canslim opinion

Discussion in 'Strategy Development' started by elsupremo, Nov 13, 2010.

  1. To those unaware...canslim is a popular (perhaps too popular when it comes to value investing) system developed by a journalist later went investor and a hedge fund manager. Here is the way the system works (should work!):

    * 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 more

    * N 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 the Relative 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 the S&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.


    As you can see it's a combination of technical + fundamental analysis with very little quantitative anasylis.
    I think a good way to make it better will be to add these points:

    * Use leverage to maximize the gain, since it's a long term investing the leverage might be 2:1 as allowed on US stocks or 3:1 in the case when you trade CFDs and aren't based in the states due to regulatins on cfds there. Of course check the yearly volatility so that 34% won't wype you out in the case of 3:1 leverage.

    * Buy puts deep out the money - buying puts deep out the money not only can insure you but make your strategy market neutral so that you might win in any direction. This however requires pretty serious research and caution.

    * Close and open positions perhaps 1-2 times monthly so that to take advantage of what Einstein calls the greatest force in the universe: compound interest. In the case of 60% yearly gain without compounding monhlty you can add additional few percentages gain with just "magic" (as Bill Gates calls compound interest).

    So....with these 3 points the canslim will sound like.... :
    canslimLPC :) (leverage + puts + compounding).

    But the major question is: Is the system good at first place?
    Do you have any experience in similar investment style?

  2. You have to start somewhere, Imo, IBD is solid place to begin.

    I thought their RSI indicator was accurate and helpful.

    IBD is a good place to prospect for short or longs. Re shorts, failed breakouts.

    The top 100? I was a bit disappointed. Others will agree that often the best part of the run is past when an equity appears on the list.

    I was a subscriber for >5 years, I moved on with corruptions of IBD and other methods and have my own style.
  3. they say: the fuck???

  4. anyways i got meant Investor's Business Daily :).
    Though the rest of your moessage was also not..."shockingly clear" - and perhaps the RSI indicator is something i don't believe quite into.

    The website of his hege fund by the way claims performance of 206% cumulative return of canslim and according to wikipedia the number is 1000% - some difference...