Once again, CONGRATULATIONS!!! --Katherine

The Smart Investor

Thursday, January 10, 2001

View= IBD=20 Investor Profile archive.=20

Bringing Market Direction Into The = Mix

BY CLAIRE MENCKE

INVESTOR'S BUSINESS DAILY

Even folks who think they've paid their dues in investing can learn a = lot=20 from CAN SLIM, Tom Worley says.

Worley, a bank operations manager, might have thought he'd seen it = all. He=20 started investing when he was 10.

"My uncle worked for Florida Steel," he said. "It was publicly traded = then,=20 but it still wasn't profitable. He gave my siblings and I one share each = for=20 Christmas."

For Worley, it was the gift that kept on giving.

"Back then, there wasn't much junk mail," he said. "So a 10-year-old = like me=20 treasured any mail received. When the quarterly report or annual = statement with=20 proxy arrived, I devoured it."

The share also got him into analyzing stocks.

"I made my first financial forecast about a year later when I told my = uncle=20 the company would be profitable in six months," said Worley. "That was = about a=20 year ahead of what the company accountants were expecting. I was right = and they=20 were wrong."

Worley, now 53, took from that much of the approach to stocks that he = still=20 uses.

"It's probably one reason I became so based in fundamentals," he = said. "I=20 have tried everything pretty much, from value investing and bottom = fishing to=20 momentum. I'm basically a fundamentalist at heart."

Image: A Marathon Run

Fundamentals were what drew him to Epiq Systems (EPIQ).=20 Worley first bought shares of the financial software firm in early 1999, = and=20 still owns a position in it.

Three years ago, Epiq had been public for just about two years and = already=20 had shown year-over-year acceleration in sales, cash flow and earnings = growth.=20

But the fundamental approach wasn't without its issues, says Worley. = He had=20 done a stint as a retail broker for a firm that underwrote small-cap = companies'=20 shares. That introduced him to the inner workings of many companies. But = there=20 were drawbacks, he says.

"My most frequent pre-CAN SLIM mistake was convincing myself that I=20 understood a company better than the market," said Worley. "Then I'd = hold it=20 when everyone else was selling."

CAN SLIM lends a helpful counterbalance. "What it does for me is = provide an=20 objective way of measuring a company's true fundamentals against all = other=20 stocks in its group, as well as all stocks," Worley said. "It also = provides a=20 healthy balance of momentum considerations against my own too-strong=20 fundamentals weighing."

Reason To Succeed

Worley says he aims to buy stocks of companies "that have a reason to = be=20 highly successful over the long term." Still, CAN SLIM has great value = because=20 "it improved my sense of timing on when to get in and get out," Worley = said.

Small stocks still are his favorites, he says. "But size by itself = isn't a=20 determining factor," Worley said. "My very first screen is the daily = list of=20 stocks that hit a new high that day."

These stocks are "the starting point for finding stocks with no = overhead=20 within 12 months," he said. "Then I examine their earnings, sales, ROE, = group=20 strength, relative strength and EPS ratings, chart formation,=20 accumulation/distribution ranks and timeliness."

He wants companies to be profitable for at least two quarters.

Quarter-to-quarter "sequential earnings and sales are more important = to me=20 than year-to-year percentage increases," he said. "If last year was a = very weak=20 year, it's easy to generate easy percentage comparisons this year, and = hard to=20 do the same next year if they are not still growing sequentially."

Worley says Epiq is probably his single best stock success. The = company makes=20 software for bankruptcy trustees.

"I found this one as I find most for my watch list, by using the = daily list=20 of stocks making new highs, and checking for their CAN SLIM = characteristics," he=20 said.

His first purchase of the stock netted a 70% return in almost exactly = seven=20 weeks, he says.

Worley says he tries to buy stocks that can double in price or better = over a=20 year to 18 months. With Epiq, "I saw that potential, but the 70% in = seven weeks=20 was too extreme," he said. He sold that position. But later, when the = stock=20 backed down from where he had sold it, he bought it again. His second = and third=20 purchases netted him 20% and 30% gains.

By then, Worley said he "realized the potential of a company doing so = well=20 when the economy was still strong. If (the bankruptcy software vendor) = could do=20 that well then, they would only flourish when the economy weakened" = — as it=20 did.

He bought the stock a fourth time in April 2000 at about 6.75, = adjusted for=20 splits. Ten months later, he sold half of it with a profit of around = 120%. Three=20 months after that, he sold another quarter of the position for a 366%=20 profit.

Personal Rule

"I have a personal rule that I must sell at least half a position = upon the=20 first sign of (stock price) weakness whenever I'm up over 100%," Worley = said.=20 "Given the opportunity, I want to take my investing capital off the = table and=20 play with someone else's money."

But Worley first uses the 20% gain rule to force himself to = re-examine why=20 he's in a stock.

When a stock is up 20%, "it's a reason to carefully examine the chart = and be=20 able to articulate why I was not selling it," he said.=20