Investing in Stocks
Investing in stocks is not for everyone, but for those who are willing to invest the time, William O’Neil has some sound ideas on how to invest using fundamental and technical information.
William O’Neil is a successful stockbroker, entrepreneur and writer.
He founded Investors Business Daily and the William O’Neil & Company Inc.
Let’s start with O’Neil’s Philosophy.
The CANSLIM Stock Investment Philosophy
O’Neil developed a mnemonic that helps investors make effective choices when investing in stocks by using both the technical and fundamental sides of investing.
This mnemonic stands for the following fundamental side of investing in stocks:
C stands for Current quarterly earnings.
Earnings should be at least 18-20% or more in the most recent quarter. They should be accelerating in recent quarters—the more quarters they have been accelerating the better.
A is for Annual earnings
Annual earnings should be up at least 25% - 50% or higher. Earnings should be increasing over the past three years or more.
N stands for New product, service or management
New innovative products, services or management helps thrust a company forward in earnings. Think Apple Computer’s iPod product and Steve Job’s unique management style. O’Neil’s studies show that 95% of successful stocks with stunning growth in American industry from 1880 thru 2008 fell into at least one of these categories.
S stands for Supply and demand.
Big volume demand at key points with limited supply helps drive stock prices higher.
L stands for Leader or Laggard?
O’Neil recommends buying leading stocks in a leading industries. These are the strongest companies that have the highest likelihood to increase in price.
I stands for Institutional sponsorship
It is best to follow the big money and invest in stocks that have growing institutional sponsorship such as mutual funds. The last 12 months to three years of mutual fund investment is the most relevant.
M stands for Market direction
Three out of four stocks follow the general markets such as the Dow Jones, S&P 500, and NASDAQ. Consequently, investing during a definitive market uptrend is important.
The Importance of Chart Reading
Once the analysis has been completed to determine the best stocks; O’Neil shows how to use the technical side of investing to select the ideal time to purchase a stock. He uses chart reading to do this.
O’Neil provides an excellent example from the medical industry of why chart reading is so crucial.
He explains how good doctors depend on charts to determine the condition of their patient. Once the patient's condition is understood, doctors make informed decisions on what to prescribe.
The same methodology of technical analysis (using informed chart reading) is required to properly time the purchase and selling of stocks.
The Market’s Great Paradox
William O’Neil is different than many other investment advisers as that he doesn’t believe in buying low and selling high. Instead he believes that you should buy high and sell higher. O’Neil calls this the market's great Paradox.
In other words, the momentum of a stock tends to continue in the same direction, until something changes it.
“What seems too high in price and risky to the majority usually goes higher eventually, and what seems low and cheap usually goes lower.”
~ William O’Neil
Final thoughts on Investing in Stocks
William O’Neils has several great products to teach the serious stock investor many powerful tools and techniques.
to learn more about O’Neils Products.
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