Understanding William O’Neil’s Approach
William O’Neil is a renowned investor and the founder of Investor’s Business Daily. His approach to making money in the stock market, often referred to as the CAN SLIM system, has been a cornerstone for many successful investors. To make money in the stock market using O’Neil’s strategy, you need to understand his principles and apply them effectively.
What is CAN SLIM?
CAN SLIM is an acronym for seven key elements that O’Neil believes are essential for identifying and investing in winning stocks. These elements are: Current Quarterly Earnings per Share (EPS), Annual Earnings per Share Growth, New Products, Supply and Demand, Leadership, Institutional Sponsorship, and Market Direction.
1. Current Quarterly Earnings per Share (EPS)
Start by looking at a company’s current quarterly earnings per share. O’Neil emphasizes the importance of companies that are consistently growing their EPS. Look for companies with a strong track record of increasing earnings over the past few years.
2. Annual Earnings per Share Growth
Next, consider the company’s annual EPS growth. O’Neil suggests looking for companies with a minimum of 25% annual EPS growth over the past few years. This indicates a company that is growing at a healthy pace.
3. New Products
Look for companies that are introducing new products or services. These can be a sign of innovation and potential growth. O’Neil believes that companies with new products often outperform the market.
4. Supply and Demand
Understand the supply and demand dynamics of the stock. O’Neil advises looking for stocks with strong demand and limited supply. This can be seen in high trading volume and a rising stock price.
5. Leadership
Identify strong leadership within the company. O’Neil believes that a company with a visionary and capable leader is more likely to succeed. Look for a CEO with a strong track record and a clear vision for the company’s future.
6. Institutional Sponsorship
Check for institutional sponsorship of the stock. O’Neil suggests looking for stocks that are held by institutional investors, such as mutual funds and pension funds. This indicates that professionals believe in the stock’s potential.
7. Market Direction
Finally, consider the overall market direction. O’Neil advises investing in a bull market, where the market is trending upward. Avoid investing in a bear market, where the market is trending downward.
Implementing CAN SLIM
Once you have identified a stock that meets the CAN SLIM criteria, it’s time to implement your strategy. O’Neil suggests using a stop-loss order to protect your investment. This order will sell your stock if it falls a certain percentage below your purchase price.
Monitoring Your Investments
After you’ve made your investment, it’s important to monitor it closely. O’Neil advises checking your investments daily to ensure they are performing as expected. If a stock is not meeting your expectations, don’t hesitate to sell it.
Real-World Examples
Let’s look at a few real-world examples of companies that have successfully implemented O’Neil’s CAN SLIM strategy. Apple Inc. (AAPL) is a prime example. The company has consistently grown its EPS, introduced new products, and has strong institutional sponsorship. Similarly, Amazon.com Inc. (AMZN) has seen significant growth due to its innovative approach and strong leadership.
Conclusion
William O’Neil’s CAN SLIM system is a powerful tool for making money in the stock market. By understanding and applying his principles, you can increase your chances of success. Remember to do your research, stay disciplined, and monitor your investments closely.
