Friday, August 7, 2009

O'Neil, How to Make Money in Stocks

How time flies when you’re having fun! I still have the first edition (admittedly revised) of William J. O’Neil’s How to Make Money in Stocks: A Winning System in Good Times or Bad on my shelf. The book is now available in an updated fourth edition (McGraw-Hill, 2009), and it’s about twice as long as the first edition. One reason for the increased length is that this edition includes 100 charts of the greatest winners from 1880 through 2008.

O’Neil is, of course, the founder of Investor’s Business Daily, a paper best known for its “SmartSelect” corporate ratings—in particular the relative price strength rating. He is also the developer of the CAN SLIM trading method, detailed in this book. Despite the fact that over two million copies of this book have been sold since it first appeared in 1988, the CAN SLIM method apparently hasn’t lost its edge. Note, however, that the CAN SLIM Select Growth fund from Fidelity—CANGX—has had a pretty mediocre record since its inception in 2005; I don’t know whether this reflects on the method or the managers. The fact that at last report they had almost 14% of their holdings in index ETFs (small cap, mid cap, and large cap) might explain why they have had a hard time beating the S&P 500. The chart below reflects the fund’s performance as of 6/30/09.

CAN SLIM Private Clients, managed by the same firm responsible for the Fidelity mutual fund, reports the following much healthier returns.

Whatever the case, O’Neil’s book has always been a sound starting point for the active investor willing to combine fundamental and technical factors to search for stocks that can outperform the market. It belongs on every investor’s shelf.

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