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Investing in stocks can be a powerful way to grow your wealth, but timing your purchases is critical. Buying a stock too late, after it has already seen significant gains, is akin to missing a flight – you've likely already dropped the opportunity. To maximize your potential for success and minimize risk, it's safer to enter a stock position when it's within a reasonable range of an ideal purchase point.

Why is Timing Your Stock Purchase Crucial?

If you purchase a stock past its ideal buying range, you risk being forced to sell during a natural market pullback, perhaps an 8% correction. To add insult to injury, that same stock might then rebound and reach new highs. At that point, you'd be out of the market, potentially too nervous to re-enter. This scenario highlights the importance of disciplined entry points.

How Can You Identify a Good Stock Purchase Point?

You can avoid a lot of volatility by focusing on a solid purchase point, either from a strong support level or off a suitable "handle" in its chart pattern. A secondary purchase point might appear when a stock pulls back to its 12-week moving average after forming a base. If the stock bounces back with increased volume after finding support at this line, it presents an opportunity to add more shares or take an initial position. In such cases, the buying range typically lies between the support level at the moving average and a small margin above the high it reached before the pullback.

A "good stock" isn't just about a low price; it's about value and potential for growth at a reasonable entry point that you can comfortably afford.

What Are the Risks of Buying Too Late?

Every stock looks excellent at its peak. However, if everyone is talking about a particular stock, and the CEO is appearing on magazine covers and TV, it's almost certainly too late to get in. If everyone already owns the stock, there may not be many new buyers left in the market to drive the price higher. Meanwhile, large holders might want to cash in on their profits, which can drive the stock price down. You can protect yourself by sticking to sound purchase rules.

For example, imagine a stock that had an ideal purchase point at a specific price. Investors who bought within a suitable buying range would likely be doing well. But those who purchased it too high would have had to sell at a loss. As the stock consolidated in the following months, it would have been difficult for those who bought at elevated prices to hold on during such volatility. When the stock eventually re-emerged to new highs, it might have been up significantly from its original ideal purchase point.

Who is William O'Neil and What is CAN SLIM?

From the school of disciplined investing comes the classic How to Make Money in Stocks, by Wall Street publisher and market analyst William O'Neil. Readers new to securities will find it an excellent basic introduction, one that relies on time-tested indicators like quarterly earnings, market capitalization, and daily trading volumes. O'Neil's lessons on winning stocks stretch back to the 1960s, and he shares his approach, describing what characterizes a growth stock, when to cut your losses (at seven to eight percent, no more), and how to identify a market top.

The techniques in How to Make Money in Stocks are hardly revolutionary, but therein lies their strength, as O'Neil states his is a system for winning in good times or bad. Investors interested in Internet stocks might be disappointed, as the author's primary rule is that a company must demonstrate a pattern of rising profits, which often excludes many dot-coms.

Those new to investing would do well to read this book before getting started, and even more seasoned investors and traders may find How to Make Money in Stocks a stimulating return to essentials. Markets may experience bull and bear cycles, but O'Neil's principles remain steadfast. When it was first published, How to Make Money in Stocks impacted the world of investing like a shockwave, providing readers with the first in-depth explanation of William J. O'Neil's innovative CAN SLIM method of investing. Years later, O'Neil, founder of Investor's Business Daily, revised his classic text, providing readers with a fresh perspective on how the average investor can make money in the equities market.

This updated edition of How to Make Money in Stocks has been revised with new lessons designed to help investors improve their performance. New discussions also include:

Frequently Asked Questions

When is it too late to buy a stock?

It's likely too late to buy a stock when everyone is talking about it, and the company's CEO is prominently featured in media. At this point, many potential buyers may have already invested, and large holders might be looking to sell, driving prices down.

What is the CAN SLIM method?

CAN SLIM is an investment strategy developed by William J. O'Neil. It's a time-tested method that relies on specific indicators such as strong quarterly earnings, significant market capitalization, and daily trading volumes to identify growth stocks with high potential.