Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] Point of View: Why bother with fundamentals?
Date: Mon, 17 Dec 2001 21:53:09 -0600
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----- Original Message -----=20
From: Katherine Malm=20
To: canslim@lists.xmission.com=20
Sent: Sunday, December 16, 2001 10:12 AM
Subject: [CANSLIM] Point of View: Why bother with fundamentals?
Proposed:
If a typical CANSLIM/Intermediate term move in a stock lasts only a =
few weeks, and in good markets, only a few months, why bother selecting =
portfolio candidates using any sort of fundamental analysis? Returns in =
this time period are strictly based on price movement and can be =
maximized based on technical indicators and price/volume action alone.
Thoughts pro/con?
Hi all,
I was going to let this question go on for the rest of the week without =
posting a response myself, but I figure if I don't do it tonight, it'll =
end up as an "Ask Bill" on Investors.com or an "Investor's Corner" in =
Wednesday's IBD and spoil all the fun.
Before I give you my own response, I thought I'd give some background on =
the question. I view this as a "Zen question." The value is in the =
asking, not in the answer. And as many of you have each responded =
differently, you can see that there is no "right answer" to this. There =
is only an answer that is "right for you." An exceptionally bright =
friend of mine that I have known for 30 years sent me an email this =
evening expressing disbelief that *I* would ask such a question. He was =
also kind enough to answer it. Another friend of mine who practices =
CANSLIM and is not a member of the list expressed the same disbelief. =
The truth is, I have struggled with this question again and again during =
the many years that I have practiced this chosen investing style. I have =
especially struggled with it the last year as I have flipped stocks over =
and over again. Why the heck would I go to so much trouble doing =
fundamental research and choosing the "best" stocks in rising industries =
only to sell them in a few weeks? Why go to all that trouble when I see =
lousy stocks bounce off the bottom in September? How is it that a short =
term trader can make profits by flipping stocks day after day based only =
on supply and demand? How is it that people who knew nothing about =
economics, markets, market history, fundamentals, technicals, finance, =
balance sheets, income statements, return on equity, or cash flow could =
buy a stock in late 1999 and make 500% in a minute and a half? Okay, =
maybe 7 minutes. I'm sorry, but that bugs me.
This question is about an important underlying assumption of CANSLIM: =
Buy a stock with excellent fundamentals in a rising industry when it =
breaks out of a solid basing formation on at least 150% of average daily =
volume. Yet, WON has never given us a scientific study to show that this =
is "statistically significant" or that investing based on this style in =
uptrending markets has outperformed other styles including those based =
on pure fundamentals or pure technicals. He has only given us anecdotal =
evidence. He shows us example after example of "winning stocks." He has =
developed a database used by institutions and individuals alike so that =
they can invest more easily based on these assumptions. We have no =
evidence that his research was complete or that it was sound. But we do =
know that it has been successful for him. We can see that his examples =
are real. We know from our own experience and from that shared by our =
friends that "it works." In some ways, it's choosing a style "on faith."
Here's my analogy for CANSLIM:=20
I had a beautiful silver bracelet. I paid $10 for it just as the style =
was beginning to become popular. My goal was to sell it and make a =
profit. As long as it was sitting in my closet, however, it was just a =
bracelet. When I thought is was becoming even more popular, I put it out =
at a garage sale and marked it $20, nobody bought it. I marked it down =
to $15. Still nobody bought it, and in fact only one person during the =
entire two days even gave it a second glance. It's still a bracelet and =
there's no money in my pocket. I put it up for sale on EBAY and suddenly =
many people who like silver bracelets were looking at it. It sold for =
$100 because enough interested buyers were bidding for it at the same =
time. Was it "worth" $100? Not intrinsically. But it was "worth" what =
someone was willing to pay for it at the time. I met my goal: I made =
money. Shortly after this, I noticed many similar bracelets on EBAY =
selling for $25.
