How to Make Money in Stocks Getting Started: A Guide to Putting CAN SLIM Concepts into Action (BUSINESS BOOKS) - Softcover

Galgani, Matthew

Softcover

ISBN 10: 0071810110 ISBN 13: 9780071810111

Publisher: McGraw Hill, 2013

Synopsis

The #1 GROWTH STRATEGY for stock investing

“To be a successful investor, start with the basics and stick to the rules. Matt’s book shows you how to do that. It may be the missing link you’ve been looking for.”
―William J. O’Neil, Investor’s Business Daily Founder and Chairman

“Getting Started takes the guesswork out of investing. Anyone can use these routines and checklists to become a successful investor.”
―Amy Smith, How to Make Money in Stocks―Success Stories

Through both bull and bear markets, Investor’s Business Daily’s CAN SLIM® Investment System has consistently been the #1 growth strategy, according to the American Association of Individual Investors. How to Make Money in Stocks―Getting Started shows you how to put the CAN SLIM System to work for you.

Using an easy-to-follow game plan designed for busy people, you’ll discover:

• 2 simple rules to protect your money
• 3 critical factors to consider before you buy
• Buying & Selling Checklists to help you capture – and keep – solid gains
• Easy-to-follow routines
• How to spot―and deal with―major changes in market direction
• Action Steps and online videos to quickly start using what you learn

Getting Started is the latest addition to the bestselling How to Make Money in Stocks series launched by CAN SLIM creator and Investor’s Business Daily founder William J. O’Neil. Millions of investors have used O’Neil’s strategy to build financial peace of mind. Now it’s your turn!

So whether you’re new to the stock market and a little nervous about jumping in―or if you’ve been investing for awhile, but aren’t yet achieving the kind of results you want―How to Make Money in Stocks―Getting Started gives you a clear, step-by-step path to investing success.

About this title

About the Author

Matthew Galgani is co-host of IBD’s How to Make Money in Stocks radio show, editor of the IBDextra Newsletter, and IBD TV® market commentator. With Bill O’Neil, he developed the IBD Meetup Investor Education series used by investing clubs across the country.

Excerpt. © Reprinted by permission. All rights reserved.

How to Make Money in Stocks Getting Started

A GUIDE TO PUTTING CAN SLIM CONCEPTS INTO ACTION

By Matthew Galgani

The McGraw-Hill Companies, Inc.

Copyright ©2013 McGraw-Hill Education LLC
All rights reserved.

ISBN: 978-0-07-181011-1

Contents

Foreword
Introduction
CHAPTER 1 Start Here
CHAPTER 2 The CAN SLIM® Investment System
CHAPTER 3 Buying Checklist
CHAPTER 4 Simple Routines for Finding Winning Stocks
CHAPTER 5 Selling Checklist
CHAPTER 6 Don't Invest Blindly: Use Charts to See the Best Time to Buy and 
Sell
CHAPTER 7 More Tips and Tools for Getting Started Right
Acknowledgments
Index

Excerpt

CHAPTER 1

Start Here

Before we get into the details in later chapters, I want to make sure you seethe primary goals—the big picture—here.

So let's start with a quick look at the investing forest, then we'll startexamining the trees.

If you ever start to feel a little overwhelmed as we go through the checklistsand charts later in the book, take a breather and come back here. You may evenwant to put in a bookmark or dog-ear this page as a reminder.

That will help you stay grounded and focused on what matters most: Using basicrules and routines to both grow—and protect—your money.

How to Protect Your Money

The Basic Game Plan for Making Money in Stocks

Action Steps

How to Protect Your Money

Talking about how to protect your money—how to avoid big losses—isnot the most exciting way to kick off a discussion about building wealth. Butit's absolutely critical.

Job #1 in making money in stocks is to protect the money you already have.

And you can do that just by following two basic rules. They will protect youeven when—in fact, especially when—the market becomes volatile andslips into a downtrend.

When we go through the Selling Checklist later in the book, you'll see severalcommon signals that tell you it's time to lock in your gains or cut any losses.Over time, you'll become better and better at spotting those signs, but fornow—at a minimum—be sure to stick to these two rules. They'll helpyou safeguard your money as you learn new ways to grow it.

1. If a Stock Drops 7% to 8% Below What You Paid for It, Sell. No QuestionsAsked.

This one simple rule puts a cap on potential losses—like having insuranceto protect you against whatever the market does. Simple and sensible.

You'll find it's much easier to grow your money if you follow this rule. Insteadof trying to make up for larger losses, you'll be adding to and compounding yourgains.

