CANSLIM Star Trader: An Interview with Gil Morales
Gil Morales, protege of William O’Neil and current principal and CEO of the money management firm Gil Morales & Company, is a self-described plunger. As we acquainted ourselves in preparation for our telephone interview earlier this spring, Morales was very much focused on the behavior of the markets and how that behavior was affecting his positions in a wide number of stocks.
“It’s been very difficult for me actually because of the way I trade. I’m basically a plunger and when I come in, I come in heavy,” Gil said, and then added “What year do you recall seeing three times where the market corrected 10% very quickly? You had the big sell-off at the end of February. Then you had the August sell-off, and then again in October.”
Morales’ career in the world of stock trading and investing began back in 1991 as a stockbroker in Beverly Hills. Moving to PaineWebber a few years later where he became a million dollar producer “in about three years” Morales was later recruited by William O’Neil himself to join his L.A.-based trading and investment company, William O’Neil and Company.
His time with William O’Neil helped him form both the methods and attitudes toward the market that he continues to abide by today. One of the foremost practitioners of O’Neil’s CANSLIM approach to active investing and position trading, Morales has added a number of this own innovations to O’Neil’s famous stock trading methodology. These included a greater willingness to bet against stocks when opportunities presented themselves, and a more conservative approach to adding new rules to already established trading methods.
Since 2007, Gil Morales has been the principal and CEO of Gil Morales & Company, LLC, (www.gilmoreport.com) a money management firm based in Century City, California.
We spoke with Gil Morales earlier this spring by telephone. What follows is Part One of our conversation with one of the most famous and successful traders and investors ever to come out of the “academy” that was William O’Neil & Company. Here, Gil talks about his early influences, the importance of “boxes and bases,” and what he calls the Big Stock Principle.
David Penn: When we corresponded by e-mail, you mentioned four famous individuals who guided or inspired your approach to trading. Could you talk a little about these four people, who are probably traders all of us should know more about? I’m sure we’ll talk a lot about William O’Neil. But what about the others? Nicholas Darvas, for example.
Gil Morales: I think I can summarize it. I could go on forever about these traders, but let’s just boil it down to essential concepts. Darvas to me was the first guy
who really figured out bases and figured out that if a stock is moving within a consolidation or a base or a box as he called it, then it was doing what it should be doing.
So learning to interpret stocks within the realm of what is it doing, how should it be acting, was something I picked up from him.
Is it acting correctly? Fine. Hold the stock. And then if it does start to break out of the box or show some deleterious action within that box, maybe some heavy
volume selling that would throw it out of the box, then it’s telling you something may be wrong.
Penn: Richard Wyckoff?
Morales: He to me was the first guy who recognized technicals. He said that fundamental analysis alone was insufficient because it lacked the basic element of
timing. And you couldn’t make money just trading on fundamentals.
Wyckoff was really the first guy who looked at charts, I believe. He outlined the technical aspects of a stock’s lifecycle: all the different labels on it showing how a stock has its big run, how it consolidates, sets up again and then finally gets to a top and a period of decline.
And so a lot of these concepts that Wyckoff outlines, particularly the technical aspects of the lifecycle of a stock, are basically part and parcel of William O’Neil’s work on the long and the short side.
I think Wyckoff really contributed also the idea of supply and demand. The idea that price volume action is very important and that it’s not necessarily a zero-sum game where every buyer is met by a seller was key. I mean there’s also the element that every buyer may be met by one seller but if he wants to buy more stock he may not be able to find more buyers at a certain price point.
So there’s the law of supply and demand coming into play that he discussed. I think that’s also the essential part of O’Neil’s work, that in certain stocks demand builds for them because you have a reason, a cause, which would be the fundamentals.
This is basically the company’s position as an innovator with some sort of new product or service that is very compelling — combined with the institutions that have to own these stocks. There’s a supply coming in and there just isn’t enough of it out there for what they need to accumulate. And so it drives the price higher. In that sense the O’Neil view kind of extends from Wyckoff in that regard.
Penn: And the late great Jesse Livermore?
Morales: Jesse Livermore had this concept that I like which is the pivotal point. Not the pivot point. O’Neil calls it the pivot point. Livermore called it the pivotal
point, or more accurately described it as the line of least resistance.
Livermore had a number of rules regarding this sort of thing and one of the most famous to me is when he’s talking about Anaconda Copper—