Tuesday, July 22, 2008

CAN SLIM Investment Strategy

CANSLIM investing carries some of the features of momentum investing with some further added to it. It was developed by William J. O'Neil and in his book "How to Make Money in Stocks". It represents a method of observing, buying and selling common stocks.

More than 500 stocks were picked by O'Neil through the use of a computer database. This was done over the period between 1953 and 1993. After making a thorough analysis of these stocks, O'Neil managed to identify seven characteristics that all of these stocks share. These traits are synthesized by the acronym CANSLIM.

Every criterion against which an investor should evaluate a stock is represented by a letter of the acronym. So, here are the seven common traits found by O'Neil:

C = Current Quarterly Earnings per Share should be up 25% or more and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters.

A = Annual Earnings should be up 25% or more in each of the last three years. Annual return on equity should be 17% or more.

N = New products, New management, New prices of higher level. A company should have a new product or service that's fueling earnings growth. The stock should be emerging from a proper chart pattern and about to make a new high in price

S = Supply and Demand.
Shares outstanding can be large or small, but trading volume should be big as the stock price increases.

L = Leader or Laggard?
Buy the leading stock in a leading industry. A stock's Relative Price Strength Rating should be 80 or higher.

I = Institutional Sponsorship
should be increasing. Invest in stocks showing increasing ownership by mutual funds in recent quarters.

M = Market Direction
should be in a confirmed up trend. The trend should be of an upward character.

More Info at: http://www.investors.com/learn/c.asp

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