on June 8, 2006
Bill O'Neil is one of Wall Street's most famous investors, mostly because he founded Investor's Business Daily. In this book he outlines his trading system, called "CANSLIM," and details how he has used it for years to capture enormous moves in the stock market from stocks that are about to take off and become the next big thing. To give you an idea of the kind of stocks O'Neil prides himself on finding, his past hits include Microsoft, Home Depot, and Amazon.
O'Neil's strategy is based on both technical and fundamental analysis, though the technical aspect receives much more space in the book. In fact technical analysis (meaning the reading of charts, volume, oscillators, etc) is so essential in O'Neil's investing that he recommends not buying a stock with a bad chart, regardless of how good the fundamentals may be. The first section of the book details the points of fundamental analysis (again, he uses the acronym CANSLIM)-earnings growth, industry leadership, and market direction among others. The next section deals with technicals and charting, and the last section offers some general advice and a look at successful investors of the past.
The methodology here is sound. When you buy stocks with the solid fundamentals O'Neil demands (which are not easy to come by) you get stocks with enormous growth potential. These are often the industry's next super-stocks, and he tries to get in them right before they take off. Because of this you can safely buy a stock with a high P/E multiple (which many fundamentalists recommend against) or one that just broke its 52 week high, and you can do this because the underlying fundamentals of the company are so incredibly strong as to ensure further momentum. Reading the chart ensures that the stock has a good base and won't have a nasty drop-off-a-cliff selloff at the first sign of a temporary sputter. O'Neil limits his losses to about 7% regardless of how good the stock is, and the idea is that your 7% losers will be more than made up for by your 25% (though sometimes many times more than that) winners.
As much as I like O'Neil's theory I was a little disappointed with the book. First, very little time is spent on the fundamental aspects of the stock. Because so much is devoted to charting, I wonder if many people would disregard the fundamentals altogether out of laziness, and instead go straight for the charts. Charting is great, but amateur chartists have a tendency to see whatever pattern they've convinced themselves will be there. I'm also put off by the constant self-touting, though I suppose I understand it. In reality this book is intended to steer people into the IBD way of investing, and get them to subscribe to the paper and/or website. The seemingly endless stream of testimonials (of almost infomercial proportion) at the end are kind of annoying as well. O'Neil's methodology is very sound and obviously proven-why he should have to cheapen it by such blatant marketing is puzzling to me. Keep in mind, also, that his system (as he himself points out) was designed for bull markets. In fact he recommends that you either stay completely out of bear markets or limit your exposure to them. The subtitle "A Winning System in Good Times or Bad" is therefore probably a bit misleading. Overall, however, this is a worthwhile book, and it is really the place to go to learn about the IBD methodology.
on August 21, 2004
I bought this book last year and subscribed to IBD after reading the book. The author gives some good pointers on identifying companies with superior growth numbers using his CANSLIM method. However the book is very vague on chart reading which by the way is what the whole book is about. For example, the author uses the term "pivot point" without ever defining it.
His newspaper is heavily advertized throughout the book. It feels like it is the other half of completely mastering the art of investing - the first half being reading this book. IBD does have a nice system of categorizing stocks according to metrics such as EPS and comparing them to all other stocks in the market. This database seems pretty useful in finding out just how good a company's performance is compared to all other companies.
But what is surprising is whenever IBD analyzes current charts for a stock in its columns, they always seem to be making "sharp diagnoses" after the event! For example, after a stock has fallen they will run a column and tell us why that stock fell and what sell characterstics its chart exhibited. Never have I seen them suggest sells/buys before the stock actually tanked/rose. If they are so sure about their chart reading skills, why can't they make those predictions before the stock does something drastic? I would want to see them take real time examples. Perhaps build a portfolio in real time - shouldn't be hard for people professing to teach others how to invest. That way they could actually teach IBD readers how to correctly apply their methods. I have not seen them do anything like that in the eight months I subscribed to IBD.
