identify exceptional companies early in their growth cycles and maintain positions through multiple years of expansion. Professional money managers succeed by concentrating their largest investments in their best ideas while maintaining strict selling disciplines to protect against major losses, a approach that individual investors can adapt to build substantial wealth over time.
Summary
The journey from novice to successful investor requires embracing a fundamental truth that separates winners from those who struggle: the stock market rewards those who study its patterns, follow proven principles, and maintain unwavering discipline in their approach. As this systematic methodology demonstrates, "the winning investor's objective should be to have one or two big winners rather than dozens of very small profits," a philosophy that requires patience and courage to act differently from the crowd but delivers life-changing results for those committed to mastering these time-tested principles. Your transformation begins today by studying three potential investments using these proven criteria, marking exact buy and sell points on their charts, and taking the first step toward building the disciplined habits that will serve you throughout a lifetime of successful investing.
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By William J. O'Neil
