Go to Jeff Salisbury LWGate Home Page.From: "Cefaloni, John L Jr. [AMSTA-AR-WEA]" <john.cefaloni@us.army.mil>
Subject: RE: [CANSLIM] Investing 101
Date: Wed, 24 Jul 2002 10:34:07 -0400
Previous Article (by Date): Re: [CANSLIM] Investing 101 "Katherine Malm"
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Wow. Thanks very much for the insight Katherine. Very interesting view. I
smell a book in there somewhere.
John C.
- -----Original Message-----
From: Katherine Malm [mailto:kmalm@earthlink.net]
Sent: Wednesday, July 24, 2002 10:26 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] Investing 101
Hi Charley,
To answer you question....yes and no.
It's a subtle point, but let me see if I can do a better job of explaining
it than yesterday.
Fundamentals First Approach: Screen stocks for all CANSLIM required
fundamentals. That's a list of about 15 criteria including ROE, D/E,
margins, revenues, earnings, growth in earnings and revenues, etc. (It's a
lengthy list) Then look for technicals to confirm.
Pro: you get superior fundamentals and then wait for a good technical entry.
You've met all the suggested CANSLIM criteria.
Con: It's a big mistake to take a set of fundamental criteria based on the
*average* fundamentals of winners in the past. While it may seem appealing,
the truth is that the 20% this and 50% that which everybody takes as a
checklist is simply the *typical* for high quality stocks. In reality,
because fundamental reporting lags and accounting rules can obfuscate the
reality of business (good and bad, BTW), you really have to look at
fundamentals in context. For example, a company may have a bathtub quarter
because of extraordinary events. Should we eliminate the stock for one bad
quarter in a string of winners? What if a company is turning around, having
beefed up their strategic planning and execution, bringing on a new CEO,
etc? Bottom line is that if you *start* with a list of fundamental
requirements that are too stringent and based on averages, then you are
missing "high quality" companies. Bottom line is than you should never let
an *average* become a *minimum.*
If you instead screen first for technicals, then you know right away that
supply and demand are acting a certain way. In other words, "what is working
right now?" It may turn out that what is working right now is not CANSLIMish
at all (cyclical, fallen angels bouncing, etc.) and you may choose to stay
away. BUT....if you are always screening for what is technically healthy,
then you *know* what is working and you will not be blinded to groups and/or
stocks that do indeed have excellent fundamentals, but may not meet each and
every average criteria. I think of it as reading "the preponderance of
evidence" on fundamentals and evaluating it in context during due diligence.
Far more important to evaluate "N" for sustainable growth potential, then
verifying excellent execution through a read on the fundamentals.
Last point is on group RS. I have an entire library of IBD articles over
time that essentially say that you should always look first at technically
healthy stocks and *then* look for confirmation that at least one other
stock in the industry is technically healthy. If you wait until the entire
group has high RS, then you will miss the leaders' moves. Here's one from
the other day, which was a followup to an IBD article from the 15th:
Ask Bill O'Neil
Q: On the July 15 Winning Ways column, IBD said it's more important to see
other stocks in the industry group with high relative price strength than a
high Industry Group Relative Strength Rating for the entire group. Why? -
Submitted from Red Creek, N.Y
A: The majority of leading stocks are in leading industries. Studies show
37% of a stock's price movement is directly tied to the performance of its
industry group. Another 12% is due to the strength in its overall sector.
Therefore, roughly half of a stock's move is due to the strength of its
respective industry. But note that just because the relative strength of the
group is on the low side, does not necessarily mean the group is bad.
Sometimes, there are only a few true leaders in a group. If the group
happens to be large or it is just beginning a move, the group relative
strength rating may be skewed to the low side. This is why it's important to
see other stocks in the same group with high Relative Price Strength Ratings
rather than a high rating for the entire group itself.
<http://www.investors.com/editorial/feature.asp?v=7/24>
Katherine
- ----- Original Message -----
From: Chazmoore@aol.com <mailto:Chazmoore@aol.com>
To: canslim@lists.xmission.com <mailto:canslim@lists.xmission.com>
Sent: Wednesday, July 24, 2002 8:58 AM
Subject: [CANSLIM] Investing 101
Katherine: Yesterday, while commenting on the need to constantly be revising
our prospect lists, you went on to observe that the stocks that go up are
those with core CANSLIM characteristics, and then observed that technicals
should lead the way to the winners. I always enjoy your comments and usually
print them for future reference, but I must confess I feel like the student
who dosed off in class and missed a key test question.
