William O’Neil – Stock Selection

William O’Neil – Stock Selection

This article is part of our ‘Guru’ series – profiles of successful traders, with takeaways for the UK private investor.
You can find the rest of the series here.

Today’s post is a profile of Guru investor William O’Neil, who appears in Jack Schwager’s original Market Wizards. His chapter is called The Art of Stock Selection.

William O’Neil

William O'Neil

William O'Neil

William O’Neil began his financial career as a stockbroker for Hayden, Stone and Company in 1958. His trading concepts proved remarkably effective from the start.

During 1962-63, by pyramiding three exceptional back-to-back trades he managed to parlay an initial $5K investment into $200K. “He used his winnings to buy a seat on the New York Stock Exchange and to start a successful institutional research brokerage firm.

In 1988, O’Neil he wrote How to Make Money in Stocks, the best-selling investment book of the year.

O’Neil appears in Jack Schwager’s original Market Wizards.

  • His chapter is called The Art of Stock Selection.

Schwager describes O’Neil as an optimist:

Your own determination to succeed is the most important element.


In the 10 years preceding Schwager’s interview, O’Neil averaged more than 40% a year – in stocks.

  • Pretty impressive.
Early days

Schwager asked O’Neil where he developed his trading style:

I subscribed to a few investment letters and most of them didn’t do too well. I found that theories like buying stocks with low P/E ratios were not very sound.

Back in 1959,1 did a study of the Dreyfus fund. I plotted on charts precisely where they had purchased each of their stocks. Every single stock had been bought when it went to a new high price.

To get superior performance, buy stocks that are coming out of broad bases and beginning to make new highs relative to the base. You are trying to find the beginning of a major move.

I would generally not buy a stock that is already more than 10% beyond its prior price base.

This sounds an awful lot like Weinstein and Minervini.

I studied the stocks that were big winners in past years and tried to find the characteristics they had in common. I examined a lot of variables to develop a model based on how the real world worked.


O’Neil uses an easy-to-remember acronym – CANSLIM.

“C” stands for current earnings per share.

There is absolutely no reason for a stock to go up if the current earnings are poor.

The best performing stocks showed a 70% average increase in earnings for the current quarter over the same quarter in the prior year before they began their major advance.

Our first basic rule is that quarterly earnings per share should be up by at least 20 to 50% year to year.

“A” stands for annual earnings per share.

The prior five-year average annual compounded earnings growth rate of outstanding performing stocks was 24%.

O’Neil had his own investment paper – Investor’s Daily – which published a measure called EPS rank.

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