Tuesday, 03 November 2015 - 20:00

 

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Seed Weekly - Greatest Investment Minds - William J. O'Neil

William O’Neil, entrepreneur, writer and growth-stock investor, was born in 1933 in Oklahoma, USA. He received his first college degree, majoring in business administration in 1951. After military service he started his career as a stockbroker in 1958.

In 1960, he was accepted into Harvard Business School's first Program for Management Development (PMD). His research there lead him to invent the CAN SLIM strategy where O’Neil looked at all of the biggest-winning stocks of the prior decade to see if they shared common characteristics. He discovered that there were seven key traits in each big winner, and he assigned each a letter, which comprised the trademark term CANSLIM which later made him the top-performing broker in his firm.

A young stockbroker at the time, he proceeded to take this valuable information and began applying it to his account and those of his clients. Starting out with very little cash and some borrowed money and use of margin, O’Neil had three big, back-to-back winners in his account beginning in late 1962. By autumn of 1963, his profits had skyrocketed. In 1963 at 30 years old, he became the youngest person at that time to buy a seat on the New York Stock Exchange for his own brokerage firm, the William O'Neil & Co. Inc.

O'Neil uses a mixture of quantitative and qualitative strategies in a performance-driven investing approach. His strategy seeks out only those growth stocks that have the greatest potential for strong price rises from the moment they are purchased. This can be summarised as "buy the strong, sell the weak."

His criteria for identifying a company to comply with his investment guidelines are summarised in his well-known acronym CANSLIM:

C - Current quarterly earnings per share have increased sharply from the same quarter’s earnings reported in the prior year (at least 25%). "What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower."

A - Annual earnings increases at a compound rate of no less than 25% (P/E is unimportant – probably in the range of 20 to 45 with these stocks) annually over the last five years.

N - New products, new management, and new highs. Companies that have a good "story." "Since the market tends to go in the opposite direction of what the majority of people think, I would say 95% of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable."

S - Supply and demand. The less stock available, the more buying will drive up the price.

L - Leaders and laggards. Stick with those stocks that outperform and shed those that under-perform.

I - Institutional ownership. Favour companies that are "under owned" by the top professional investors.

M - Market direction. Buy stocks on major downturns, but avoid purchases after a decline of 10% or more gets underway. "The whole secret to winning and losing in the stock market is to lose the least amount possible when you're not right."

William O’Neill has written a few books over his lifespan and if you are at all interested in the strategy of growth investing they are highly recommended. How to Make Money in Stocks (1988); 24 Essential Lessons for Investment Success (1999) and the Successful Investor (2003).

Keep well,

Lourens Rabé

Sources: Investopedia.com, Marketwatch.com, Wikipedia

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Tue, 03 Nov 2015

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