In investing circles, Dan Zanger is considered one of the greatest traders of all time. It’s easy to see why: Zanger once achieved an earth-shattering 3,896,911% gain in the stock market in just 23 months.
The first leg of this performance, where he turned $10,775 into $18 million from June 1998 to December 1999, has been independently verified by Fortune magazine and asset management firm Effron Enterprises Inc. The second, where he supposedly turned that same $18 million into $42 million by May 2020, has not been audited, but is nonetheless recognized by reputable industry sources as valid.
Zanger also currently holds the world record for the largest single-year return in the stock market. In a letter acknowledging his record, Effron Enterprises Inc. noted that it was impossible to map his returns on the same page as standard stock market indices because they were too large.
Sound too good to be true? If it weren’t for independent audits, most would write this story off as a fairy tale. But this is just the tip of the iceberg, as it gets even crazier when you learn what Zanger’s career looked like before his legendary run.
When you think of “world record trader,” what comes to mind? Maybe it’s a math prodigy, or a statistics wizard. Perhaps it’s an investment banking analyst who recently left a prestigious firm.
Zanger was none of those. In fact, before he became a trader, he spent 20 years building swimming pools for wealthy Beverly Hills homes, where his salary never climbed above $50,000. Prior to his construction career, he was a college dropout who worked low-wage jobs to make ends meet.
So how did a blue-collar guy like Zanger get into trading stocks? Though his legendary run didn’t happen until 1998, he first became interested in the market in the 70’s, when he saw a local business channel covering stock patterns on TV. Eventually, this interest evolved into a passion. In addition to devouring books and attending seminars, Zanger spent “three hours on weekdays and 15 hours on weekends” studying chart patterns, as reported by Trader Monthly.
His early career was marked by “[huge] losses” as he fought the waves of a market correction. But several years in, he began to find his footing. In an interview with Trader Monthly, he credits successfully spotting a reversal pattern in the 1997 oil index for giving him the confidence he needed to dive deeper.
In 1998, at the ripe age of 45, Zanger sold his Porsche to raise the infamous $10,775 that defined his career. Buoyed by the dot com bubble, he would go on an absolute tear in the next two years, generating massive returns. In one of his greatest trades, he purchased shares of $CMGI in January 1999, then sold them just four days later for a 210% gain. This move is enshrined in Trader Monthly’s 40 Greatest Trades of All Time list.
A Proven Strategy
Zanger’s success wasn’t luck. It was the result of the years he spent learning a philosophy called growth investing — specifically, a strategy dubbed CAN SLIM. Pioneered by renowned trader William O’Neil, CAN SLIM identifies stocks that have high probabilitys of skyrocketing.
Here’s a big picture overview of a few of its basic principles.
(Note: do not trade based on what I’ve written below. This is a general summary and does not provide the granular details necessary to succeed. For a detailed rundown, start with William O’Neil’s book How to Make Money in Stocks, which Zanger swears by.)
1. Look for strong fundamentals
When it comes to financial statements, CAN SLIM favors stocks with three main characteristics:
- Quarterly EPS growth of >20% compared to the year before, as well as >20% from the prior quarter
- >20% increase in sales over the recent quarter
- Annual EPS growth of >20%
These are the stats big institutional investors (i.e. hedge funds and investment banks) tend to like. Therefore, buying stocks with these characteristics helps you align your picks with those of institutional investors, increasing your odds of success.
Unlike value investing, which focuses on metrics like the P/E ratio, CAN SLIM focuses exclusively on EPS and sales growth. Sky-high P/E ratios are not a concern. In fact, growth investors often buy stocks with P/E ratios at all-time highs.
2. Limit losses to 5% or less
This means if a stock’s price falls 5% below your purchase price, you must sell it no matter what. O’Neil’s original book has this number set at 7–8%, but most modern CAN SLIM investors suggest 5% (some have it as low as 1%).
This is a critical rule because when stocks fall, you have no idea how low it’ll go. Investors often fall into a trap where they think “well, the price will go back up — I’ll just wait it out,” only to watch the price plunge lower (and sometimes to zero).
To prevent this from happening, CAN SLIM sets a maximum loss rule. And because that number is limited to 5% of your portfolio, you may only need one successful trade in order to profit.
3. Identify high probability patterns
CAN SLIM dictates that you should only enter a trade if there’s a clear break on a bullish pattern accompanied by a significant increase in volume. That means you’re looking for cup-and-handles, flat bases, flags and pennants, channels, triangles, and other proven chart signals.
Reading patterns is one of Zanger’s greatest strengths. “Stocks are my buddies,” he told Fortune. “I know when they feel good or when they feel bad.” His ability to identify patterns like the back of his hand has enabled him to spot set-ups with high probabilities of success.
Profitable CAN SLIM trading requires a deep understanding of chart patterns. Acquiring this ability requires years of careful study.
CAN SLIM in a nutshell
Combine the three principles above and you end up with a strategy that stacks the odds in your favor. CAN SLIM identifies stocks with a better-than-average success of shooting higher while simultaneously limiting your losses. The resulting framework gives you many chances to find winning stocks.
Caveat: CAN SLIM works best in bull markets and may not work at all in bear markets. It’s important to learn how to read the underlying market direction before jumping in— a point I haven’t covered thoroughly here. Once again, you can find more details in William O’Neil’s book How to Make Money in Stocks.
Zanger used his personal spin of CAN SLIM to achieve insane returns, and continues to use it to this day.
Mentality is Everything
Throughout his career, Zanger’s biggest one-day gain was a jaw-dropping $5.2 million. But he’s had his fair share of losses as well. In an interview with Traders,’ he reveals that he once lost 75% of his portfolio during while trading. In general, strict adherence to CAN SLIM rules prevents this, but there’s always the risk that a stock will “gap down,” or drop so quickly you’re unable to sell at your stop loss.
In hard times like these, what kept Zanger going? “Persistence,” he told Traders.’ “I always go back to the charts and stare at them for hours, trying to figure out where and how I went wrong... In time, with enough persistence and desire, things will start to appear that can often predict a break on a stock or market. It took me more than six years of studying charts at least 30 hours a week before it all came together.”
No matter which strategy you choose, trading stocks is a mental game. Developing the stomach to weather storms is a bare minimum requirement for success, as is having the discipline to study charts relentlessly. Ultimately, passion is what has enabled Zanger to continue to thrive in this industry. Unless you truly love the game, you’ll have a difficult time surviving the ups and downs.
At the end of the day, the takeaway is this: for someone who didn’t hit his stride until his 40’s (and was once destined to build swimming pools for the rest of his career), Zanger shows what obsessive hard work can accomplish. His life is a true underdog story, and is worth its weight in inspiration.