The IBD 100 index is also heavily advertized on the IBD website. AFAIK there is no fund that actually follows the index. The set of companies that forms the index changes every week. If one were to run a fund that mimics the IBD 100, the overhead of selling/buying stocks according to the index would be pretty high I would imagine. Also since most of the companies in the index are small caps, the very act of selling/buying whenever companies appear or disappear from the index would drive down or drive up the prices of those stocks diminishing returns. So the returns one would get if one were to run a fund following the IBD 100 index would be less than the returns of the virtual index that IBD touts so much.
In total O'Neil sounds like a quack and I am not convinced that I can consistently make money by reading his newspaper or following his often unclear advise. It is possible that in a bull market like the one that existed in the late 90s one could end up getting a list of all the hottest stocks in the market from IBD. If you "invest" in them and they go up, you are a genius! Thanks to IBD.
I would recommend not spending any money on this book. You should perhaps borrow the book from a library and read it.
on August 26, 2004
This book is dangerous because it leaves an investor in the dark when it comes to chart reading. CupNHandles, Double Bottoms, blah blah blah. The truth is this book only shows investors how to interpret so called "pivot points" which in my opinion are not pivot points because they are rarely near true resistance or support levels. Also, the way O'neil explains how to spot market tops and bottoms is laughable. Many Canslim followers are lost when it comes to everyday price movements. All they understand are "pivot points and breakouts." It's like children who look at a map and can only recognize 1 city. To be truly successful you need, in my humble opinion, to understand trendlines, Bollinger bands, MACD, and that stocks for the most part either trend or trade in ranges. Also, play around and draw trend lines like crazy on some charts. After a while one should see that price movements are not random, but are strategic in trying to achieve an advantage on the opposing side as to which way a trend should occur. What you should recognize is that after a side (longs or shorts) loses the battle, they often times leave or join forces making a stock continue to trend up or trend down. If you pile on after they have already piled on, which is what O'neil advocates, they will crush you one at a time, multiplied by millions, using your 8% stop loss rule. Moreover, I can't tell you how many times breakouts fall back 8% below their "pivot point" to a trend line and then continue upwards from there. CupNHandle patterns are great if the pivot point is within 6% of of a trendline, but they rarely are, so beware. Why am I explaining this? Afterall, everybody is filthy rich using CanSlim. However, there are many things I agree with. Those rules being: buy quality, look for growth, buy strength, cut losers short, don't argue with the market, don't average down in price unless you are highly skilled, I assure you, you aren't, and let winners ride so misinformed, blind CanSlimers will purchase your shares from you. This book is great if you couple it with a technical trading book. Alone the book is a nightmare.
on October 4, 2002
Haven't finished the 3rd edition yet, but I couldn't wait to comment here. The naysayers reflect the general state of the market, as well as anything else does. I can relate. I feel your pain. I started canslim exactly at the market top and have nil to show for it in 2 1/2 years except for the account I started with. 0% increase. Pretty horrible performance eh? Well what do you think of having 160% of the returns of the S&P500, or how about 440% of the performance of the nasdaq? Or of outperforming 99% of the diversified mutual funds and other money managers out there that are joined at the hip with the averages? That's what O'Neils cash position would net you, and that's why it IS a good system in these bad times. What have the returns been with your system?
My estimation is that only those glued to the screen fulltime, flipping short term positions have anything positive to show for the last couple years. That is their dayjob. This is not a system for the full time trader, although there's not a good one out there that isn't very familiar with it. It is, I think, the best hope for lots of part time investors that have not fallen for the terrible buy, hold, and pray method preached in the mainstream. For the rest there's no hope. Their accounts are already mostly gone and unlikely to return in their lifetimes.
For such a little book, it does an incredible job of covering the critical aspects of fundamental and technical analysis and should set ones thinking straight on basic trend following, stock selection, market timing, chart price and volume reading, loss cutting, entries and exits. It is for the mainstream but only those willing to give the moderate work required. Those here complaining that you need the IBD paper to make it work seem to think we should be able to buy a [edit $]book and then go collect a $million the next day. How utterly childish. You can definitely apply the principles without the paper using other resources and tools. The paper will just cut the time needed to do so by tenfold. Don't be fooled. This takes some work.