The point is, a company can have the potential to be a great company, =
but if there is no demand for the stock, the price will not go up. Or, =
sometimes, the price of a stock of a seeming worthless company will go =
up. Until it doesn't. Every once in a while you will watch a very good =
company become a great company and the stock will go up, and up, and up, =
and up. Until it doesn't. All you need to know is market history to know =
that this is true. You don't need exhaustive statistical studies. You =
can find example after example. But can you find a good company that is =
underowned or undiscovered and has the potential to become a great =
company? Can you determine when demand is beginning to overwhelm supply =
so that you can buy it at a good price? Can you tell if there is =
continued demand for it that drives up the price? Can you determine when =
is becoming overowned and sell it for as much as possible? Can you make =
money on it? I believe you can. Fundamentals tell the story of a good =
company. Due diligence tells the story of potential. Technicals tell the =
story of supply and demand. CANSLIM has all of these in its toolbag. How =
you chose to use them is your choice.
Here is my answer to this question. As you can see, it is different than =
everyone else's.
Narrowing down the universe of candidates based on excellent =
fundamentals and company/industry potential allows me to ride price =
movement with a bonus. If the market is healthy and this stock is not =
yet "discovered" and the company fulfills its potential, I may be able =
to ride it much longer than the intermediate term. This stock could =
easily become the next DELL, MSFT, INTC, CSCO, or HD. Fundamentals, well =
considered, put the odds for selecting a "big winner" in my favor.
Thank you Kent, Gene, Perry, esetser, Norman, jans, Warren, Dan, Tom, =
Patrick, Larry, Andreas, Dennis, TA and others who have answered but =
whose response I did not see.
Happy Holidays and a Prosperous New Year to all,
Katherine
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<HTML><HEAD>
<META http-equiv=3DContent-Type content=3D"text/html; =
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<META content=3D"MSHTML 5.50.4611.1300" name=3DGENERATOR>
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<DIV><FONT face=3DArial size=3D2>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style=3D"FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine=20
Malm</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Sunday, December 16, 2001 =
10:12=20
AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] Point of =
View: Why=20
bother with fundamentals?</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>
<DIV><FONT face=3DArial size=3D2>Proposed:</FONT></DIV>
<DIV><FONT face=3DArial size=3D2> </DIV></FONT>
<DIV><FONT face=3DArial size=3D2>If a typical CANSLIM/Intermediate =
term move in a=20
stock lasts only a few weeks, and in good markets, only a few months, =
why=20
bother selecting portfolio candidates using any sort of fundamental =
analysis?=20
Returns in this time period are strictly based on price movement and =
can be=20
maximized based on technical indicators and price/volume action=20
alone.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Thoughts pro/con?</FONT><FONT =
face=3DArial=20
size=3D2></DIV></FONT></FONT></DIV></BLOCKQUOTE></FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Hi all,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>I was going to let this question go on =
for the rest=20
of the week without posting a response myself, but I figure if I don't =
do it=20
tonight, it'll end up as an "Ask Bill" on Investors.com or =
an "Investor's=20
Corner" in Wednesday's IBD and spoil all the fun.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Before I give you my own response, I =
thought I'd=20
give some background on the question. I view this as a "Zen question." =
The value=20
is in the asking, not in the answer. And as many of you have each =
responded=20
differently, you can see that there is no "right answer" to this. There =
is only=20
an answer that is "right for you." An exceptionally bright friend of =
mine that I=20
have known for 30 years sent me an email this evening expressing =
disbelief that=20
*I* would ask such a question. He was also kind enough to answer it. =
Another=20
friend of mine who practices CANSLIM and is not a member of the list =
expressed=20
the same disbelief. The truth is, I have struggled with this question =
again and=20
again during the many years that I have practiced this chosen investing =
style. I=20
have especially struggled with it the last year as I have flipped stocks =
over=20
and over again. Why the heck would I go to so much trouble doing =
fundamental=20
research and choosing the "best" stocks in rising industries only to =
sell them=20
in a few weeks? Why go to all that trouble when I see lousy stocks =
bounce off=20
the bottom in September? How is it that a short term trader =
can make=20
profits by flipping stocks day after day based only on supply and=20
demand? How is it that people who knew nothing about economics, =
markets,=20
market history, fundamentals, technicals, finance, balance sheets, =
income=20
statements, return on equity, or cash flow could buy a stock in late =
