Page 1027 - How to Make Money in Stocks Trilogy

20 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

ing, since those are the stocks most likely to make a big gain. And just as
importantly, you want to sell and get out of the way when you see fund man-
agers start to unload their shares, since those stocks will likely drop sharply.
The next 3 CAN SLIM letters outline the kind of institutional buying you
want to see in a stock before you invest:

S Supply and demand
At key buy points, the best stocks will have above-average increases in volume
(i.e., a sharp rise in the number of shares traded). That shows fund managers
and other professional investors are heavily buying that stock.

L Leader or laggard
Focus on the top-rated stocks in the top-ranked industry groups. A stock
becomes a true leader by showing strong earnings and innovation (“C,” “A” and
“N” in CAN SLIM) and by being the clear leader in a top-ranked group—where
institutions are putting their money.

I Institutional sponsorship
“Institutional sponsorship” refers to ownership of a stock by large institutions,
primarily mutual funds. Look for an increasing number of funds owning a stock
in recent quarters, plus ownership by a few top fund managers that have out-
performed the market over the last one or two years. It’s good confirmation to
see these top investors buying a stock you’re considering.

Follow the Funds!
“It’s key to buy the better stocks mutual funds buy and avoid ones
they may be selling on a heavy basis. Trying to go against this
monumental amount of trading will only hurt your results.”
—WILLIAM J. O’NEIL, IBD CHAIRMAN AND FOUNDER

Bottom line: Make sure some mutual fund managers are moving heavily
into a stock before you buy. And when they start to sell aggressively, move to
the sidelines and get out of the way.