And to complain that it doesn't cover shorting, or options or whatever, is to complain that it doesn't cover the care and feeding of ones horse. This is a fundamental book on intermediate term trading. The trading world is enormous, it is unavoidably imprecise and difficult. And yes, I don't agree with everything WJO says. I like using real stops, and I'm perplexed that he doesn't apply his market timing to mutual funds (though he does say to buy more when their cheap).
This book offers as sound a set of timeless principles as one can find, if there are any in the market. You won't be able to give up your job this year with this book. But should the markets again offer some opportunity on the long side, a reasonable assumption, then this book can help you recognize it and benefit far better than the vast majority will. Meanwhile, you'll leave your cash safe and find something else to do. Like maybe work for a living? And what better time to study and prepare for that new bull, but when it hasn't begun yet. Don't make my mistake and start learning at the top. Take your lesson now. Your investing education is incomplete if you don't read this book.
on February 17, 2003
I have read many books on investing, and this one is, all things considered, the best. It has it's weaknesses--the section on technical analysis is inadequate, and the numerous signs by which one can supposedly tell when a stock is topping out are simply too vague to be be followed. Nevertheless, the system does work. Though retrospective (and therefore subject to the charge of data mining), O'Neil's 40 year database has identified numerous factors associated with stocks that are likely to go up. James O'Shaughnessy, in What Works on Wall Street, has performed a similar study, and has found roughly similar results, the main difference between the two being that O'Shaugnessy's data supports the idea that a low p/e stock is more likely to be successful, while O'Neil discounts the influence of p/e. No matter. Both have confirmed that a stock that has been going up is likely to continue going up. Relative strength counts. In addition, O'Neil's insistence on cutting your losses while they are still small is perhaps the single most important lesson an aspiring millionaire can learn. About two years ago, I was telling a colleague of mine that I felt lucky to have sold Cisco, Juniper and Sun for small losses. His comment was an amazed, "You mean you locked in a loss?" A few days ago, I made a similar comment to him, figuring that he had probably forgotten our earlier discussion. This time, he listened attentively, smiled sadly, and nodded. The many Amazon reviews which regard the book as an advertisement for Investor's Business Daily do have a point. However, there are many free search engines (stockpoint.com, marketguide.com) with which one can identify stocks satisfying the CANSLIM criteria. Similarly, there are a number of free online charting sites (clearstation.com, bigcharts.com) which give much of the same information as O'Neil's proprietary charting service. I've lost money the past few years, but I haven't lost much, thanks to the fact that I've been mostly in cash, which puts me way ahead of most professionals. William O'Neil gives very, very good advice.
on September 14, 2002
On the one hand, O'Neil's method seems reasonable to me. He says that to make money you have to buy growth stocks, and you also have to attempt to judge when the market is improving vs. getting worse. You cut your losses when you're wrong, and don't worry about them, because your real goal is to make sure you are in there, in the right stocks, when the big money is made, as for example in the 1998-2000 market. (Now I just told you everything of value in the book, so you don't have to buy it.)
On the other hand, O'Neil himself apparently couldn't work his system very well. He ran a growth fund which he was forced to close. He makes his money off his newspaper and books, not investing. His two early scores, heavily trumpeted in his books, could easily just be luck.
Furthermore, in his book he constantly touts his newspaper, IBD. Now, I subscribed to IBD for a year, and I can tell everyone that there is no way you can use the information in IBD to assist you in investing. The stock ratings still leave hundreds of stocks for you to plow through. The "stocks in the news" also include too many stocks to work with. "New America" is the same...too many companies. And as a newspaper, IBD is a joke. The English is at the "See Dick Run" level and the world news is stuffed into a few columns.
Here is my advice: get the book from the library or from someplace free. Do not pay for it, further lining O'Neil's pockets.
on November 28, 2004
You can't beat 50 years of research and most of it hands on. Unlike other research that just analyzes past data without ever getting hands dirty, successful investor and founder of Investor Business Daily's William O' Neal presents what most fundamentals-only and value investors find hard to believe - average cost up; forget low p/e stocks, don't buy and hold forever, technical analysis matters as much as fundamental analysis, markets can be timed, etc. The list gets more incredible for such investors.
