Key Takeaways:

• Who Is William O'Neil?
• What Is "CANSLIM" Stock Selection Strategy?
• How to Profit Using CANSLIM?

There are many investment methods in the stock market, and the strategies to obtain wealth in the stock market are also different. Whether it is the short-term speculators or the long-term value investors, or even the swing traders, they all have their own strengths, but ultimately they all lead to the same path - continuous profit.

The investment world is never short of legendary stories. The globally renowned "Stock Market Wizard" Warren Buffett is the epitome of value investing. His investment philosophy can be summarized as "finding excellent companies and making long-term investments at reasonable prices." However, the complete investment system is vast and complex, and the depth of his research on stocks and companies is daunting for many investors.

Jesse Livermore was an extraordinary genius speculator, and his autobiography "Reminiscences of a Stock Operator" and his book "How to Trade in Stocks" are timeless classics in the field of speculation. Livermore directly or indirectly proposed trend trading principles such as "the market is always right (follow the market instead of trying to conquer it)", "minimum resistance", "key point buying", "adding to profitable positions", and "profits come to those who wait (timely stop loss and let profits run)". He opened the door to speculation for countless followers.

However, "How to Trade in Stocks" is more macroscopic, mainly focusing on explaining trading concepts, with few examples and quantitative analysis. It wasn't until the trading master William O'Neil wholeheartedly released the investment bible "How to Make Money in Stocks" that this problem was solved.

If Warren Buffett is called the "Stock Market Wizard," then O'Neil, who started from scratch and bought a seat on the New York Stock Exchange in his early thirties, is clearly more like a knowledgeable and hands-on teacher. He covers everything from stock selection, choosing entry and exit points, to how individual investors can make big money by buying funds, and how to find hidden gems in the vast sea of stocks.

By studying O'Neil's investment strategies and practices, the editor's understanding of the stock market has also grown. This article will focus on sharing O'Neil's classic investment methods and concepts, interspersed with other related investment strategies, as well as the editor's insights and experiences in learning and practicing, for communication purposes only and not as specific investment advice.

1. Who Is O'Neil?

William O'Neil was a successful American entrepreneur, investor, and author. He is best known for developing a highly effective investment strategy called CAN SLIM, which stands for Current earnings, Annual earnings, New products/services, Supply and demand, Leader or Laggard, Institutional sponsorship, and Market direction. The CAN SLIM strategy combines fundamental and technical analysis to identify high-growth stocks with strong earnings potential and strong market demand.

At the age of 21, just after leaving campus, O'Neill used $500 as capital to make his first investment - buying 5 shares of Procter & Gamble. In 1958, he worked as a stockbroker at a brokerage firm in Hayden, starting his career in finance. From then on, he began researching stocks, laying the foundation for his later development of a unique stock selection method.

From 1962 to 1963, through trading a few stocks such as Chrysler and Syntex, he turned his initial investment of $500 into $200,000. In the early 1960s, in his prime years, O'Neill used his earnings from the stock market to purchase a seat at the New York Stock Exchange and established a brokerage firm specializing in institutional investments named after himself - O'Neill & Company.

O'Neil founded the investment research firm William O'Neil + Co. Inc. in 1963, which later became Investor's Business Daily (IBD), a popular financial newspaper. He also wrote several influential investment books, including "How to Make Money in Stocks" and "24 Essential Lessons for Investment Success." O'Neil was a proponent of using data-driven analysis and recognizing market trends to make informed investment decisions. His investment philosophy and strategies have been widely adopted by individual investors and professional money managers around the world.

2. O'Neil's Classic Stock Selection Strategy "CANSLIM": How to Find Ten-Bagger Stocks?

2.1 What Is CANSLIM?

CANSLIM is an investment strategy developed by William O'Neil, the founder of Investor's Business Daily. It is a growth stock investing strategy formulated from a study of stock market winners dating back to 1953 in the book How to Make Money in Stocks: A Winning System In Good Times or Bad. This strategy involves implementation of both technical analysis and fundamental analysis.

