- Matthew Caruso captured a 382% return in the first half of 2020.
- He holds second place in the US Investing Championship.
- Caruso's trading methodology stems from William O'Neil's renowned CANSLIM approach.
- He supercharges aspects of O'Neil's strategy by cutting losses at 3%, building monetary-policy projections into his model, leveraging time-based rules, and jettisoning positions at what look like obvious buy points to the untrained eye.
- He listed three stocks that have helped contribute to his extraordinary performance.
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Matthew Caruso, a 2020 US Investing Championship hopeful, caught the investing bug at an early age.
"I read the book 'How to Make Money in Stocks' by William O'Neil, and that really kind of caught fire with me," he told Business Insider. "I was just so blown away."
That initial curiosity would soon spark a lifelong pursuit. From that day forward, Caruso spent his days analyzing, mapping, and digesting the market's every move.
"I live and breathe markets," he said. "It's all I do."
Caruso worked for years as a professional day trader and market maker for some of Canada's largest financial institutions. But the long hours, high stress, and constant pressure started to wear on him.
"So I finally kind of looked at my son — I said, 'Look, I don't want to be a day trader forever,'" he said. "I was kind of getting a little tired of sitting in front of the screen all day and not being able to blink."
Ultimately, he made the decision to start trading on his own.
Fast-forward to today, and Caruso is navigating one of the most turbulent markets in history with relative ease. His performance as of July 31 was a mind-blowing 382%, landing him in second place in the 2020 US Investing Championship. To put that performance in perspective, the S&P 500 has gained about 8% year to date.
Here's how he's doing it.
The strategy
Caruso's trading strategy is rooted in William O'Neil's famous CANSLIM methodology.
For the uninitiated, O'Neil leans on (C)urrent earnings per share, (A)nnual earnings per share, something (N)ew, (S)hares outstanding, and (L)eaders or laggards to whittle down the investable universe and pinpoint the select few stocks that look set to explode higher.
Caruso takes it a step further.
"So I kind of use his methodology as my base, my core," he said. "And on top of that, I've supercharged it with a lot of the different training techniques over the years to kind of really control my risk as much as possible but still deliver a lot of upside."
To Caruso, that means:
- Cutting his losses well before O'Neil's prescribed 7% rule of thumb. If a trade takes a turn for the worse, the maximum loss he's willing to stomach is 3%.
- Building monetary-policy projections into his proprietary model. Caruso leverages his robust knowledge of monetary policy to determine whether he should buy, hold, or sell a position. His relative aggressiveness in the market ebbs and flows with the Federal Reserve's propensity to tighten or loosen monetary policy.
- Leveraging time-based elements to help discern his trades. "If you go up 20% in the first three weeks, you should hold for eight weeks," he said.
- He sells at what look like obvious buy points to the untrained eye. If a stock breaks out, Caruso will sell his shares if there's no follow-through or strength.
In the middle of the market meltdown, Caruso's methodology paid off immensely. When the Federal Reserve tipped its hand, Caruso started scooping shares, knowing that stocks were about to receive a massive tailwind.
"It's kind of that understanding of history and market action coming together to really give me the conviction to get really involved aggressively ... although it looked scary at the time," he said.
Among his purchases were Fastly (FSLY), Twilio (TWLO), and Pan American Silver (PAAS).
Today Caruso remains optimistic on the market, but he's ready to pivot if his indicators tell him trouble is brewing on the horizon.
"The market's been so strong. I mean, any way you measure it, it's been extremely powerful," he said. "And when things finally stop and correct, I'll be out of the way, but, I mean, the market's just shaking off any kind of problem."
