Go to Jeff Salisbury LWGate Home Page.From: Spencer48@aol.com
Subject: [CANSLIM] IBD, Enron's Stock and Enron's Financial Statements
Date: Wed, 6 Feb 2002 16:01:14 EST
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Canslimmers:
I thought today's "Ask Won" item in investors.com was so timely and
important (in understanding and appreciating CANSLIM analysis) that I C&Ped
it so that I could send it, below:
"Ask Bill O'Neil Archives, Wednesday, February 6, 2002
"The Enron situation is alarming. What guidance can you offer about the
problem of "creative accounting" that companies use to make themselves appear
profitable, when they truly may not be? "
- - Submitted from Forest Hills, N.Y.
Indeed, the implications of Enron's collapse and the reasons behind it are
alarming, because it forces us to question a company's audited accounting
statements and our reliance on them. Very few fundamental analysts on Wall
Street had the expertise, or the willingness, to scrutinize Enron's
statements to the degree necessary to discover that something was wrong. In
fact, several analysts of well-known brokerage firms reiterated "strong buy"
ratings on Enron as late as mid-November 2001, just before the company
declared bankruptcy. If anything, the Enron example teaches us that a
company's fundamental picture isn't enough to warrant investment. Equally
important is a company's technical picture, i.e., its chart. Anyone with an
even rudimentary understanding of chart analysis could have seen that Enron's
stock was in a pronounced downtrend since the beginning of 2001. When Enron
fell through the 200-day moving average on huge volume in late November 2001,
that was a classic indication that the stock wasn't acting right. The stock
was in the $70 range at that point. So my advice is to scrutinize a company's
financial statements to the best of your ability and focus on companies with
solid and consistent sales and earnings growth. But put equal time into
scrutinizing the company's daily and weekly chart as well, both of which are
available at investors.com. Only buy stocks that are breaking out of sound
bases, that are not too far extended from the pivot (buy) point. And remember
this most important rule for survival in the market: Always, always, always
cut your losses at 7% to 8% from your purchase price. If you do so, you will
never get too badly hurt in any one stock."
jans
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