1999 and=20
make 500% in a minute and a half? Okay, maybe 7 minutes. I'm sorry, but =
that=20
bugs me.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>This question is about an important =
underlying=20
assumption of CANSLIM: Buy a stock with excellent fundamentals in a =
rising=20
industry when it breaks out of a solid basing formation on at least 150% =
of=20
average daily volume. Yet, WON has never given us a scientific study to =
show=20
that this is "statistically significant" or that investing based on this =
style=20
in uptrending markets has outperformed other styles including those =
based on=20
pure fundamentals or pure technicals. He has only given us anecdotal =
evidence.=20
He shows us example after example of "winning stocks." He has developed =
a=20
database used by institutions and individuals alike so that they can =
invest more=20
easily based on these assumptions. We have no evidence that his research =
was=20
complete or that it was sound. But we do know that it has been =
successful for=20
him. We can see that his examples are real. We know from our own =
experience and=20
from that shared by our friends that "it works." In some ways, it's =
choosing a=20
style "on faith."</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Here's my analogy for CANSLIM: =
</FONT></DIV>
<DIV><FONT face=3D"Times New Roman" size=3D3><FONT face=3DArial =
size=3D2>I had a=20
beautiful silver bracelet. I paid $10 for it just as the style was =
beginning to=20
become popular. My goal was to sell it and make a profit. As =
long as=20
it was sitting in my closet, however, it was just a bracelet. When =
I=20
thought is was becoming even more popular, I put it out at a garage sale =
and=20
marked it $20, nobody bought it. I marked it down to $15. Still nobody =
bought=20
it, and in fact only one person during the entire two days =
even gave=20
it a second glance. It's still a bracelet and there's no money in my=20
pocket. I put it up for sale on EBAY and suddenly many people who =
like=20
silver bracelets were looking at it. It sold for $100 because enough =
interested=20
buyers were bidding for it at the same time. Was it "worth" $100? Not=20
intrinsically. But it was "worth" what someone was willing to pay for it =
at the=20
time. I met my goal: I made money. Shortly after this, I noticed many =
similar=20
bracelets on EBAY selling for $25</FONT>.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>The point is, a company can have the =
potential to=20
be a great company, but if there is no demand for the stock, the price =
will not=20
go up. Or, sometimes, the price of a stock of a seeming worthless =
company will=20
go up. Until it doesn't. Every once in a while you will watch a very =
good=20
company become a great company and the stock will go up, and up, and up, =
and up.=20
Until it doesn't. All you need to know is market history to know that =
this is=20
true. You don't need exhaustive statistical studies. You can find =
example after=20
example. But can you find a good company that is underowned or=20
undiscovered and has the potential to become a great company? Can =
you=20
determine when demand is beginning to overwhelm supply so that you can =
buy it at=20
a good price? Can you tell if there is continued demand for it that =
drives up=20
the price? Can you determine when is becoming overowned and sell it for =
as much=20
as possible? Can you make money on it? I believe you can. Fundamentals =
tell the=20
story of a good company. Due diligence tells the story of potential. =
Technicals=20
tell the story of supply and demand. CANSLIM has <EM>all</EM> of these =
in its=20
toolbag. How you chose to use them is your choice.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Here is my answer to this question. As =
you can see,=20
it is different than everyone else's.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>
<DIV>Narrowing down the universe of candidates based on excellent =
fundamentals=20
and company/industry potential allows me to ride price movement with a =
bonus. If=20
the market is healthy and this stock is not yet "discovered" and the =
company=20
fulfills its potential, I may be able to ride it much longer than the=20
intermediate term. This stock could easily become the next DELL, MSFT, =
INTC,=20
CSCO, or HD. Fundamentals, well considered, put the odds for =
selecting a=20
"big winner" in my favor.</DIV></FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Thank you Kent, Gene, Perry, esetser, =
Norman, jans,=20
Warren, Dan, Tom, Patrick, Larry, Andreas, Dennis, TA and others who =
have=20
answered but whose response I did not see.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Happy Holidays and a Prosperous New =
Year to=20
all,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>Katherine</FONT></DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px"><FONT=20
face=3DArial =
size=3D2></FONT> </BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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Next Article (by Date): Re: [CANSLIM] OFF-TOPIC-Point of View: Why bother with fundamentals? Kent Norman
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Next in Thread: Re: [CANSLIM] Point of View: Why bother with fundamentals? Kent Norman
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