“CANSLIM” strategy, which is a popular investment strategy developed by William O’Neil.
William O’Neil developed the CANSLIM investment strategy based on his extensive research and analysis of the stock market. He began his career as a stockbroker in the late 1950s and quickly became interested in finding a better way to identify stocks with strong potential for growth.
In the 1960s, O’Neil founded the investment research company William O’Neil & Co. and began developing a proprietary database of stock market information. He used this data to analyze the most successful companies in the market and identify common characteristics that led to their success.
Through this analysis, O’Neil discovered that successful companies often had several key traits in common, including strong earnings growth, strong institutional support, and positive price momentum. He also found that companies with these traits tended to outperform the market over the long term.
Based on these findings, O’Neil developed the CANSLIM strategy, which he later detailed in his book “How to Make Money in Stocks.” The strategy has since become popular among investors and traders looking for a comprehensive approach to stock market analysis.
C – Current earnings
A – Annual earnings growth
N – New product, service or management
S – Supply and demand
L – Leader or laggard
I – Institutional sponsorship
M – Market direction
The CANSLIM strategy combines fundamental and technical analysis to identify stocks with strong earnings growth, a unique or innovative product or service, strong demand and limited supply, and institutional support. The strategy also places an emphasis on market timing and considers the overall direction of the market when making investment decisions.
How to use CANSLIM
Here are some steps to help you use the CANSLIM strategy:
- Look for companies with strong earnings growth: You should focus on companies with a strong track record of earnings growth. Look for companies that have increasing earnings per share (EPS) over the last several quarters and years.
- Check annual earnings: Make sure the company has a solid track record of annual earnings growth. Look for companies that have increasing earnings for the past 3 to 5 years.
- Identify new products, new management, and new highs: Keep an eye out for companies that have recently introduced new products, management changes, or have reached new highs in their stock price.
- Evaluate supply and demand: Look for companies that have a high demand for their products or services and a low supply of their stock. This can lead to a potentially profitable investment.
- Identify leaders and laggards: Focus on companies that are leaders in their respective industries. Companies that are laggards or are falling behind their competitors may not be good investment opportunities.
- Check institutional sponsorship: Keep an eye out for companies that have the support of institutional investors. This can indicate that the company has potential for long-term growth.
- Consider market direction: Lastly, consider the direction of the overall market. A bull market can be beneficial for all stocks, but a bear market can make it more difficult to find profitable investments.
Overall, the CANSLIM strategy is a comprehensive approach to evaluating potential investments. By following these steps, you can increase your chances of identifying potentially profitable companies.
However, it is important to note that no investment strategy is foolproof, and you should always do your own research and consult with a financial advisor before making any investment decisions.