Infographic: How the World's Most Elite Growth Investors Pick Stocks
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How the World’s Most Elite Growth Investors Pick Stocks

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Investing can be extremely psychologically demanding.

Not only are you up against the world’s best investors, but you’re also up against yourself. It’s easy to get caught making irrational decisions based on your own personal blindspots or cognitive biases, and these mistakes can lead to buying when you should sell, and vice versa.

For the above reasons, the most successful investors are often those that have rational and proven systems in place.

Having a method to your madness allows you to have confidence in your decisions, while also taking advantage of the strategies and heuristics that have performed well for the world’s most elite investors.

How to Pick Growth Stocks

Today’s infographic comes to us from Investor’s Business Daily, and it details the basics around the discipline of growth investing, including the differences the school has with value investing.

More importantly, it also provides a framework for choosing growth stocks used by elite investors such as William J. O’Neil.

How the World's Most Elite Growth Investors Pick Stocks

Growth investing is all about identifying the companies that are exhibiting behavior that suggests that they will be tomorrow’s leaders.

The benefits to this strategy, if successful, are easy to see. Think about buying Microsoft before it dominated the software industry, or Starbucks before it conquered the United States with its new approach to coffee culture.

The question is: how can these stocks be found reliably?

The CAN SLIM Approach

Fantastic growth stocks don’t just grow on trees – instead, you have to have a system to sift through them.

One easy place to start your search for the next growth leader is with an approach pioneered with investing legend William J. O’Neil. Developed in the 1950s, the CAN SLIM strategy identifies seven characteristics that top-performing stocks often share before making their biggest price gains.

Each characteristic is represented by a letter in the CAN SLIM acronym:

C – Current quarterly earnings
A – Annual earnings growth
N – New product, service, management, or price high
S – Supply and demand
L – Leader or laggard
I – Institutional sponsorship
M – Market direction

Importantly, each of these traits can be a catalyst to influence other traits. When they compound, it can lead to big price movements that beat the rest of the market.

Breaking Down the Factors

Let’s look at each characteristic of the CAN SLIM approach in more detail:

Current quarterly earnings
Look for companies with a minimum earnings-per share (EPS) growth of 25% in the most recent quarter, though 50% or higher is even better. These companies should also have 20% sales growth in the quarter, and a 17% ROE to ensure that growth is sustainable.

Annual earnings growth
Look for companies with annual EPS growth of at least 25% to 50% in each of the previous 3-5 years. This helps confirm that the company is showing long-term growth.

New product, service, management, or price high
What is the company doing that is new or game-changing? To be a market winner, a company must constantly reinvent itself to position itself for higher-than-average profits.

Examples: Consider Google’s monetization of search ads, or McDonald’s novel approach to food. These innovations set the companies up for massive profits and success.

Supply and demand
A stock price increases when more investors demand an increasingly limited supply of shares. Spikes in price, along with volume accumulation, mean that demand is increasing. If this is coming from institutional investors, who tend to buy and hold, it’s even better.

Leader or laggard
The leading companies in leading industries – the best of the best – will be the companies that have the most growth potential.

Institutional sponsorship
75% of all market activity comes from professional investors, such as mutual funds or pension funds. Not only does the smart money help validate a potential growth stock by being involved, but they can trigger big price increases.

Market direction
CAN SLIM investors believe you should invest with the market, as opposed to against it. That’s because an individual stock moves with the market 75% of the time.

Putting it Together

Understanding how the different CAN SLIM factors work together – and how they can help bring massive bouts of growth for the underlying stock – is key for the successful growth investor.

Using a rational system like this also helps you in overcoming cognitive biases or making other mistakes that may affect your investments, as well.

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The Top Google Searches Related to Investing in 2022

What was on investors’ minds in 2022? Discover the top Google searches and how the dominant trends played out in portfolios.

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Trend lines showing when the top Google searches related to investing reached peak popularity over the course of 2022.
The following content is sponsored by New York Life Investments

The Top Google Searches Related to Investing in 2022

It was a turbulent year for the markets in 2022, with geopolitical conflict, rising prices, and the labor market playing key roles. Which stories captured investors’ attention the most? 

This infographic from New York Life Investments outlines the top Google searches related to investing in 2022, and offers a closer look at some of the trends.

Top Google Searches: Year in Review

We picked some of the top economic and investing stories that saw peak search interest in the U.S. each month, according to Google Trends.

Month of Peak InterestSearch Term
JanuaryGreat Resignation
FebruaryRussian Stock Market
MarchOil Price
April Housing Bubble
MayValue Investing
JuneBitcoin
JulyRecession
AugustInflation
SeptemberUS Dollar
OctoberOPEC
NovemberLayoffs
DecemberInterest Rate Forecast

Data based on exact searches in the U.S. from December 26, 2021 to December 18, 2022.

Let’s look at each quarter in more detail, to see how these top Google searches were related to activity in the economy and investors’ portfolios.

Q1 2022

The start of the year was marked by U.S. workers quitting their jobs in record numbers, and the effects of the Russia-Ukraine war. For instance, the price of crude oil skyrocketed after the war caused supply uncertainties. Early March’s peak of $125 per barrel was a 13-year high.

DateClosing Price of WTI Crude Oil
(USD/Barrel)
January 2, 2022$76
March 3, 2022$125
December 29, 2022$80

While crude oil lost nearly all its gains by year-end, the energy sector in general performed well. In fact, the S&P 500 Energy Index gained 57% over the year compared to the S&P 500’s 19% loss.

Q2 2022

The second quarter of 2022 saw abnormal house price growth, renewed interest in value investing, and a bitcoin crash. In particular, value investing performed much better than growth investing over the course of the year.

IndexPrice Return in 2022
S&P 500 Value Index-7.4%
S&P 500 Growth Index-30.1%

Value stocks have typically outperformed during periods of rising rates, and 2022 was no exception.

Q3 2022

The third quarter was defined by worries about a recession and inflation, along with interest in the rising U.S. dollar. In fact, the U.S. dollar gained against nearly every major currency.

Currency USD Appreciation Against Currency
(Dec 31 2020-Sep 30 2022)
Japanese Yen40.1%
Chinese Yuan9.2%
Euro25.1%
Canadian Dollar7.2%
British Pound22.0%
Australian Dollar18.1%

Higher interest rates made the U.S. dollar more attractive to investors, since it meant they would get a higher return on their fixed income investments.

Q4 2022

The end of the year was dominated by OPEC cutting oil production, high layoffs in the tech sector, and curiosity about the future of interest rates. The Federal Reserve’s December 2022 economic projections offer clues about the trajectory of the policy rate.

 202320242025Longer Run
Minimum Projection4.9%3.1%2.4%2.3%
Median Projection5.1%4.1%3.1%2.5%
Maximum Projection5.6%5.6%5.6%3.3%

The Federal Reserve expects interest rates to peak in 2023, with rates to remain elevated above pre-pandemic levels for the foreseeable future.

The Top Google Searches to Come

After a year of volatility across asset classes, economic uncertainty remains. Which themes will become investors’ top Google searches in 2023?

Find out how New York Life Investments can help you make sense of market trends.

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