CAN SLIM refers to the seven-pronged mnemonic publicized by the American
newspaper Investor's Business Daily, which claims to be a checklist of the
characteristics performingstocks tend to share before their biggest gains. It
was developed by Investor's Business Daily editor William O'Neil who has
reportedly made several hundreds of millions of dollars by consistently using
its approach.[1]
The investing mechanism and processCAN SLIM is a growth stock investment
strategy formulated from the study of the 500 best performing stock market
winners dating back to 1953 in the book How to Make Money in Stocks: A Winning
System In Good Times or Bad, 3rd Edition (May 23, 2002) ISBN
0071373616. by William J. O'Neil. This strategy involves implementation of
both technical analysisand fundamental analysis.The goal of the strategy is to
discover leading stocks before they make major price advances. These
pre-advance periods are "buy points" that are emerging from price consolidation
areas (or "bases"), typically in the form of a "cup & handle" price pattern, of
at least 7 weeks on weekly price charts.The strategy is one that strongly
encourages cutting all losses at no more than 7% or 8% below the buy point,
with no exceptions, to minimize losses and to preserve gains. It is stated in
the book, that buying stocks from solid companies should
generally lessen chances of having to cut losses, since a strong company (good
current quarterly earnings-per-share, annual growth rate, and other strong
fundamentals) will usually shoot up—in bull markets—rather than descend.Some
investors have criticized the strategy when they didn't use the stop-loss
criterion; O'Neil has replied that you have to use the whole strategy and not
just the parts you like.O'Neil has stated that the CANSLIM strategy is not
"momentum investing", but that the system identifies companies with strong
fundamentals—big sales and earnings increases which is a result of unique new
products or services—and encourages buying their stock when they emerge from
price consolidation periods (or "bases") and before they advance dramatically
in price.
MnemonicThe seven parts of the mnemonic are as follows:[1]C stands for Current
earnings. Per share, current earnings should be up to 25%. Additionally, if
earnings are accelerating in recent quarters, this is a positive prognostic
sign.A stands for Annual earnings, which should be up 25% or more in each of
the last three years. Annual returns on equity should be 17% or moreN stands
for New product or service, which refers to the idea that a company should have
a new basic idea that fuels the earnings growth seen in the first two parts of
the mnemonic. This product is what allows the stock to emerge from a proper
chart pattern of its past earnings to allow it to continue to grow and achieve
a new high for pricing. A notable example of this is Apple
Computer's iPod.S stands for Supply and demand. An index of a stock's demand
can be seen by the trading volume of the stock, particularly during price
increases.L stands for Leader or
laggard? O'Neil suggests buying "the leading stock in a leading industry".
This somewhat qualitative measurement can be more objectively measured by
theRelative Price Strength Rating (RPSR) of the stock, an index designed to
measure the price of stock over the past 12 months in comparison to the rest of
the market based on theS&P 500 or the TSE 300 over a set period of
time. [2]I stands for Institutional sponsorship, which refers to the ownership
of the stock by mutual funds, particularly in recent quarters. A quantitative
measure here is the Accumulation/Distribution Rating, which is a gauge of
mutual fund activity in a particular stock.M stands for Market indexes,
particularly the Dow Jones, S&P 500, and NASDAQ. During the time of investment,
O'Neil prefers investing during times of definite uptrends of these three
indices, as three out of four stocks tend to follow the general market pattern.
CAN SLIM PerformanceAccording to the American Association of Individual
Investors (AAII), between January 1998 and December 2008, market portfolios
traded according to CANSLIM principles gained an average of 1,351.3%, versus a
loss of 6% in the S&P 500, with gains made every year regardless
of bull or bear market performance.[3]
References^ a b William O'Neil. "What is CAN SLIM?". Investor's Business
Daily.^ "L is for Leaders".^ CAN SLIM Investor's Network. "CANSLIM Performance".
William J. O'Neil (born March 25, 1933) is
an American entrepreneur, stockbroker and writer, who founded the business
newspaper Investor's Business Daily and the stock brokerage firm William O'Neil
+ Co. Inc. He is the author of the books How to Make Money in Stocks and 24
Essential Lessons for Investment Success and is the creator of the CAN
SLIMinvestment strategy.
