Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] Point of View: Why bother with fundamentals?
Date: Wed, 19 Dec 2001 16:01:57 -0600
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Hi John,
>>The last paragraph seems indicate you do use fundamentals and sector =
rotation for your screening. Then you use total technical analysis from =
that point including exits. Correct?<<
That is for the most part correct, though industry analysis (sector =
rotation) enters in both screening and in buy/sell decisions. I look for =
something with a fundamental story and if I like it, I watch it until =
the industry and technical analysis stars align. As part of my buy =
review process, I look at the action in all players in the industry. =
This will help ensure that the industry is not topping out, even though =
the buy candidate looks technically sound. I also look at industry =
players to be sure that moves off the bottom show that at least 2 strong =
stocks are moving. One alone, and I wait. Once I own a stock, part of my =
sell rules include continued review of other stocks in the industry. If =
they begin breaking down, but my holding is strong, it goes on warning. =
If other technical warning signs kick in, out it goes. My entries and =
exits are definitely driven by technicals. There are times, however, =
where fundamentals do play a hand in my sell rules:
(1) This is really a combined fundamental/technical sell rule: Sell if a =
stock gaps down on earnings news. I don't have a perfect example of this =
from my own recent sells, but one that is close. I owned IRF earlier in =
the year. In early June it started flashing all sorts of technical =
warnings. On 6/11 it gapped down with no explanation. That was enough =
for me, as I knew earnings were upcoming. I was out on the 12th. On 6/15 =
it gapped down on earnings news. If I hadn't already sold, I would have =
within a day or two of the gap. The day or two lag is only so that I can =
catch the last little bounce before it gives up the ghost. There are =
plenty more examples better than this one where the stock went on to =
drop into oblivion, but I can't think of one off the top of my head.
(2) If fundamentals are deteriorating. This is a WON rule. That is, if =
the earnings growth begins decelerating 2 quarters in a row, something's =
up. This is what prompted me to begin scaling out of DELL in early 99. =
Technicals were also getting iffy, but the earnings news clinched it. I =
was out completely by Fall of 99. Absolutely everybody I knew thought =
I'd lost it. That doesn't mean I don't think DELL's a great company. I =
do. It just means my sell rules worked when it mattered.
(3) Financial shenanigans. There's just no way to know how things will =
look when the smoke clears. You can get an example like TYC where it =
turns out to be ok. Then you can get a MSTR or ENE or LU. I just don't =
think the odds favor these things working out for the best, so I'd =
rather watch the dust clear from the sidelines. The latest is TTWO. I =
haven't ever owned it, but I can't wait to see what happens.
>>If that's correct then would you begin to identify some of the =
patterns in the stocks you evaluate. I have purchased Bulkowski and =
trying to make sense out of it. The patterns never seem to match his =
diagrams.<<
I wrestle with technicals every day. I wouldn't say I'm the best person =
on the list to address this question, as there are so many others here =
who are very good technicians. I can identify the plain and simple, but =
if I can't read it I will rely on industry analysis, technicals in other =
players, or will just write it off as "too hard to read--wait and see =
what happens." This happened recently while I was watching JEC. I wasn't =
considering it for a buy, but was watching it for other reasons. I just =
couldn't figure out the chart and it' the reason why I posted the =
question to the list. Strangely enough, JEC showed up in an Investor's =
Corner the other day. Imagine that.
Katherine
- ----- Original Message -----=20
From: John Adair=20
To: canslim@lists.xmission.com=20
Sent: Tuesday, December 18, 2001 7:35 PM
Subject: RE: [CANSLIM] Point of View: Why bother with fundamentals?
Hi Katherine
I read with interest your procedure The last paragraph seems indicate =
you do use fundamentals and sector rotation for your screening. Then you =
use total technical analysis from that point including exits. Correct?
If that's correct then would you begin to identify some of the =
patterns in the stocks you evaluate. I have purchased Bulkowski and =
trying to make sense out of it. The patterns never seem to match his =
diagrams.
John A
----- Original Message -----=20
From: Katherine Malm=20
<snip>
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.
=20
Here is my answer to this question. As you can see, it is different =
than everyone else's.
