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The Profiting Prophet of Playa del Rey

Lots of people are believers in William O'Neil's CAN SLIM system for picking stocks. Can a method that sounds like a diet and leaves no room for emotion really work?

March 05, 2006|Thomas M. Kostigen | Thomas M. Kostigen is the author of "What Money Really Means."

Is that a cup and handle? Do I see a "W" pattern on the chart in front of me?

I am sitting in my den in Venice, staring at a computer screen, trying to discern these things. The charts I am scrutinizing are of stock prices, and I am trying to find the right one, the one that's behaving like a stock whose price is about to soar.

Finally, I think I've found it, a ladle-looking image that marks the rise, fall and rise again of a company's worth in the market. This particular company, EZCorp Inc., operates pawnshops and payday loan stores. It's based in Austin, Texas, and has about 2,500 employees. But it doesn't really matter what it does or who works there or where it's located. Those things aren't considered important by the system of stock trading I am following, CAN SLIM.

This system, I've been promised, works wonders. The name may sound more like a diet technique than a way to get rich, but it will supposedly teach me "the secrets to building stock market wealth."

A lot of people are believers. In fact, there's a huge investment subculture that follows the seven-step process buried within that acronym and devised by a financial guru from Playa del Rey. I am about to push a button and become one of his disciples.

I had vaguely heard of William J. O'Neil. I had even written a few stories for the newspaper he owns, Investor's Business Daily. But beyond O'Neil's connection to the paper, I knew practically nothing about him, despite my 15-plus years in financial journalism.

Which is kind of strange if you think about it.

In his own orbit, I would come to find, O'Neil is lauded as a genius, a maverick who invented a system of stock trading that unfailingly achieves what the no-nonsense title of his national bestseller says: "How to Make Money in Stocks . . . in Good Times or Bad."

He is said to be the first person to computerize market data, and he owned a seat on the New York Stock Exchange when he was only 30. Besides publishing Investor's Business Daily, which claims a readership of 800,000, he runs William O'Neil & Co., which provides statistics and analysis to hundreds of Wall Street's largest institutions.

He has given seminars and workshops across the globe. And thousands of people have joined investment clubs to follow his system of stock trading. Closer to home, he owns a printing company that publishes the Blue Cross guide and parts manuals for Nissan and Toyota, as well as other utilitarian publications such as flight schedules for Federal Express and rival DHL.

And yet, for all that, O'Neil remains largely below the radar. A showcase of "the world's greatest investors" by SmartMoney magazine, published last August, doesn't mention him, even though the investment gain trumpeted by O'Neil--860% from 1998 through 2005--suggests that he walloped the entire roster of All-Stars.

Indeed, the performance O'Neil touts is about eight times better than that of Warren Buffett, considered by many the world's greatest investor. The Oracle of Omaha, it would seem, has nothing on the Prophet of Playa del Rey.

But if that's true, if Bill O'Neil's stock-picking system is so extraordinary, why do the pundits, polemicists and popular observers of business and finance largely ignore him? Do they know something about O'Neil's methodology that gives them pause? Is it possible that CAN SLIM isn't all it's cracked up to be as a money-making vehicle? Or is it simply that most financial publications don't want to offer up the insights of a competitor, the man behind Investor's Business Daily?

O'Neil is nothing if not self-assured. He maintains that he predicted the market crash of October 1987 and the devastating bear market that began in March 2000. He even says that he would have called Black Tuesday, the infamous crash of '29, had his system been around back then.

However, CAN SLIM doesn't have a formally audited track record to verify O'Neil's investing prowess. So I called my friend Jeffrey Bronchick to see what he thought. Bronchick is the chief investment officer for Reed Conner & Birdwell, a Los Angeles firm that manages nearly $4 billion for its well-heeled clients. His blunt take on CAN SLIM: "Nothing like that has ever been proven--except wrong." Red flag No. 1.

But I also know Bronchick's tendency for hyperbole. And so I asked James J. Cramer, the most omnipresent financial commentator in the media today--as television host of CNBC's "Mad Money," radio host of "RealMoney" and co-founder of TheStreet.com--for his impressions. Given what Bronchick had said, Cramer's response surprised me. He described how he uses Investor's Business Daily for some of his research and, when it comes to CAN SLIM, Cramer said simply: "I can't knock the system."

Now I was truly confused. I decided I'd have to dig deeper myself, sifting through O'Neil's past and into CAN SLIM and the rest of his businesses to determine whether his claims were true.

Like a lot of good stories, this one begins at childhood.

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