William J O’Neil’s book, How To Make Money In Stocks : A Winning System In Good Times Or Bad
The CANSLIM Method.
William O’Neil has boiled down his stock searching formula to CANSLIM. Basically, CANSLIM stands for:
C = Current Quarterly Earnings per Share.
A = Annual Earnings Increase
N = New Products, New Management, New Highs
S = Supply and Demand, Shares Outstanding plus Big Volume Demand
L = Leader or Laggard
I = Institutional Sponsorship
M = Market Direction
The Cup And Handle Pattern.
One of the chart patterns that William O’Neil made very popular is the cup and handle pattern. It is a bullish reversal chart pattern and you can often find this pattern in stocks that are about to move up big time. The cup and handle pattern is influenced by everyday life items
What relative strength means is, the best growth stocks are actually the top 10% of stocks in the market. Relative strength can be formed when:
The stock trades sideways without dropping much when the general market is moving down or crashing
Stock goes up when the general market is trading sideways
Neil advises his readers to always choose stocks showing good relative strength. They have come out with a proprietary system and rates stocks with a grade from 1 to 99.
The approach of using relative strength to filter out good stocks makes sense.
One of the component in the CAN SLIM method is the M which stands for Market Direction. The book highlights the importance of checking out the direction of major indexes.
As 3 out of 4 stocks or 75% of stocks follow the direction of the market, it makes sense to study the major indices each day.
The major indices are the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index.
This book recommends that you buy stocks and hold them instead of trading them.
The idea behind this book is to invest in stocks that changes the world and will grow and grow and grow.
This book does a good job in giving its readers a well rounded and complete investing system.
Neil in this book tells you that each year or a few years, the stock market is dominated and lead by certain industry groups or sectors. For example, the late 90s were the years of internet stocks. Some years will be gold stocks. Some years will be bio stocks.
Neil in this book gives the knowledge that will help you to capture the best stocks for theme plays in each year. Your job is to find a small handful of stocks and invest in them for as long as the theme is in play and get out before it crashes.