CAN-SLIM and IBD

[Andrew Jackson]

I'm sure most of you know of William O'neil and his CAN-SLIM approach to picking stocks. He of course latter invented the Investor's Business Daily newspaper. Has anyone on here tried his approach or subscribed to his paper or maybe both? I just started reading his fourth and newest edition of How To Make Money in Stocks. I've enjoyed reading it so far, and some of the things he says really make sense and other things are down right confusing. I've heard that it can take a solid year or even two for some people to fully get the system down.

[Andrew Jackson]

Nobody has any thoughts on this topic?

[Broken Arrow]

I've heard of CAN SLIM, and from what little I've read, I really do like it. In fact, I really should read his book, but I just haven't. As such, I don't have much add on this subject matter.

Well, at the risk of being an arrogant jerk (and I won't blame anyone if they thought that about me here) the system seems like basic knowledge that I think all stock pickers should know and instinctively look for. But again, I do like what he's proposing, and if I get around to reading his book, I am certain that I will learn much from it.

My local trading group is also an IBD chapter by the way... er... the group that I no longer attend because they waste too much time fighting each other about which method is better when I just wanted to learn more. But anyways, not much to add there either.

[Andrew Jackson]

Well, at the risk of being an arrogant jerk (and I won't blame anyone if they thought that about me here) the system seems like basic knowledge that I think all stock pickers should know and instinctively look for.

Yeah i think it has plenty of common sense things. And it truly is a system that you are not supposed to budge from ever pretty much. One thing that he proposes that is kind of against the grain is that he suggests to buy high and sell higher, rather than the age old thinking of buy low and sell high. He can pretty much care less about P/E ratios too. Still reading the book and I still enjoy it. The only real critical reviews I have read about the book and mostly IBD, is that the commentary leans too much to the right politically.

[Broken Arrow]

One thing that he proposes that is kind of against the grain is that he suggests to buy high and sell higher, rather than the age old thinking of buy low and sell high.

This may or may not surprise you, but there are actually many more momentum investors and traders than there are value investors out there. In a sense, the likes of Warren Buffett are kind of a rare breed. Why is this?

Because momentum works. Buying high and selling higher... works. Being a bit of a contrarian myself, I don't like to admit it, but it's true.

However, momentum investing does not come without its own risks. Buying high has its own risks. So, I believe it really depends on your investing (and trading) strategy, and then picking which tools and approaches will work best for the job.

He can pretty much care less about P/E ratios too.

Now this I would say is against the grain. Everybody uses some kind of earnings metric. It doesn't have to be basic P/E, but you have to use something something. Even those who look at to-book or to-equity values will still look at earnings somehow. Otherwise, how do you even know what you're buying into? It'd be like going to the grocery store and buying milk and bread, without knowing how much it costs.

Still reading the book and I still enjoy it.

If you find out anything else, please feel free to share it. I wouldn't mind learning more about his point of view.

[jpg7n16]

This may or may not surprise you, but there are actually many more momentum investors and traders than there are value investors out there. In a sense, the likes of Warren Buffett are kind of a rare breed. Why is this?

Because momentum works. Buying high and selling higher... works. Being a bit of a contrarian myself, I don't like to admit it, but it's true.
...

I think the momentum investing is trying to profit from market euphoria. (Your buy high, sell higher comment) It can work, but all results will be shortlived until the next big thing comes along.

Buying extra low (Buffett's "cigar-butt" approach), is trying to profit from unnecessary market pessimism. Buy extra low, sell when back to reasonable. It can work, but all results are temporary. As Buffett puts it, "time is the friend of the excellent business and the enemy of the lousy business." And cigar butt stocks are lousy businesses (at a great price.)

Buying on the low to reasonable side and holding it for a really long time is trying to profit from a successful business.

I understand the first two, but I prefer the last.

[Broken Arrow]

I understand the first two, but I prefer the last.

Me too.

[jpg7n16]

Yeah from what I understand of the CANSLIM method, it is evaluating the company to see if it has potential to be a successful business.

Stock-Picking Strategies: CAN SLIM

It's like he is trying to find a system that identifies who the winning businesses are in advance. I've never tried it, but I don't like the M piece (market direction)

Change it to CANSLIP (P for price) and I think it's pretty solid. I can determine what the price is relative to what I think it currently should be. I have no idea what the market will decide to do next.

Edited to add: Oh and I don't care for the "shares outstanding" bit. That's a completely arbitrary number. Just use market cap - eliminates the need for shares. He's looking for a small market cap, so just look for that. I must admit though... CAN MLIP doesn't sound as catchy.

[Broken Arrow]

CAN SLIP isn't exactly a very marketable acronym though.

[jpg7n16]

CAN SLIP isn't exactly a very marketable acronym though.

Yeah not exactly the idea you want to give off when evaluating how a strategy will affect your portfolio haha

"Your portfolio will slip with CAN SLIP!"

[Hector]

In that strategy, most of the buying points are when overall market is coming out of recession. If person hold off investing and invest only when market is coming out of recession then majority of trades will be successful, nope?

[Broken Arrow]

I read the Investopedia link, and it appears that he does take "price" into consideration. Specifically, he's only interested in the earnings worth of the company, and he doesn't care what the market thinks the company is worth. That would explain why he looks at EPS rather than P/E.

Truth to tell, I can't say that's a bad way to go at it. In my personal opinion anyway, I think to-equity metrics are better for such fundamental analysis, but you can't always use that for every company, so you fall back to EPS as the lowest common denominator. In other words, even if EPS isn't always the best indicator, at least it's always applicable. Kind of like you can at least check everybody's pulse in a basic health check-up.

To ride my arrogant high horse some more, I would still argue for P/E over EPS, if only because-- and this is only my personal opinion by the way-- you still don't want to overpay for something. Even if you're buying into the best company in the world, it is still entirely possible to pay too much for it, and lose money as a result. And the only way you're going to avoid that is to look at the market price. And that means P/E at the very least.

Still, I can be on-board with CAN (and therefore, EPS), and I think it's SLIM that is the truly controversial part. I would love to learn more details about what he thinks of it.

[JBinKC]

CANSLIM is not a buy and hold strategy and automatically sells out of a position when the general market falls below a moving average so that is why price isn't important. BTW my favorite stock screen if it can be triggered is a Piotroski.