AW: [CANSLIM] Point of View: Why bother with fundamentals?

From: Andreas Himmelreich <judgejimmy@web.de>
Subject: AW: [CANSLIM] Point of View: Why bother with fundamentals?
Date: Tue, 18 Dec 2001 20:47:56 +0100
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To speak with Mark Boucher -->

You will be able to ride a meteor by only looking for demand and supply, 
but then you will only have luck, if the meteor is also a star.
On the other side --> how many meteors do we miss because we look for 
potential stars (that have good fundamentals)?


> -----Ursprungliche Nachricht-----
> Von:	Katherine Malm [SMTP:kmalm@earthlink.net]
> Gesendet am:	Tuesday, December 18, 2001 4:53 AM
> An:	canslim@lists.xmission.com
> Betreff:	Re: [CANSLIM] Point of View: Why bother with fundamentals?
>
>   ----- Original Message -----
>   From: Katherine Malm
>   To: canslim@lists.xmission.com
>   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:
> 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
>
>  << Datei: ATT00004.htm >> 

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