I can't emphasize enough how important this rule is.

Every investor—including legendary traders like Bill O'Neil—makesmistakes. But successful investors quickly acknowledge those mistakes— andcut their losses short. Always. You should do the same, and you can do it byfollowing this one simple rule.

See the Selling Checklist section for more on this rule—and how I learnedit the hard way.

2. Only Buy Stocks When the Overall Market Is in a "Confirmed Uptrend"

IBD's study of every market cycle since 1880 shows 3 out of 4 stocks move in thesame direction as the overall market, either up or down.

The "overall" or "general" market refers to the major indexes, primarily theNasdaq Composite, S&P 500, and Dow Jones Industrial Average.

When the market is trending down, about 75% of all stocks will eventuallydecline with it.

Does that sound like a good time to buy stocks? To keep the odds in your favorand make it much easier to grow your money, be sure to only make new purchaseswhen the market is in an uptrend.

As you'll see in the next section, "The Basic Game Plan for Making Money inStocks," you'll know if the market is in an uptrend or downtrend simply bychecking the Market Pulse inside IBD's The Big Picture column.

Only make new buys when the current outlook is "Confirmed uptrend."

See the Buying Checklist section for more on this key rule and how to apply it.

Protect and Prosper

Most people start out focusing on what stocks to buy and ignore the otherabsolutely critical part of the puzzle—when to sell.

All too often, a new investor won't realize he or she needs some sell rulesuntil after suffering a large loss. Don't let that happen to you!

Start off right by sticking to these two basic rules. They'll help protect yourmoney as you learn to pick winning stocks and prosper.

The Basic Game Plan for Making Money in Stocks

We'll go through the CAN SLIM® Investment System in the next chapter, butfor now just understand that by using this approach, you can:

• See when the market trend is changing so you'll always know if it's time to buystocks or take defensive action.

• Identify stocks with the most potential by looking for 7 traits the biggestwinners typically display just before they launch a major price move.

Then, using the routines and checklists in this book, you'll see the specificsteps you can take to make money in:

• Individual stocks

• Exchange-traded funds (ETFs) that cover the Nasdaq and S&P 500

• Or a mix of both stocks and ETFs

The focus of this book is on individual stocks. The biggest winners in a strongbull market can go up 100%, 300%, even 1,000% or more. In the bull cycle thatstarted in March 2009, Apple, Priceline, Lululemon Athletica, Ulta Beauty, GreenMountain Coffee Roasters, Chipotle Mexican Grill, Rackspace Hosting, 3D Systems,Michael Kors, and many others did just that. In other words, the huge, life-changinggains are made by zeroing in on the true market leaders—andyou'll see how to do that using the Simple Weekend Routine and Buying Checklist.

That said, you can generate solid gains following the ETF approach we'll go overin a minute, and it takes less time.

Should You Invest in Stocks, ETFs, or Both?

The choice is up to you. There is no right or wrong answer, and you can alwaysdo both: Put a certain percentage of your money into individual stocks andanother portion into an index-based ETF.

Many CAN SLIM investors follow a mixed approach, and I think it's an excellentway—especially for new investors—to get started.

Basic Game Plan for Making Money in Exchange-Traded Funds (ETFs)

As we'll see again and again throughout this book, staying in sync with thegeneral market trend is the first crucial step to making money—whetheryou're trading stocks or ETFs. The reason for that will become crystal clear ina minute.

What is an Exchange-Traded Fund?

An ETF is essentially a "basket" of stocks compiled into one "fund" that you canbuy and sell just like an individual stock. It could be a sector-based ETFfocused on a particular industry, such as energy or real estate. Or it could bean index-based ETF that tracks the S&P 500 or another index as a whole.

For this game plan, we'll focus on index-based ETFs that give a broaderrepresentation of the general market.

3 Easy Steps

IBD has a simple approach to tracking the general market trend. (We'll get intothe details in the Buying Checklist section.)

Each day, you can check the Market Pulse in IBD's The Big Picture column to seewhich of 3 possible stages the market is in right now:

Based on that, you can see if it's time to buy, sell, or hold an index-basedETF. Here's how it works.

The following chart shows how this simple approach can help generate significantprofits. Think back to the severe bear market that started in late 2007, thenlook at how the Market Pulse alerted readers to that change in trend—andlater noted the start of a new bull cycle in March 2009.

