Awhile ago I talked about investing in future technology, and I also gave you some very specific knowledge to help you better understand the market.
In my quest to develop a strategy that I could use to reliably pick stocks and make money, I stumbled across products that promised “instant return with no knowledge”. All you had to do was buy their stock picking software and buy when the little light says buy, sell when the little light says sell. Examples include TIPs, Stock Assault (that claimed 100% Automated Artificial Intelligence Stock Picking Software
produces returns in excess of +1,300% annually), and FXDD FOREX Trading Software.
None of them worked as well as advertised, and required a substantial investment of both time and money (Stock Assault costed $57 and lost me about $2k!).
But there’s one stock picking tool that has never let me down: Investors Business Daily.
Investors Business Daily is published every day and covers international business, finance, and the global economy. Founder William J. O’Neil created the paper to “offer information not available in The Wall Street Journal and other publications” for “investors and business executives who did not have time for two and three section papers each day.” The beauty of this publication is the fact that they assign stocks a letter grade and percentage (like 87% out of 100%) of all the criteria that I talked about in Welcome to Wall Street, Part 1. This makes it easy to pick out the stocks that are most likely to show some price appreciation.
Specifically, O’Neil created a set of 7 factors that identify potential performers called CAN SLIM

The CAN SLIM System
- C stands for Current Earnings. Per share, current earnings should be up to 25%. Additionally, if earnings are accelerating in recent quarters, this is a positive prognostic sign.
- A stands for Annual earnings, which should be up 25% or more in each of the last three years. Annual returns on equity should be 17% or more
- N stands for New product or service, which refers to the idea that a company should have a new basic idea that fuels the earnings growth seen in the first two parts of the mnemonic. This product is what allows the stock to emerge from a proper chart pattern of its past earnings to allow it to continue to grow and achieve a new high for pricing. A notable example of this is Apple Computer’s iPod.
- S stands for Supply and demand. An index of a stock’s demand can be seen by the trading volume of the stock, particularly during price increases.
- L stands for Leader or laggard? O’Neil suggests buying “the leading leading stock in a leading industry”. This somewhat qualitative measurement can be more objectively measured by the Relative Price Strength Rating (RPSR) of the stock, an index designed to measure the price of stock over the past 12 months in comparison to the rest of the market based on the S&P 500 or the TSE 300 over a set period of time.
- I stands for Institutional sponsorship, which refers to the ownership of the stock by mutual funds, particularly in recent quarters. A quantitative measure here is the Accumulation/Distribution Rating, which is a gauge of mutual fund activity in a particular stock.
- M stands for Market indexes, particularly the Dow Jones, S&P 500, and NASDAQ. During the time of investment, O’Neil prefers investing during times of definite uptrends of these three indices, as three out of four stocks tend to follow the general market pattern.
I can confidently endorse the CAN SLIM system because I have consistently made money using the system. I was able to buy Wal-Mart in August of 2001 at $49.65 and sold it in March the following year at $61.85 (no, I don’t have great memory, but I do keep great financial records!). I was able to buy PrePaid Legal stock in 2004 at $25 and sold 34 shares in June of 2007 at $64.99 (Giving me a $5,000 payday).
Granted, you will have to educate yourself on the specifics of both technical and fundamental analysis, so O’Neil has published a few books to break the complexities down into easy to understand (and easy to practice) advice. The two I would recommend that I have read and used are 24 Essential Lessons for Investment Success and How to Make Money in Stocks: A Winning System in Good Times and Bad
. These 2 books, coupled with reading IBD daily (or at a minimum the Friday edition) has made me more money than any online trading software scam or advice from news personalities.
If youre wondering where to find Investors Business Daily, you can find out here. If you havent started investing yet, there really is no excuse. If you hope to achieve wealth, you need to be in the market. After all, most of the people on the Forbes list are there solely because of their holdings in the market. Learn from those who have done it.
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