I’ve always been fascinated by the ups and downs of the stock market and learning how to use it to my advantage. In college I took an investing class and was assigned the book “How to Make Money in Stocks” by William O’Neil, founder of Investor’s Business Daily. The fundamentals of this book have stuck with me and I thought I’d share his winning formula for making money. He makes it easy to remember with the acronym CAN SLIM. Let’s unpack his system and see what works for you:
C: Current Quarterly, Earnings per Share. According to O’Neil quarterly earnings per share of the stock you want to purchase must be up at least 18% or 20% – the higher, the better.
A: Annual Earnings Increases. There must be significant (25% or more) growth in each of the last three years and a return on equity of 17% or more.
N: New Products, New Management, New Highs. Look for new products or services, new management, or significant new changes in industry conditions.
S: Supply and Demand – Shares Outstanding plus Big Volume. Any size capitalization is acceptable in today’s new economy as long as a company fits all the other CAN SLIM rules.
L: Leader or Laggard. Buy market leaders and avoid laggards. Buy the number one company in its field or space.
I: Institutional Sponsorship. Buy stocks with increasing sponsorship and at least one or two mutual fund owners with top-notch recent performance.
M: Market Direction. Learn to determine the overall market direction by accurately interpreting the daily market indexes’ price and volume movements and the action of individual market leaders. This can determine whether you win big or lose.
These are some basic fundamentals to use when choosing where to invest your money and what stocks will earn you the largest return. Remember that it’s okay to start small and make your money over the long-term.
How do you choose stocks? Let me know in the comment below.