How IBD's Approach Nearly Doubled the Nasdaq Performance

Following the 3-step approach listed above, from August 15, 2006 (start of newuptrend) to March 28, 2013 (last trading day of first quarter), IBD's MarketPulse strategy gained 97% compared to a 54% gain for the Nasdaq and a 55% gainfor the S&P 500. While that does not guarantee you'll get those kinds of gainsin every market cycle, it does show how this approach has the potential togenerate significant profits.

Keep in mind: Those gains were generated even with the severe 2008 bear marketcaused by the housing and financial crisis.

How many people do you know made—and held on to—a 97% gain from2006–2012? If you had invested $10,000 the day after the Market Pulsechanged to "Confirmed uptrend" on August 15, 2006, it would have grown to over$19,000 just by following this simple strategy.

So whatever your goal is—building a college fund for your kids, paying offyour mortgage, having a worry-free retirement—you can see how thisapproach may help you achieve it over time.

Tips on How to Generate ETF Profits

* Check out a short video that shows how you can use stop-loss orders and othersimple steps to help generate substantial returns atwww.investors.com/GettingStartedBook.

Basic Game Plan for Making Money in Individual Stocks

Now that we've seen how you may make substantial profits investing in index-based ETFs, let's see how to potentially capture even larger gains by buying andselling individual stocks.

Keep in mind: In a strong uptrend, the top-rated CAN SLIM stocks typically go upmuch more than the Nasdaq or S&P 500.

For example, from the start of a new bull market on March 12, 2009, through May4, 2010, when the market slipped into a downtrend, the Nasdaq gained 70%. Duringthat same period, the market leaders of the time shot up even more: LululemonAthletica (522%), Ulta Beauty (322%), Baidu (309%), Priceline (231%).

Of course, let's manage expectations and be realistic.

Not even the best investors capture every last dollar of a big winner's move.(In fact, trying to do that will just get you into trouble as we'll see later.)But you can lock in a good-sized portion of those huge gains—and a littlepiece of a 300% move means a nice boost for your portfolio.

Yes, it takes more effort and elbow grease to tap into those potentially"monster" gains in individual stocks, but that's why you're reading this book,right? And once you get familiar with the routines and checklists, I thinkyou'll be pleasantly surprised at how you can do this by sticking to a step-by-stepapproach. (To see what I mean, check out the Simple Weekend Routine inChapter 4).

And I'll show you how to get started, one step at a time, using easy-to-followchecklists. We'll start right now with a quick overview of the basic 3-step gameplan.

We'll cover the details of each step as we go through the buying and sellingchecklists. But for now, let's take a peek at these 3 steps in action.

Step 1: Only Buy When the Overall Market Is in an Uptrend

You can always see if the market is in an uptrend or downtrend just by checkingthe Market Pulse in The Big Picture column. In the following chart, you can seehow the Market Pulse outlook helped investors buy and sell at the right time in2010.

Step 2: Buy Stocks with CAN SLIM Traits as They Break Out of a Telltale ChartPattern

Even if you're not yet familiar with charts, you'll find highlights of top-ratedstocks—and alerts to potential buy points—in the IBD® 50, YourWeekly Review, Sector Leaders, and other features.

Step 3: Take Most Profits at 20% to 25%. Cut All Losses at No More Than 7% to8%.

Start with this simple selling plan to make sure you lock in some good gains andavoid any serious damage.

To a large degree, the same can be said of investing.

In the chapters ahead, we'll go through checklists that outline the traits ofwinning stocks, and see what buy and sell signals to look for in a chart. Thoseare all important details that you'll need to learn to be a successful investor.

But never lose sight of the big picture—and the basic game plans we justwent through. With all the news and noise that surrounds the market, it's easyto overthink investing and become the proverbial deer in the headlights.

So especially if you're just getting started, stick with the simple game plansand routines we'll cover in this book. They'll keep you focused on the big-ticket items that ultimately determine if a stock heads up—or down.

And in the next chapter, we'll find out what those key factors are.

CHAPTER 2

The CAN SLIM® Investment System

The 3 "Big Rocks" of CAN SLIM® Investing

The CAN SLIM Concept

The 7 Traits of Winning Stocks

CAN SLIM Case Studies

Action Steps

The 3 "Big Rocks" of CAN SLIM Investing

The buying and selling checklists in this book—and all the stock screensand tools you'll find in IBD®—are based on the CAN SLIM®Investment System, developed in the 1960s by IBD founder and chairman William J.O'Neil.

For years now, I've had the privilege of helping people get started with CANSLIM investing—at workshops, in videos, at IBD Meetup groups, in a monthlynewsletter, and on our radio show.

