CAN SLIM

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 performing stocks 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]

Contents

The investing mechanism and process

CAN 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 analysis and 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.

Mnemonic

The seven parts of the mnemonic are as follows:[1]

CAN SLIM Performance

According 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

  1. ^ a b William O'Neil. "What is CAN SLIM?". Investor's Business Daily. http://www.investors.com/Education/OnlineCourses.aspx. 
  2. ^ "L is for Leaders". http://www.formeraboutguides.com/investingcanada/library/weekly/2000a/aa042700.htm. 
  3. ^ CAN SLIM Investor's Network. "CANSLIM Performance". http://www.canslim.net/. 

See also

CANSLIM Internet Resources

Books Referencing CAN SLIM