The book recommend buying stock following the “CAN SLIM” methodology. CAN SLIM is a formula Mr. O’Neil found after many years studying the markets and which he credits with his success in trading. What I liked about it is the hands-on of / no BS of his formula. Here are are my notes.

C- Current Quarterly Earnings per Share

• Only buy stocks which QEPS  have risen by a minimum of 20% year on year
• Make sure the last two quarters are positive
• If two successive quarters are in the red, the stock may be trouble

A – Annual Earning Increase

• Only buy stocks that have a compounded growth rate of earning superior by at least 25% year on year
• It is imperative that this is coupled with the +20% QEPS
• P/E ratios should be ignored

N- New Management, Products, Highs

• 95% of stunning successes have a new product or management
• Look for companies emerging from price consolidation patterns
• Forget cheap stocks, they are usually cheap for a reason

S – Supply and Demand

• Small supply = better performance
• Stocks with a large percentage of ownership from Management are good bet
• Regular share buy-back may lead to higher earning per shares
• Lower debt ratios are better
• Look for volume increase when stocks are going up

L – Leader or Laggard

• Buy the best two or three stocks in a group
• Stocks’ relative price strength need to be superior to 80
• Overall strength line should not be going down (ex. 85, then 80, then 78)
• Sell the worst performing stocks first

I – Institutional Sponsorship

• Winning stocks need 3 to 10 institutional owners (funds, pensions, insurances etc.)
• Shy away from over owned stocks by institutional
• Try to find the intelligent, highly informed institutional to follow their actions

M – Market Directions

• Track and interpret the daily price & volume chart of the general market
• Follow the leading stocks evolutions
• The big money is in the first two years of a Bull Market

I found the rest of the book to be less interesting. Still a few gems to extract, but otherwise, the author was mainly sharing his experience and going into more details about his past 35 years as an investor. Here are the few gems I extracted

• Sell if your stock take a dive.
• Ask yourself regularly “Do I want to buy this stock now ?”
• Limit your lossed to 7% or 8% for each stock
• Get out while the stock is up and has a chance to break
• Only buy 6 to 7 stocks at one
• No well run portfolio should have losses carried over 6 months
• Never short sell in a bull market
• Never short sell thinly capitalized stocks
• If you like mutual funds, big money is made long term – i.e. 10 to 15 years or more, and increase your investment when in a bear market as a fund always recover
• Keep things simple !!

Here it is folks !
All in all, a highly recommended read.

How To Make Money In Stocks: A Winning System in Good Times or Bad

I also came across this very good graph’

When I saw it, I immediately thought of this one that shows the US housing prices evolution since 1890.

I don’t know for you, but the similarities between these graphs scare me.

Lots of very interesting numbers there. Unfortunately it is too US centered, but after all, Sequoia is a US Company. What’s interesting is that we are coming back to some down to earth, cash is king, good old fashioned obvious advices. Always good to come back to the basics. The real difficulties will be to weather the storms ahead, learn from our mistakes, and try to stick to those obvious advices in the future.

Fortunately, one of the most valuable lessons of my career came in the early 1970s, when I learned about the three stages of a bull market:

1. When a few forward-looking people begin to believe things will get better,
2. When most investors realize improvement is actually underway, and
3. When everyone’s sure things will get better forever.

To aid in your consideration of the future, I’ve formulated the converse of the above, the three stages of a bear market:

1. When just a few prudent investors recognize that, despite the prevailing bullishness, things won’t always be rosy
2. When most investors recognize things are deteriorating
3. When everyone’s convinced things can only get worse

We surely are not in a bull market right now. If I were to guess where we are, I would say in the second phase of a bearish market. Which in my view is good – time to start searching for cheap but fundamentally sound markets !

After a painful period, investors face a stark choice

OWNERS of risky assets suffered agonies in the first three months of the year. Almost without exception, stockmarkets lost ground while the price of corporate debt fell sharply (or to put it another way, spreads widened). Only those who bought the unlikely combination of government bonds and commodities will be looking fondly at their portfolios.

For dollar-based investors, it did not matter much what kind of equities they owned. The MSCI World index was down 9.5%, the American market 9.9%, Europe 9.2% and emerging markets 11.3%. The supposedly uncorrelated Tokyo market (it has tended to go down when others went up) decided to become correlated again at the least helpful moment, dropping 7.7% in dollar terms. And even those numbers are flattered by the decline of the greenback; in local currency, Japan was down 17.8% and Europe 16.2%.

“Be greedy when others are fearful” is one of Warren Buffett’s aphorisms and it is possible that this is one of those times. After all, most people are convinced that the American economy is in recession, and sentiment is depressed. The demise of Bear Stearns could mark the bottom of the crisis, and the cavalry are finally on their way: the Federal Reserve and the American Treasury are supplying both a monetary and a fiscal stimulus.

Read more by following this link.