After investing for more than 8 years, I happened to find this book. I don't blame myself, instead I consider myself fortunate - better late than never! The CANSLIM approach sure sounds like good investing criteria to seive out possible candidates, but that is not all. The key is to identify when to buy stocks and when to sell them. You will learn about pivot points - points when to buy stocks - along with high quality criteria to consider before buying.
While I started of as a fundamental and value investor, I have slowly started to pay attention to technicals and that has paid off more. Thus this book has more relevance at this stage of my investing career.
The first part of the book clearly explains the CAN SLIM approach with numerous examples and first hand accounts of big-wigs failing ignoring market signals. The second part is the gem - it highlights nineteen common mistakes most investors make, when to sell and cut losses, when to sell and take profits, etc. Even if you don't believe in the CANSLIM approach, this part is a must read for any investor. The last part gives you sound advice including how to use IBD and the web site to identify winning stocks, examples of great winners of the past with extensive chart analysis.
If you are just beginning to invest and find it hard to believe in this approach, just follow one of the rules in the book - don't take more than a 7-8% loss. That alone will keep you up from the most common misery in investing. If you are convinced, however, let this book not be just another book you read. There is too much practical advice to ignore. However, keep in mind - this book is about buying the right stock at the right time. The timing is key here; very, very few people can time it right most of the times. Good luck, anyway!
on September 16, 2005
This is the best book on Investing that I've read and this is the system that I follow for the most part. O'Neil is one of the best investors / traders and is worth over 200 million for a good reason; follow his system. I've been using this system for many years and after a large sample size of trades I've made large percentage gains. For example, my last big winner was TASR which I found beneath the radar and before it was hyped by mass media; it was a technical chart pattern that O'Neil talks about called a High Tight Flag; I trippled my $ on margin in one month. Some say that what I did is dangerous or risky but I was ready to take a 3% - 5% loss quickly if I was wrong. This was a small price to pay for the upside potential. Besides having several winners and a few super winners, I've also had quite a few losers which are part of the cost of being a trader. Buy this book and attend his seminars; you won't regret it.
on June 6, 2002
Ten years ago, this book probably launched tens of thousands of eager investors on a journey towards riches. Two years ago, it probably ruined thousands more. I'm not saying that O'Neil's methodology doesn't work. In fact, I have great respect for O'Neil and this book because it launched me on my journey into the markets just a few years ago. The only drawback is that this methodology works best in a bull market environment. When you hit a persistent bear market like we've seen for nearly 2 years now, you are basically sitting in cash spending endless hours looking for that perfect stock to break out of a long-term consolidation. If you don't have the time to search chart-after-chart every night for the perfect setup then you should try a great investment book I just heard about called the 401(k) MarketBuster. The 401(k) MarketBuster will probably find you the same, or better, account returns in the long-run that you'd find with intermediate-term trading; at a fraction of the research time (literally minutes a year). If you are like me and have the time and inclination to learn more about the markets so you can find that elusive "perfect" setup to trade (Lord help you), then you might want to take a look at Dave Landry's book on swing trading. It will offer you more opportunities more often.
on June 19, 2011
The CANSLIM system described in this book really works. However, there are limitations as others have pointed out. Be prepared for the following, or you may not be happy with this book:
- It takes time to learn the system, and you must be constantly watching to market for this to work (or make sure you have limit orders in to protect yourself if you do not watch things daily). This is not a system that you can spend an hour a month on. It will require a few hours a week, at a bare minimum.
- To truly learn and improve on this system, you will likely need to subscribe to Investor's Business Daily (IBD), and spend time reading it. While it is possible to do a lot of this research without IBD, it would take a lot of time.
- The system applies to bull markets. While you can apply it in bear markets, there are a lot of warnings about it.
If you are committed to spending the time (and money to subscribe to IBD), this is a good system. If you are a passive investor, or cannot commit the time, this is not for you.