The 3 “Big Rocks” Of CAN SLIM Investing

Excerpt from How to Make Money in Stocks Getting Started by Matthew Galgani.

The buying and selling checklists in this book—and all the stock screens and 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 CAN SLIM investing—at workshops, in videos, at IBD Meetup groups, in a monthly newsletter, and on our radio show.

There’s one piece of advice I give to anyone just starting out: Don’t overcomplicate it! Keep it simple.

Yes, there are important details and some things that take a little time and effort to learn, like how to read a stock chart. But all of them can be broken down into a few simple concepts you can learn step by step, using checklists to guide 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 tiny pebbles—the details—later, but when you’re getting started, make sure you stay focused on what matters most. When it comes to understanding why the CAN SLIM Investment System works so well and how you can use it to make money in the market, it comes down to 3 “big rocks” you always  want to put in first:

• Big Rock #1: Only buy stocks in a market uptrend. Take defensive action as a downtrend begins.
• Big Rock #2: Focus on companies with big earnings growth and a new, innovative product or service.
• Big Rock #3: Buy stocks being heavily bought by institutional investors. Avoid those they’re heavily selling.

As you go through this book—and, most importantly, as you start using the checklists and Simple Weekend Routine to invest—always keep those 3 “big rocks” in mind.

They may not make sense to you just yet (they will very soon)—or maybe they seem overly simplistic at first. But IBD’s study of every top stock since 1880 shows that always starting with these 3 core tenets is the key to making money in the market.

Matthew Galgani is a native Californian who has been with Investor’s Business Daily since 2003. Prior to joining IBD, he lived in Japan for 10 years, where he helped establish publishing and entertainment company, TOKYOPOP, working with Sony Music Entertainment, JVC, SoftBank and others to set up licensing, distribution and financing partnerships.