Satisfying, yet
Fat-Free*
by
Dbpheonix
CANSLIM is one of the most widely used and widely respected investment strategies
in the country. It is also one of the most widely misunderstood. That is
partly because there are a number of sources from which to learn it, including
the book
How
to Make Money in Stocks by William O'Neil, Investors' Business Daily
(published by same), and forums such as that provided by the Motley Fool
and various net groups.
But the strategy also has a chameleonic nature. Because it has few, if any,
hard-and-fast rules, it not only can change according to the individual's
investing style, it must change according to changes in market conditions.
This adaptability is one of its chief strengths. However, this very adaptability
can also make the approach terribly confusing not only for novice investors,
but for many seasoned investors as well.
Those who have followed discussions of CANSLIM here or elsewhere have no
doubt been amused, perplexed, and frustrated (if not appalled) by the occasional
food-fights that break out amongst those who each claim to be adhering to
the true path and will have no truck with those who stray. There's no room
here to delve into the sociological and psychological dynamic of this phenomenon,
much less to try to untangle all the threads of those who have contributed
to the debate. To do so would probably result in the receipt of a tomato
in the face.
Permit me, therefore, to address the question of CANSLIM's "essence," if
you will, and leave it to others to thrash out the nitty-gritty, for if one
doesn't understand what it is that CANSLIM is trying to do, the resulting
confusion can be mind-numbing.
CANSLIM is an investment philosophy and strategy which combines fundamental
and technical analysis, as well as momentum and value approaches, in a thoroughly
unique way. In order to make the most of it, one must wade into the fundamentals
through balance sheets and corporate histories (in order to determine whether
the stock's worth buying at all) as well as analyze the behavior of those
individuals who are interested in buying or selling the stock (in order to
determine the most advantageous time to buy -- the function of charts and
technical analysis).
As regards the momentum and value aspects of it, CANSLIM is not so much a
close, personal friend to momentum players as it is a friendly acquaintance.
It does encourage one, ever so gently, to focus on stocks that are either
going somewhere in the imminent future or at least have the potential to
do so before the crops come in. However, it also insists that these stocks
have strong earnings histories, solid financials, outstanding management,
and be worth at least as much as, if not considerably more than, one is being
asked to pay for them.
Add to all this its strictures regarding portfolio management -- keeping
one's losses as small as humanly possible and letting one's winners run until
they sweat -- and one has a very attractive investment package, all tied
up with a pretty bow. Anyone who doesn't include all these elements in his
CANSLIM basket just doesn't get it, and when he presents his basket to Grandmama,
he will find that Grandmama has very big teeth indeed, all the better to
eat up his portfolio with.
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