How Warren Buffett Is Not The Most Influential Investor Of Our Time

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Includes: GAB
by: The Frugal Prof

Summary

William J. O'Neil, creator of CANSLIM investing and Investors Business Daily, deserves more recognition.

While Buffett learned Graham's investing style - O'Neil created his own, CANSLIM style.

O'Neill is the Benjamin Graham of growth investing.

Thesis:

As a value investor, I have always had a tremendous amount of respect for Warren Buffett (NYSE:BRK.A) (NYSE:BRK.B) and he has earned a significant reputation as a great investor. However, a lesser known investor named William J. O'Neil has had a much larger impact on investors and his influence will continue for generations to come.

Benjamin Graham:

Warren Buffett has made a fortune after learning the investment style of his mentor, Benjamin Graham. Numerous famous investors are disciples of Benjamin Graham and have had incredibly successful careers by learning and applying Graham's method, including Mario Gabelli (NYSE:GAB), Michael Price and many, many others.

This is not Warren Buffett's method. The seminal value investing book is The Intelligent Investor by Benjamin Graham.

Warren Buffett is a very successful student of Benjamin Graham. He did not create value investing. He benefited from ideas that preceded him, like many other value investors.

Legacy: His legacy as an investor is through a distinguished career using it, and helping investors, especially through his investing observations and his annual shareholder letter.

O'Neil created CANSLIM:

Forbes magazine on William J. O'Neil:

In 1958, he began his professional investing career as a stockbroker with Hayden, Stone & Co. He became the best performing broker at the firm, thanks to his investment strategy, which still guides his approach to selecting stocks. In 1963, he founded his own firm, William O'Neil & Co., and at the age of 30, he became the youngest person at the time to own a seat on the New York Stock Exchange.

Dubbed "Canslim," O'Neil's approach to finding winning stocks forms the foundation of his Investor's Business Daily newspaper, which he started in 1983. With the profusion of stock charts replete with volume bars and moving averages, one could easily mistake the strategy as based on technical analysis, but it is more quantitative, placing heavy emphasis not just on chart patterns but also requiring investment candidates to show strong fundamentals.

Since the market tends to go in the opposite direction of what the majority of people think, I would say 95% of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable." -William J. O'Neil (via Investopedia)

Investor's Business Daily:

Risking his own capital to help Investors

The idea of launching a national newspaper to compete with the venerable Wall Street Journal (NASDAQ:NWS) was a huge financial risk for O'Neil. Investor's Business Daily has been the most influential newspaper for growth investors since the day it was launched. Millions of growth investors owe a huge debt of gratitude to O'Neil for creating a newspaper that could educate investors and add value to their lives on a daily basis.

In 1983, he founded a national financial daily newspaper called Investor's Daily, which became the Investor's Business Daily in 1991. As of 2007, he serves as CEO of William O'Neil & Co., is the chairman and publisher of the Investor's Business Daily, and lectures and writes on investment topics nationwide.

Innovator:

For growth investors, there is no better strategy for finding and owning the best performing stocks in a bull market: Amazon (NASDAQ:AMZN), Google/Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Intuitive Surgical (NASDAQ:ISRG), Facebook (NASDAQ:FB), are among the huge winners O'Neil disciples point to as huge winners in recent bull markets. For older investors, O'Neil made huge gains in America Online (AMER), JDSU, Corvette, and Syntex, (which created the birth control pill.)

O'Neil's Canslim strategy combines elements of fundamental analysis, technical analysis, risk management and timing. This is how the mnemonic breaks down:

  • C: Current quarterly earnings per share (up at least 25% vs. year-ago quarter);
  • A: Annual earnings increases at a compound rate of no less than 25%;
  • N: New products, new management and new highs;
  • S: Supply and demand. Stocks with small floats experience greater price rises;
  • L: Leaders and laggards. Keep stocks that outperform and get rid of the laggards;
  • I: Institutional ownership. Seek companies before or during the time institutions are buying;
  • M: Market direction. You can't fight City Hall! Three out of four stocks follow the trend of the market. When the intermediate trend is bearish, don't invest.

One key element of the O'Neil strategy is to limit losses to no more than 7% or 8% on any one stock, allowing investors to cut losses and invest another day.

Legacy:

How To Make Money in Stocks: (via Amazon)

The book O'Neil wrote has sold nearly 2M copies since being published in 1988. It is a bible of growth investing. It is the growth investor's version of "The Intelligent Investor."

"How to Make Money in Stocks is a classic. Any investor serious about making money in the market ought to read it."
Larry Kudlow, host, CNBC's "The Kudlow Report"

"I dedicated the 2004 Stock Trader's Almanac to Bill O'Neil: 'His foresight, innovation, and disciplined approach to stock market investing will influence investors and traders for generations to come.'"
Yale Hirsch, publisher and editor, Stock Trader's Almanac and author of Let's Change the World Inc.

Conclusion:

William J. O'Neil may not be as famous or well-known as Warren Buffett but his enduring legacy to growth investors should be recognized. His legacy of giving back to investors and contributing to many generations of investors is too significant for investors to ignore. His legacy as an investor is certainly equal to, if not better, than Warren Buffet's.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.