How to Make Money in Stocks by William J. O'Neil Summary

How to Make Money in Stocks outlines the CAN SLIM strategy, a system combining fundamental analysis (earnings growth, new products) with technical chart patterns like the Cup with Handle. It teaches identifying market-leading stocks, timing entries/exits, and managing risk through historical precedent. The book emphasizes data-driven discipline to achieve consistent profits across market conditions.

This book suits novice investors seeking a structured approach and experienced traders refining their strategies. It’s ideal for those interested in blending earnings analysis with chart patterns and readers who prioritize empirical stock behavior over theoretical models. O’Neil’s real-world examples make complex concepts accessible to self-directed learners committed to active investing.

Yes, for investors wanting a proven, rules-based system. While some note its promotional tone toward O’Neil’s Investor’s Business Daily, the CAN SLIM methodology’s focus on historical data and actionable criteria provides measurable value. Over 400,000 copies sold since 1988 and updates for modern markets underscore its enduring relevance.

CAN SLIM is a seven-factor framework:

• Current quarterly earnings growth (25%+ ideal)
• Annual earnings increases (25%+ over 3 years)
• New products, management, or market highs
• Supply/demand balance (low shares outstanding)
• Leadership in industry performance
• Institutional sponsorship from top funds
• Market direction alignment

This hybrid approach merges fundamental strength with technical timing.

O’Neil advocates screening for companies with accelerating earnings, innovative products, and strong relative price strength. The “Cup with Handle” chart pattern—a U-shaped base followed by a slight pullback—signals potential breakouts. Historical analysis of past market winners (e.g., Microsoft in 1986) provides templates for spotting emerging leaders.

Critics argue the book overly promotes O’Neil’s Investor’s Business Daily and proprietary tools. Some find it dismissive of alternative strategies like value investing, and the CAN SLIM system requires frequent portfolio adjustments that may overwhelm passive investors. However, its empirical focus on winning stocks remains influential.

Unlike Buffett’s long-term value focus, CAN SLIM targets high-growth stocks during uptrends, prioritizing near-term earnings momentum. While Buffett buys undervalued companies to hold indefinitely, O’Neil advocates cutting losses at 7-8% and selling after 20-25% gains. Both emphasize rigorous research but diverge on time horizons and risk tolerance.

The 2025 market’s emphasis on AI and renewable energy aligns with CAN SLIM’s focus on innovative sectors. O’Neil’s rules for managing volatility through stop-loss orders and sector rotation remain critical amid geopolitical and rate uncertainties. Updated editions address algorithmic trading, making it adaptable to modern markets.

This technical formation occurs when a stock’s price drops (forming the cup’s curve), stabilizes, then dips slightly (the handle) before breaking out to new highs. O’Neil cites cases like Tesla in 2013, where this pattern signaled a 1,200% surge. It identifies consolidation phases before major rallies, offering low-risk entry points.

The book mandates strict 7-8% stop-loss limits to prevent catastrophic losses. It advises diversifying across 5-10 stocks and taking profits at 20-25% gains unless market conditions favor extended runs. O’Neil stresses avoiding emotional decisions by adhering to predefined rules.

1. Follow institutional money: Top-performing stocks often have growing fund ownership.
2. Cut losses early: Protect capital by selling underperforming positions swiftly.
3. Focus on leading sectors: 50% of a stock’s move depends on industry group strength.

Use screeners to find stocks with 25%+ earnings growth and RS (Relative Strength) ratings above 90. Monitor sectors dominating performance rankings (e.g., cloud computing in 2025) and watch for Cup with Handle formations on weekly charts. Pair this with real-time news analysis from sources like Investor’s Business Daily.