O’Neil is one of the greatest stock traders of his generation, achieving 5,000% returns on his portfolio over a 25-year period. Should you bet on growth stocks or value stocks? Should you buy stocks only after they fall, because they’re available at a cheaper price? Or should you buy even rallying stocks with the hope and expectation that they’ll rise more? These are common questions that haunt every investor in the market day in and day out.
Noted investor, stockbroker and author William O’Neil offers solutions to this question in his classic book How to Make Money in Stocks: A Winning System in Good Times and Bad.
After studying hundreds of charts dating back to the 1880s and analyzing stock prices to figure out patterns that increase the odds of success, he concluded that it pays to always buy strong, upward-trending stocks.
O’Neil is one of the greatest stock traders of his generation, achieving 5,000% returns on his portfolio over a 25-year period.
He was born March 25, 1933, in Oklahoma City and graduated from Woodrow Wilson High School in Dallas in 1951. He studied business at Southern Methodist University and received his bachelor’s degree in 1955. He later served in the US Air Force.
O’Neil started his career as a stockbroker at Hayden, Stone & Co. in 1958, where he developed an investment strategy that made use of computers.
While at Harvard Business School, O’Neil invented the CANSLIM strategy, a bullish formula for determining which stocks are likely to grow. He also became a top-performing broker at Hayden Stone.
In 1963, he founded William O’Neil + Co. and developed the first computerised daily securities database and sold its research to institutional investors, tracking more than 70,000 companies worldwide.
O’Neil also founded the influential investment publication Investor’s Business Daily, which News Corp acquired by in 2021.
Investment strategy
O’Neil’s CANSLIM strategy combines fundamental analysis, technical analysis and risk management. It delivered some 2,763% returns over 12 years.
O’Neil’s use of computers to collate and analyze stocks data played a key role in his investing success throughout the 1960s and 1970s.
CANSLIM strategy is an acronym that stands for:
C: Current quarterly earnings per share (up at least 25% vs. year-ago quarter).
O’Neil says when investors look for companies to invest in, they should compare the current quarterly earnings per share figure with that of the same quarter in the previous financial year. The higher the percentage of growth, the better the company is fundamentally.
A: Annual earnings increase at a compound rate of no less than 25%.
O’Neil says the revenue that a business generates should preferably grow year over year. Hence, one should look for companies with an annual earnings growth rate of 20-25% over the past 3-5 years.
N: New products, new management and new highs.
O’Neil says ones should preferably invest in companies that are on a continuous path towards innovation and development. Without the release of any new product, service, or event, a company’s stock price is likely to stay stagnant and not appreciate in price. On the other hand, if a company is constantly developing new products or is in the news for positive reasons, the stock price is likely to witness a huge boost.
S: Supply and demand
O’Neil says a company’s stock should ideally be scarce in supply, backed by strong demand. This ensures that the stock enters the excessive demand territory, which can rapidly push up its price.
L: Leaders and laggards. Investors should keep track of stocks that outperform and get rid of the laggards. One should always look towards investing in a leading company in a leading industry, he says. I: Institutional ownership O’Neil is of the view that an investor should always look at the institutional shareholding pattern of a company before investing in it. A company that’s favourable for investing should have a higher level of institutional ownership. M: Market direction According to O’Neil, three out of four stocks follow the market trend, and when the intermediate trend is bearish, investors shouldn’t invest. He says an investor should thoroughly analyze the market movement to confirm a strong uptrend before deciding to invest in a company.In his book, O’Neil lists out 20 common mistakes that an investor should avoid in order to ensure better returns. Here’s a look at them:- Stubbornly holding on to losses O’Neil says most investors can get out of a trade cheaply, but they let emotions get the better of them.“You don’t want to take […]
source 20 mistakes that won’t let you prosper in stock investing
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