How to Make Money on Stocks: A William O’Neil Approach
Investing in stocks can be a lucrative venture, but it requires a strategic approach and a deep understanding of the market. William O’Neil, the founder of Investors Business Daily and the creator of the CAN SLIM investing system, has provided investors with a comprehensive framework for identifying and capitalizing on profitable stock opportunities. In this article, we will delve into the key principles of O’Neil’s approach to help you make money on stocks.
Understanding CAN SLIM
CAN SLIM is a stock investing system developed by William O’Neil that stands for the following criteria:
- C – Current Quarterly Earnings per Share
- A – Annual Earnings per Share
- N – New Products, New Management, New Highs
- S – Supply and Demand
- L – Leader or Laggard
- I – Institutional Sponsorship
- M – Market Direction
By analyzing these criteria, investors can identify strong stocks with high growth potential.
Current Quarterly Earnings per Share (C)
One of the most crucial factors in O’Neil’s approach is the current quarterly earnings per share. He emphasizes the importance of looking for companies with strong earnings growth. To do this, you can examine the company’s financial statements and look for consistent growth in earnings over the past few quarters.
For example, if a company has reported earnings of $1 per share in the last quarter and is expected to report $1.20 per share in the next quarter, it indicates a strong growth trend. This can be a good sign that the stock may be worth investing in.
Annual Earnings per Share (A)
Annual earnings per share is another critical factor in O’Neil’s approach. He suggests looking for companies with a history of strong annual earnings growth. This can be determined by examining the company’s past financial statements and identifying a consistent trend of increasing earnings over several years.
For instance, if a company has grown its earnings from $2 per share five years ago to $5 per share today, it demonstrates a solid track record of growth. Such a company may be more likely to continue growing in the future.
New Products, New Management, New Highs (N)
O’Neil believes that companies with new products, new management, or new highs in their stock price are often good investment opportunities. These factors indicate that the company is evolving and adapting to the market, which can lead to increased growth and profitability.
New products can create new revenue streams for a company, while new management can bring fresh ideas and strategies. Additionally, a stock that has reached new highs suggests that investors have confidence in the company’s future prospects.
Supply and Demand (S)
Understanding supply and demand is crucial in O’Neil’s approach. He suggests looking for stocks with strong demand and limited supply. This can be determined by analyzing the stock’s trading volume and price action.
A stock with high trading volume and a rising price suggests strong demand. Conversely, a stock with low trading volume and a falling price may indicate weak demand. By identifying stocks with strong demand and limited supply, investors can capitalize on potential price increases.
Leader or Laggard (L)
O’Neil emphasizes the importance of identifying market leaders rather than laggards. Market leaders are companies that are outperforming their peers and leading the overall market. These companies often have strong fundamentals and are well-positioned for future growth.
On the other hand, laggards are companies that are underperforming and may not have the same growth potential. By focusing on market leaders, investors can increase their chances of making money on stocks.
Institutional Sponsorship (I)
Institutional sponsorship is another key factor in O’Neil’s approach. He suggests looking for stocks that are held by institutional investors, such as mutual funds, pension funds, and insurance companies. These investors often have significant resources and expertise, and their involvement can indicate a strong belief in the company’s future prospects.
By analyzing the ownership structure of a company, investors can determine if it has institutional sponsorship. This can be done by examining the company’s 13F filings, which disclose the holdings of institutional investors.
Market Direction (M)
Finally, O’Neil emphasizes the importance of understanding the overall market direction. He suggests that investors should only invest in strong market conditions, as this increases the likelihood