=20
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.=20
<snip>
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<DIV><FONT face=3DArial size=3D2>Hi John,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>>><FONT color=3D#000080>The last =
paragraph=20
seems <SPAN style=3D"mso-spacerun: yes"> </SPAN>indicate you do use =
fundamentals and sector rotation for your screening. Then you<SPAN=20
style=3D"mso-spacerun: yes"> </SPAN>use total technical analysis =
from that=20
point including exits. Correct?<<</FONT></FONT></DIV>
<DIV><FONT face=3DArial size=3D2><FONT =
color=3D#000080></FONT></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>That is for the most part correct, =
though industry=20
analysis (sector rotation) enters in both screening and in buy/sell =
decisions. I look for something with a fundamental story and if I like =
it, I=20
watch it until the industry and technical analysis stars align. As part =
of my=20
buy review process, I look at the action in all players in the industry. =
This=20
will help ensure that the industry is not topping out, even though the =
buy=20
candidate looks technically sound. I also look at industry players to be =
sure=20
that moves off the bottom show that at least 2 strong stocks are moving. =
One=20
alone, and I wait. Once I own a stock, part of my sell rules include =
continued=20
review of other stocks in the industry. If they begin breaking down, but =
my=20
holding is strong, it goes on warning. If other technical warning signs =
kick in,=20
out it goes. My entries and exits are definitely driven by=20
technicals. There are times, however, where fundamentals do play a =
hand=20
in my sell rules:</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>(1) This is really a combined =
fundamental/technical=20
sell rule: Sell if a stock gaps down on earnings news. I don't have a =
perfect=20
example of this from my own recent sells, but one that is close. I owned =
IRF=20
earlier in the year. In early June it started flashing all sorts of =
technical=20
warnings. On 6/11 it gapped down with no explanation. That was enough =
for me, as=20
I knew earnings were upcoming. I was out on the 12th. On 6/15 it =
gapped=20
down on earnings news. If I hadn't already sold, I would =
have within a day=20
or two of the gap. The day or two lag is only so that I can catch =
the last=20
little bounce before it gives up the ghost. There are plenty more=20
examples better than this one where the stock went on to drop into=20
oblivion, but I can't think of one off the top of my head.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>(2) If fundamentals are deteriorating. =
This is a=20
WON rule. That is, if the earnings growth begins decelerating 2 quarters =
in a=20
row, something's up. This is what prompted me to begin scaling out of =
DELL in=20
early 99. Technicals were also getting iffy, but the earnings news =
clinched it.=20
I was out completely by Fall of 99. Absolutely everybody I knew thought =
I'd lost=20
it. That doesn't mean I don't think DELL's a great company. I do. It =
just means=20
my sell rules worked when it mattered.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>(3) Financial shenanigans. There's just =
no way to=20
know how things will look when the smoke clears. You can get an example =
like TYC=20
where it turns out to be ok. Then you can get a MSTR or ENE or LU. I =
just don't=20
think the odds favor these things working out for the best, so I'd =
rather watch=20
the dust clear from the sidelines. The latest is TTWO. I haven't ever =
owned it,=20
but I can't wait to see what happens.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>>><SPAN =
class=3DEmailStyle18><FONT face=3DArial=20
color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt">If=20
that’s correct then would you begin to identify some of the =
patterns in the=20
stocks you evaluate. I have purchased Bulkowski and trying to make sense =
out of=20
it. The patterns never seem to match his=20
diagrams.<<</SPAN></FONT></SPAN></FONT></DIV>
<DIV><FONT face=3DArial size=3D2><SPAN class=3DEmailStyle18><FONT =
face=3DArial=20
color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"></SPAN></FONT></SPAN></FONT> </DIV>
<DIV><SPAN class=3DEmailStyle18><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"><FONT=20
color=3D#000000>I wrestle with technicals every day. I wouldn't say I'm =