There's one piece of advice I give to anyone just starting out: Don'tovercomplicate it! Keep it simple.

Yes, there are important details and some things that take a little time andeffort to learn, like how to read a stock chart. But all of them can be brokendown into a few simple concepts you can learn step by step, using checklists toguide you. And that's what we'll do together throughout this book.

I love the saying, "Put the big rocks in first." You can always add the tinypebbles—the details—later, but when you're getting started, makesure you stay focused on what matters most.

When it comes to understanding why the CAN SLIM Investment System works so welland how you can use it to make money in the market, it comes down to 3 "bigrocks" you always want to put in first:

• Big Rock #1: Only buy stocks in a market uptrend. Take defensive action as adowntrend begins.

• Big Rock #2: Focus on companies with big earnings growth and a new, innovativeproduct or service.

• Big Rock #3: Buy stocks being heavily bought by institutional investors. Avoidthose they're heavily selling.

As you go through this book—and, most importantly, as you start using thechecklists and Simple Weekend Routine to invest—always keep those 3 "bigrocks" in mind.

They may not make sense to you just yet (they will very soon)—or maybethey seem overly simplistic at first. But IBD's study of every top stock since1880 shows that always starting with these 3 core tenets is the key to makingmoney in the market.

The CAN SLIM Concept

CAN SLIM investing is based on two simple ideas:

• To find tomorrow's big winners, look for stocks with the same traits pastwinners had just before they launched their big runs.

• To know when it's time to sell, look for the same warning signs these pastwinners flashed when they eventually topped and began to decline.

What Does a Winning Stock Look Like Before—and After—It Makes ItsBig Move?

In the late 1950s, Bill O'Neil was a young broker who asked a simple question:What common traits do the best stocks have before they make their big pricemoves?

To find out, he began studying the biggest winners of all time. These werestocks that went up 100%, 300% or much more very quickly, often in just 1 or 2years.

These were the days before personal computers and the Internet, so Bill coveredhis office walls and cabinets with charts and reams of data. He studied everyavailable performance metric to see which ones truly mattered— to see whatcharacteristics and telltale signs these top-performing stocks displayed justbefore they rocketed higher. He found:

The best stocks display seven common traits just before they make their biggestgains.

Each letter in CAN SLIM stands for one of those traits, and they form the basisof the rules you'll find in the Buying Checklist.

Bill also studied what happens to leading stocks after they've had a big run.Just as they share certain traits before they surge, they also flash similarwarning signs as they top and begin to decline. Those signals form the basis ofthe sell rules you'll find in the Selling Checklist.

Over 130 Years of Market History

The study O'Neil launched in the 1960s continues to this day and now coversevery market cycle and top-performing stock from 1880 to the present.

Whether it's Bethlehem Steel in 1914, Xerox in 1963, Google and Apple in 2004,Priceline.com in 2010, SolarWinds in 2011, or 3D Systems in 2012, year afteryear, decade after decade, the biggest winners display these same 7 CAN SLIMtraits just before they launch their massive runs.

The company names will change, new technology and industries will emerge, butthe basic profile and attributes of an emerging big winner always look the same.So once you understand what to look for, your search for the next game-changingstock won't be based on hunches or hype. It'll be based on history and atargeted checklist of specific, telltale signs.

Only about 1% to 2% of all stocks will have these CAN SLIM characteristics. Butas the results of an independent study by the American Association of IndividualInvestors (AAII) show, it pays to be picky: If you stay disciplined and look forstocks with CAN SLIM traits, you will spot today's most promising stocks in theearly stages of their big moves.

#1 Growth Strategy from 1998–2012

Since 1998, the American Association of Individual Investors has been conductingan ongoing, real-time study of over 50 leading investing strategies. From1998–2012, AAII found the CAN SLIM Investment System was the #1 growthstrategy, generating an annualized return of 24.7%.

Think about all of the roller-coaster rides we had in the market during those 15years: The dot-com boom and bust, the 2003 bull market, the housing andfinancial crisis in 2008, and the bull market rebound in 2009.

(Continues...)

Excerpted from How to Make Money in Stocks Getting Started by Matthew Galgani. Copyright © 2013 by McGraw-Hill Education LLC. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Edition details

• Publisher: McGraw Hill
• Publication date: 2013
• Language: English
• ISBN 10: 0071810110
• ISBN 13: 9780071810111
• Binding: Paperback
• Edition number: 1
• Number of pages: 304