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

Yet, a smart investors have a few techniques and strategies in their arsenal to protect themselves against market-timing and enjoy a more aggressive investment strategy with relatively low-risk: Dollar Cost Averaging and Crystallization.

Dollar Cost Averaging (DCA)

DCA is a strategy where you buy a fixed amount of the same share on a regular basis, usually monthly. It enables you to not be subject to bad market timing, helping you reduce your risk exposure. After all, you are sure to not buy a market at the wrong time as you will balance your investment the following period with the same amount of dollar. When your share’s price is going down, your dollars will buy you more shares. Of course, the contrary is also true. You buy less share when their value goes up. You end up with a slightly lower average cost, assuming the fund fluctuates up and down.

It is a very sensible approach, especially when you are starting to build up your wealth. As an example, it work great when you want to prepare yourself for retirement and decide to commit yourself to investing a fixed amount of your salary every month. It shouldn’t come as a surprise that it is a very popular strategy among investors, brokerage firms and mutual funds.

Yet, as with every strategy, it does not work every time. Some studies and analysis (here and here) have proved it to be no better than single investment when considering a single fund or investment. True enough enough, this strategy is not a panacea. But if you counter-balance its draw back with a Diversification / Crystallization Strategy, it can work wonders.

Diversification / Crystallization

The Diversification / Crystallization Strategy is pretty simple in its concept and work in two steps.

The first is to diversify your investment across a few companies, markets and sectors. You need to consider multiple companies in multiple sections across multiple markets so as to manage your risk along the way. The old fashioned “don’t have all your eggs in the same basket” advice.

The second is to review your portfolio on a regular basis and make adjustments. After a few months, you will realize that some of your position will be reaching for the sky, other have stagnated (or gone up slightly), when others started digging themselves nice little holes. The Crystallization part kicks in when you realize your profit on the ones you think have peaked. You then can re-invest this money in a new position or strengthen an existing promising one. Most of your other positions will remain the same, waiting for their time. You somtimes will have to cut your losses on a bad position. But thanks to cost averaging, your losses would not be as bad as they could have This help you optimize your profit as you sell when the market is up and minimize your bad luck thanks to cost averaging.

Pretty straight forward concept isn’t it? And the great part is that once nicely set-up, it work on its own. Select the right platform to invest with. Choose a few markets / funds that you like. Arrange for a direct transfer to buy your shares / funds once you receive your monthly income. Sit back in your chair, and simply wait a few months before reviewing your positions. No magical tricks, simply a nicely set up strategy which you stick to.

N.B. 1 – These strategies will bail you out of a declining market, you will still lose money. Nor will it get you fully invested in the earliest stage of a rising market. But you don’t have to ask yourself when to start. Tomorrow is as good a time as ever. It even is better than the day after as you can rip the benefits of your commitment earlier!

N.B. 2 – My crystallization strategy is quite different from the common one. To read more on the common meaning of crystallization in finance I invite you to check the following Investopedia article.

So when I received this very simple and straight forward summary in a Credit Suisse article recently & wanted to share it here.

Money before Money
The use of proto-money may date back to at least 100,000 years ago with the use of Shell or red Auchre.

Payments in Precious Metals
The Code of Hammurabi in Babylonia includes laws governing banking operations. It describes payments in weighted amounts of silver around 1780 B.C.

Coins
The first coins are produced in Lydia (in Asia Minor) around 650 B.C. They were composed of a mixture of gold and silver (electrum be the geek term).

Derivatives
Aristotle mentions the use of a call option-like agreement with olive presses in his writings dating back to around 300 B.C. By deduction – Philosophs love deductions – we can assume that option-like agreements were common in ancient Greece.

Bank Notes
Chinese were the first to use bank notes. We have a first record mentioning a note from 1024. Swedesh were the first European to issue bank notes through the private company Stockholm Banco in 1661.

Bonds
The earliest-known bond was issued by the Bank of Venice in 1157 to fund a war with Constantinople.

Commodity Futures
Merchants began to finance their trading expeditions by selling goods they expected to receive before actually possessing them during the Renaissance.

Shares
The Dutch East India Company, founded in 1602, issued the first negotiable share certificates in 1606. These were traded on the Amsterdam stock exchange.

Financial Futures
The first financial futures contracts were traded in 1972. Their popularity surged with the abandonment of fixed exchange rates in the ’70s.

E-payments
Electronic payments exceeded cash transactions in the US in 2003.

By the way – the scientific study of money and its history is called Numismatics. To your surprise, I’m sure you know some Numismaticians. All coins collectors are considered Numismaticians

The financial markets are packed with slang. I thought it would be interesting starting a new category which will describe a few specific words or slang concept associated with the markets. Let’s start this new “terminology” category with a slang which I recently came across in a discussion: Bull & Bear Markets.

The use of “bull” and “bear” to describe markets comes from the way each animals attack an opponent. A bull will attack with horns high up in the air. The bear will slash down its paws. It’s quite easy to grasp this allegory: if the trend is up it’s a bull market; if the trend is down, it’s a bear market.

Bull Market
A bull market is characterized by optimism. Investor confidence is high; the markets are on the rise, and they expect them to keep going north for quite some time. As investors are logical homo-economicus, they will take advantage of this situation and buy in anticipation of further capital gain. They usually happen as a result of an economic recovery, an economic boom or investor psychology.

Bear Market
A bear market is characterized by pessimism. Investors lose confidence in the market; they anticipate them to go south in the future; as a result, they sell their stock to freeze their profit – or limit their losses. The negative sentiment feeding on itself from there. They usually occur as a result of a moribund economy, with high unemployment and / or inflation rising.