How to Make Money in Stocks ― The CANSLIM Method Explained!

How to Make Money in Stocks: A Winning System in Good Times Or Bad by William J. O’Neil

Investment Idea ― I made a rule that I’d buy each stock exactly at the pivot buy point and have the discipline not to pyramid or add to my position at more than 5% past that point. Then I’d sell each stock when it was up 20%, while it was still advancing.

There is no end to human greed. But when it comes to the Stock Market excessive greed can backfire. Deft balancing is required between Greed and letting go.

One has to decide how much is enough.

Further, to help you in your search for big winners of tomorrow, William O’Neil in his book How to Make Money in Stocks has suggested a techno-fundamental strategy named The CANSLIM method that can help you a long way in picking up quality stocks.

The CANSLIM Method Explained:―

1. C = Current Quarterly Earnings per Share (EPS):―

C in the CANSLIM method stands for Current Quarterly Earnings per Share (EPS).

If Earning Per Share(EPS) of the company has increased at least 20% in the
current quarter compared to the same quarter in the previous year, it can be a potential buying opportunity if supported by other factors at the same time.

2. A = Annual Earnings Increase:―

A in the CANSLIM method stands for Annual Earnings Increase.

The annual EPS(Earning Per Share) growth of the company should ideally be in excess of 20% over the last three years.

3. N = New Products, New Management, New Services:―

N in the CANSLIM method stands for New Products, New Management, New Services

New products, New Management and New Services bring novelty to the firm which has historically been proven to be good for the overall growth of the firm.

4. S = Supply and Demand:―

S in the CANSLIM method stands for Supply and Demand.

When the demand for the stock is high among the insiders and the institutional investor, that conveys strong confidence in the company. Such companies are in most cases a good option for investment if they are simultaneously supported by the other factors.

Also, if you want to become a self-reliant investor, do check out Best Books on Learning Stock Market and Investing.

5. L = Leader or Laggard:―

L in the CANSLIM method stands for Leader or Laggard.

It’s suggested to use the Relative Strength Index(RSI) to identify the leading stock in the market. RSI gives us an idea that a stock is in an overbought or oversold zone.

RSI value above 30 ― It indicates the possibility of bullish momentum, thus suggesting a buying opportunity.
RSI value above 70 ― It indicates that the stock could be overbought or overvalued and it’s a selling opportunity.

6. I = Institutional Sponsorship

I in the CANSLIM method stands for Institutional Sponsorship.

Identify the stocks that have “Very Few” institutional sponsorships and are seeing a spike in the number of institutional investors due to above-average performance in recent times.

7. M = Market Direction

M in the CANSLIM method stands for Market Direction

About three-fourths of the stocks tend to follow the general market trend. So it’s always a good idea to invest during times of uptrend.

If a company meets the above criteria, it can be considered a pleasant investment option.

Also Read: Best Books To Learn STOCK MARKET & INVESTING

The best thing about the CANSLIM method is that it incorporates both:―

Fundamental Factors, and
Technical factors.

And almost all the experts suggest that putting the two factors together can prove to be a win-win strategy for investors.

Grab a copy of How to Make Money in Stocks and transform your investment journey by learning the CANSLIM method in-depth.

Grab your copy Here from Amazon ― Amazon India | Amazon

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That’s all we have for today.

Thanks a lot for tuning in to HappinessDhaba. Do let me know your views on this in the comment section.

Signing off with my favorite words

Zindagi Zindabad!

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Jasmeet SinghPsychologist | Engineer | Reader | Blogger

An Engineer-Turned-Psychologist who loves Literature.
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