the best=20
person on the list to address this question, as there are so many others =
here=20
who are very good technicians. I can identify the plain and simple, but =
if I=20
can't read it I will rely on industry analysis, technicals in other =
players, or=20
will just write it off as "too hard to read--wait and see what happens." =
This=20
happened recently while I was watching JEC. I wasn't considering it for =
a buy,=20
but was watching it for other reasons. I just couldn't figure out the =
chart and=20
it' the reason why I posted the question to the list. Strangely enough, =
JEC=20
showed up in an Investor's Corner the other day. Imagine=20
that.</FONT></SPAN></SPAN></DIV>
<DIV><SPAN class=3DEmailStyle18><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"><FONT=20
color=3D#000000></FONT></SPAN></SPAN> </DIV>
<DIV><SPAN class=3DEmailStyle18><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"><FONT=20
color=3D#000000>Katherine</FONT></SPAN></SPAN></DIV>
<DIV><SPAN class=3DEmailStyle18><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"></SPAN></SPAN> </DIV>
<DIV><SPAN class=3DEmailStyle18><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"></SPAN></SPAN> </DIV>
<DIV><SPAN class=3DEmailStyle18><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"></SPAN></SPAN>-----=20
Original Message ----- </DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dxjadair@brightok.net =
href=3D"mailto:xjadair@brightok.net">John=20
Adair</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> Tuesday, December 18, =
2001 7:35=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> RE: [CANSLIM] Point of =
View: Why=20
bother with fundamentals?</DIV>
<DIV><BR></DIV>
<DIV class=3DSection1>
<P class=3DMsoNormal><SPAN class=3DEmailStyle18><FONT face=3DArial =
color=3Dnavy=20
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt"><SPAN=20
style=3D"mso-spacerun: yes"> </SPAN>Hi=20
Katherine<o:p></o:p></SPAN></FONT></SPAN></P>
<P class=3DMsoNormal><SPAN class=3DEmailStyle18><FONT face=3DArial =
color=3Dnavy=20
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt">I read=20
with interest your procedure The last paragraph seems <SPAN=20
style=3D"mso-spacerun: yes"> </SPAN>indicate you do use =
fundamentals and=20
sector rotation for your screening. Then you<SPAN=20
style=3D"mso-spacerun: yes"> </SPAN>use total technical analysis =
from that=20
point including exits. Correct?<o:p></o:p></SPAN></FONT></SPAN></P>
<P class=3DMsoNormal><SPAN class=3DEmailStyle18><FONT face=3DArial =
color=3Dnavy=20
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt">If=20
that’s correct then would you begin to identify some of the =
patterns in the=20
stocks you evaluate. I have purchased Bulkowski and trying to make =
sense out=20
of it. The patterns never seem to match his=20
diagrams.<o:p></o:p></SPAN></FONT></SPAN></P>
<P class=3DMsoNormal><SPAN class=3DEmailStyle18><FONT face=3DArial =
color=3Dnavy=20
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-bidi-font-size: =
12.0pt">John=20
A<o:p></o:p></SPAN></FONT></SPAN></P><![if =
!supportEmptyParas]><![endif]>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
color=3Dblack=20
size=3D2><SPAN style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: =
Arial">-----=20
Original Message ----- </SPAN></FONT><FONT face=3DArial color=3Dblack =
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial; =
mso-color-alt: windowtext"><o:p></o:p></SPAN></FONT></P>
<DIV=20
style=3D"BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: =
medium none; PADDING-LEFT: 4pt; PADDING-BOTTOM: 0in; BORDER-LEFT: black =
1.5pt solid; PADDING-TOP: 0in; BORDER-BOTTOM: medium none">
<P class=3DMsoNormal=20
style=3D"BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: =
medium none; PADDING-LEFT: 0in; BACKGROUND: #e4e4e4; PADDING-BOTTOM: =
0in; MARGIN-LEFT: 39.75pt; BORDER-LEFT: medium none; PADDING-TOP: 0in; =
BORDER-BOTTOM: medium none; mso-margin-top-alt: auto; =
mso-margin-bottom-alt: auto; mso-border-left-alt: solid black 1.5pt; =
mso-padding-alt: 0in 0in 0in 4.0pt"><B><FONT=20
face=3DArial color=3Dblack size=3D2><SPAN=20
style=3D"FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: black; =
FONT-FAMILY: Arial">
<DIV style=3D"font-color: black">From:</SPAN></FONT></B><FONT =
face=3DArial=20
color=3Dblack size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <A=20
