scorecardresearchWhat is the CANSLIM approach coined by American investor William J. O’Neil

What is the CANSLIM approach coined by American investor William J. O’Neil that helps investors select growth stocks?

Updated: 15 Apr 2023, 10:23 AM IST

Do you plan your next step or jump into the fray? Do you react extremely to market movement or hold your ground even in the face of market rumours? If you place by price instead of value, stock investments may not be just the right investment option for you.

Investing principles by William J. O’Neil

Investing principles by William J. O’Neil

If you are inclined to learn about investments but are blissfully unaware of who William J. O’Neil is, you probably must first focus on knowing more about some great minds who redefined investing principles and behaviour.

Founder of the much-acclaimed investment publication “Investor’s Business Daily”, O'Neil shares his popular and simple techniques as to how to construct a profitable portfolio firmly in the hands of investors, putting the goal of long-term financial security within easy reach.

You “CAN SLIM” too

In his book “How to Make Money in Stocks": A Winning System in Good Times and Bad”, O'Neil explains his "CAN SLIM" investing system, which stands for

C: Current Quarterly Earnings

A: Annual Earnings Increase

N: New Products, New Management

S: Supply and Demand

L: Leader or Laggard

I: Institutional Sponsorship

M: Market Direction

For those new to investing, the book offers a step-by-step plan for building wealth and achieving financial success. The readers can benefit from reading topics such as how to assess stocks, track market trends, and develop a strong and resilient portfolio.

The gradual building of wealth

In another book, “24 Essential Lessons for Investment Success: Earn and Keep More Money in the Stock Market”, the author has penned down 24 lessons that will help them make smart investments and maximize their wealth. The lessons include topics such as researching stocks, monitoring market trends, and understanding the basics of economic cycles. The book also provides a wealth of tips and advice to help investors stay ahead of the curve.

Furthermore, the author stresses the need to plan investments and stay disciplined when it comes to investing. Set goals, develop a strategy, and commit to it. Focus on the long term and stay on track, rather than getting caught up in short-term market fluctuations.

Finally, O'Neil stresses the importance of diversifying. Don't put too many eggs in one basket. Spread out your risk over a variety of investments. However, this is possible only when you do your homework well enough. Being prepared beforehand lends you an edge over other peers in the market. He quoted his penchant for being prepared in his book writing “90 per cent of the people in the stock market, professionals and amateurs alike, simply haven’t done enough homework.”

Don’t forget to invest in yourself. Invest in your career and education and cultivate relationships with the right people.

Money matters

“Price” is an important component in stock picking and selling. The same holds in mutual funds too. His timeless advice that includes “Buy High and Sell Higher” to make a million in mutual funds still holds ground for today’s investors confused by so many investing principles available on the web these days.

His most famous investing principles can be encapsulated in the following points. These include:

Diversification: Investing in a variety of stocks, industries, and markets can help reduce risk and provide a more balanced portfolio.

Following the trend: Investing in assets that are in an uptrend can help maximize returns while avoiding those in a downtrend.

Risk management: Investors should only risk a portion of their portfolio in any one asset and should be aware of their risk tolerance and manage their investments accordingly.

Fundamentals: Investing in stocks with strong fundamentals, such as positive earnings and cash flow, can help identify stocks that may be undervalued and have the potential for strong returns.

Not losing money in the stock market is more important than earning more money. This is evident in his famous quote “The whole secret to winning in the stock market is to lose the least amount possible when you’re not right. I make it a rule to never lose more than 7 per cent on any stock I buy. If a stock price drops seven per cent below my purchase price, I will automatically sell it at the market – no second-guessing, no hesitation.”

Quality matters, which is why he did not pay attention to stock prices alone while investing. While explaining his principles behind stock picking, O’Neil shared, “It seldom pays to invest in laggard stocks, even if they look tantalizingly cheap. Look for, and confine your purchases to, market leaders,” adding, “The number one market leader is not the largest company or the one with the most recognized brand name; it’s the one with the best quarterly and annual earnings growth, return on equity, profit margins, sales growth, and price action.”

Investing is a serious business. You don’t jump into the well just because it looks cool and dark within. You must find ways to evaluate its depth and assess how you can make the best of it without getting wet yourself. The same is with the stock market. You cannot afford to panic when the market goes berserk. Reacting suddenly and frequently to market fluctuations never helps. Instead, stay focused on your long-term investment strategy. This you can do only when you are ready to go with the flow. Being versatile and not gullible is the key to staying in the market for a prolonged period.


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First Published: 15 Apr 2023, 10:23 AM IST