The objective of the strategy is to discover leading stocks before they make major price advances. These pre-advance periods are "buy points" for stocks as they emerge from price consolidation areas (or "bases"), most often in the form of a "cup-with-handle" chart pattern, of at least 7 weeks on weekly price charts.

The seven parts of the acronym are as follows:

• C stands for Current quarterly earnings. Per share, current earnings should be up at least 25% in the most recent financial quarter, compared to the same quarter the previous year. Additionally, if earnings are accelerating in recent quarters, this is a positive prognostic sign.
• A stands for Annual earnings growth, which should be up 25% or more over the last three years. Annual returns on equity should be 17% or more
• N stands for New product or service, which refers to the idea that a company should have continuing development and innovation. This is what allows the stock to emerge from a proper chart pattern and achieve a new price. A notable example of this is Apple's iPhone.
• S stands for Supply and demand. A gauge of a stock's demand can be seen in the trading volume of the stock, particularly during price increases.
• L stands for Leader or laggard? O'Neil suggests buying "the leading stock in a leading industry." This somewhat qualitative measurement can be more objectively measured by the Relative Price Strength Rating of the stock, designed to measure the price performance of a stock over the past 12 months in comparison to the rest of the market based on the S&P 500 (or the S&P/TSX Composite Index for Canadian stock listings) over a set period of time.
• I stands for Institutional sponsorship, which refers to the ownership of the stock by mutual funds, banks and other large institutions, particularly in recent quarters. A quantitative measure here is the Accumulation/Distribution Rating, which is a gauge of institutional activity in a particular stock.
• M stands for Market Direction, which is categorized into three - Market in Confirmed Uptrend, Market Uptrend Under Pressure, and Market in Correction. The S&P 500 and NASDAQ are studied to determine the market direction. During the time of investment, O'Neil prefers investing during times of definite uptrends of these indexes, as three out of four stocks tend to follow the general market direction.

2.2 What Are Advantages and Disadvantages of The CANSLIM Method?

We must understand that there is no "holy grail" in the stock market, and there is no one method that is foolproof. Therefore, any method will have its strengths and weaknesses, and CANSLIM is no exception.

Advantages:
Strong Emphasis on Growth: CANSLIM focuses on identifying stocks with strong earnings growth, both in the current period and over the long term. This emphasis on growth potential allows investors to target companies that have the potential for substantial price appreciation.

Comprehensive Approach: CANSLIM combines fundamental and technical analysis, offering a well-rounded perspective on stock selection. By considering both the company’s financial health and the market’s supply and demand dynamics, investors can make more informed decisions.

Proven Track Record: CANSLIM has a history of success, with many investors achieving impressive returns using this method. It has been widely embraced by experienced market participants, adding to its credibility and reputation.

Disadvantages:
Complexity: Implementing the CANSLIM method requires a thorough understanding of various financial and technical indicators. It may take time and effort to learn and apply the methodology effectively, especially for novice investors.

Subjectivity in Stock Selection: While CANSLIM provides guidelines, there is still a level of subjectivity involved in selecting stocks. Determining which companies truly have the potential for significant growth and meet all the criteria can be challenging and may vary between investors.

Reliance on Market Timing: Identifying the right timing to enter or exit the market is crucial for CANSLIM’s success. However, accurately predicting market trends can be challenging, and mistiming the market can lead to suboptimal investment outcomes.

2.3 Editor's Reflection

Regardless of whether your investment strategy focuses on fundamentals or technicals, as long as it can consistently and steadily generate profits within a certain range, it is a suitable method for oneself.

The editor believes that there are many factors that influence stock price trends, and technicals are a comprehensive response to various factors, but excellent fundamentals are a necessary condition for long-term bull stocks. Therefore, in-depth research on fundamentals, combined with technical analysis for buying and selling operations, is a good method that can take into account both financial and time costs.

However, it is obvious that this is a very ideal state, and it is very difficult to achieve this state in actual investment. Nevertheless, as long as you continue to learn, reflect, and summarize, and gradually improve, there will be a qualitative transformation one day.

Upcoming: In the next article, we will provide detailed guidance on how to use CANSLIM and related strategies in practical operations, and ultimately achieve the goal of profitability.

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