title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine Malm</A>=20
</SPAN></FONT></DIV><FONT face=3DArial color=3Dblack size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial; =
mso-color-alt: windowtext"><o:p></o:p></SPAN></FONT>
<P></P>
<P class=3DMsoNormal=20
style=3D"BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: =
medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; MARGIN-LEFT: =
39.75pt; BORDER-LEFT: medium none; PADDING-TOP: 0in; BORDER-BOTTOM: =
medium none; mso-margin-top-alt: auto; mso-margin-bottom-alt: auto; =
mso-border-left-alt: solid black 1.5pt; mso-padding-alt: 0in 0in 0in =
4.0pt"><B><FONT=20
face=3DArial color=3Dblack size=3D2><SPAN=20
style=3D"FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: black; =
FONT-FAMILY: Arial"><snip></SPAN></FONT></B></P><![if =
!supportEmptyParas]><![endif]></DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
color=3Dblack=20
size=3D2><SPAN style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: =
Arial">The=20
point is, a company can have the potential to be a great company, but =
if there=20
is no demand for the stock, the price will not go up. Or, sometimes, =
the price=20
of a stock of a seeming worthless company will go up. Until it =
doesn't. Every=20
once in a while you will watch a very good company become a great =
company and=20
the stock will go up, and up, and up, and up. Until it doesn't. All =
you need=20
to know is market history to know that this is true. You don't need =
exhaustive=20
statistical studies. You can find example after example. But can you =
find a=20
good company that is underowned or undiscovered and has the=20
potential to become a great company? Can you determine when demand is=20
beginning to overwhelm supply so that you can buy it at a good price? =
Can you=20
tell if there is continued demand for it that drives up the price? Can =
you=20
determine when is becoming overowned and sell it for as much as =
possible? Can=20
you make money on it? I believe you can. Fundamentals tell the story =
of a good=20
company. Due diligence tells the story of potential. Technicals tell =
the story=20
of supply and demand. CANSLIM has <EM><I>all</I></EM> of these in its =
toolbag.=20
How you chose to use them is your choice.</SPAN></FONT><FONT =
color=3Dblack><SPAN=20
style=3D"COLOR: black; mso-color-alt: =
windowtext"><o:p></o:p></SPAN></FONT></P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3D"Times =
New Roman"=20
color=3Dblack size=3D3><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black"> </SPAN></FONT><FONT=20
color=3Dblack><SPAN=20
style=3D"COLOR: black; mso-color-alt: =
windowtext"><o:p></o:p></SPAN></FONT></P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
color=3Dblack=20
size=3D2><SPAN style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: =
Arial">Here is=20
my answer to this question. As you can see, it is different than =
everyone=20
else's.</SPAN></FONT><FONT color=3Dblack><SPAN=20
style=3D"COLOR: black; mso-color-alt: =
windowtext"><o:p></o:p></SPAN></FONT></P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3D"Times =
New Roman"=20
color=3Dblack size=3D3><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black"> </SPAN></FONT><FONT=20
color=3Dblack><SPAN=20
style=3D"COLOR: black; mso-color-alt: =
windowtext"><o:p></o:p></SPAN></FONT></P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
color=3Dblack=20
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Narrowing =
down the=20
universe of candidates based on excellent fundamentals and =
company/industry=20
potential allows me to ride price movement with a bonus. If the market =
is=20
healthy and this stock is not yet "discovered" and the company =
fulfills its=20
potential, I may be able to ride it much longer than the intermediate =
term.=20
This stock could easily become the next DELL, MSFT, INTC, CSCO, =
or HD.=20
Fundamentals, well considered, put the odds for selecting a "big =
winner" in my=20
favor.</SPAN></FONT><FONT face=3D"Times New Roman" color=3Dblack =
size=3D3><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black"> </SPAN></FONT></P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
color=3Dblack=20
size=3D2><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: =
black"><snip></SPAN></FONT></P></DIV></BLOCKQUOTE></BODY></HTML>
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