How to Use the O’Neil Stock Selection Method, Its Features, and Who Is O’Neil?
The O’Neil Stock Selection Method (CANSLIM)
CANSLIM is a strategy for screening and trading common stocks, focusing on leading stocks with strong fundamentals and technical performance. This system was detailed by William O’Neil in his book How to Make Money in Stocks. If Buffett is the "Stock God," O’Neil is more like a rigorous teacher who practices what he preaches. His own success—a blend of investing prowess and entrepreneurial achievement—serves as the best proof of his methodology.
The seven letters of CANSLIM represent the following criteria:
C = Current Earnings
Select stocks with quarterly EPS growth of at least 20% year-over-year. For example, if only 200 out of 3,000 A-share stocks meet this threshold, tighten the filter to 30% or 40%. O’Neil’s rule: never below 20%.
A = Annual Earnings
Look for consistent annual earnings growth over the past five years. A "good" performance is quantifiable: if quarterly and annual growth rates hover around 20%, the company qualifies. This criterion can be relaxed slightly during initial screening.
N = New
Catalysts like new management, products, or markets often drive stock surges. O’Neil uses "new price highs" as a signal: stocks meeting C and A that recently hit highs (e.g., within a week) tend to continue rising.
S = Supply and Demand
Smaller companies with limited float outperform because they require less capital to move. Institutional funds favor liquid blue chips, but retail investors can leverage flexibility to target small-cap non-blue chips.
L = Leader or Laggard
Buy only strong performers, avoiding laggards. Tools like Dr. Tao’s Relative Price Strength (RPS) rank stocks against peers—focus on the top 10%.
I = Institutional Sponsorship
Stocks need institutional backing to rise. Screen for stocks with heavy institutional ownership (e.g., >3% held by funds or >30 million shares by northbound capital).
M = Market Direction
Even perfect stocks fail in a bear market. Track broad indices to confirm uptrends. O’Neil’s probabilistic approach: e.g., an index of 50 screened stocks may see 18 winners drive 60%+ returns, offsetting losses. Cut losses quickly is key.
O’Neil’s Top 5 Investing Rules
-
Cutting losses is rule #1.
-
The market isn’t about being right—it’s about making money when you are and fixing mistakes fast.
-
With effort, anyone can succeed. Setbacks demand reflection and redoubled effort.
-
Winners buy leaders, not laggards or mediocrities.
-
Buy during uptrends, sell during uptrends.