To me, good fundamentals mean the company is in excellent financial health
with a light to moderate debt load, and has been very profitable for at
least four or more quarters. CANSLIM, IBD, and DGO lets us determine these
facts very quickly. Then with a little research we can perform the fine
tuning.
Technically, the Group Industry Relative Strength, the Price Relative
Strength, and the Accumulation/Distribution Rating gives us clues as to when
it may be safe to buy.
The actual purchasing moment is determined by an analysis of the price
chart, as we look for a break out from a prior resistance level.
Is this the point you were making? Find the best companies then wait for the
technicals to tell us when to enter the market?
I think I missed something because you concluded by saying we should not
start with fundamentals to find good quality candidates.
Charley
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<DIV><SPAN class=830533214-24072002><FONT face=Arial color=#0000ff
size=2>Wow. Thanks very much for the insight Katherine. Very
interesting view. I smell a book in there somewhere.</FONT></SPAN></DIV>
<DIV><SPAN class=830533214-24072002><FONT face=Arial color=#0000ff
size=2></FONT></SPAN> </DIV>
<DIV><SPAN class=830533214-24072002><FONT face=Arial color=#0000ff size=2>John
C.</FONT></SPAN></DIV>
<BLOCKQUOTE dir=ltr style="MARGIN-RIGHT: 0px">
<DIV class=OutlookMessageHeader dir=ltr align=left><FONT face=Tahoma
size=2>-----Original Message-----<BR><B>From:</B> Katherine Malm
[mailto:kmalm@earthlink.net]<BR><B>Sent:</B> Wednesday, July 24, 2002 10:26
AM<BR><B>To:</B> canslim@lists.xmission.com<BR><B>Subject:</B> Re: [CANSLIM]
Investing 101<BR><BR></FONT></DIV>
<DIV>Hi Charley,</DIV>
<DIV> </DIV>
<DIV>To answer you question....yes and no.</DIV>
<DIV> </DIV>
<DIV>It's a subtle point, but let me see if I can do a better job of
explaining it than yesterday.</DIV>
<DIV> </DIV>
<DIV>Fundamentals First Approach: Screen stocks for all CANSLIM required
fundamentals. That's a list of about 15 criteria including ROE, D/E, margins,
revenues, earnings, growth in earnings and revenues, etc. (It's a lengthy
list) Then look for technicals to confirm.</DIV>
<DIV> </DIV>
<DIV>Pro: you get superior fundamentals and then wait for a good technical
entry. You've met all the suggested CANSLIM criteria.</DIV>
<DIV> </DIV>
<DIV>Con: It's a big mistake to take a set of fundamental criteria based on
the *average* fundamentals of winners in the past. While it may seem
appealing, the truth is that the 20% this and 50% that which everybody takes
as a checklist is simply the *typical* for high quality stocks. In reality,
because fundamental reporting lags and accounting rules can obfuscate the
reality of business (good and bad, BTW), you really have to look at
fundamentals in context. For example, a company may have a bathtub quarter
because of extraordinary events. Should we eliminate the stock for one bad
quarter in a string of winners? What if a company is turning around, having
beefed up their strategic planning and execution, bringing on a new CEO, etc?
Bottom line is that if you *start* with a list of fundamental requirements
that are too stringent and based on averages, then you are missing "high
quality" companies. Bottom line is than you should never let an
*average* become a *minimum.*</DIV>
<DIV> </DIV>
<DIV>If you instead screen first for technicals, then you know right away that
supply and demand are acting a certain way. In other words, "what is working
right now?" It may turn out that what is working right now is not CANSLIMish
at all (cyclical, fallen angels bouncing, etc.) and you may choose to stay
away. BUT....if you are always screening for what is technically healthy, then
you *know* what is working and you will not be blinded to groups and/or stocks
that do indeed have excellent fundamentals, but may not meet each and every
average criteria. I think of it as reading "the preponderance of evidence" on
fundamentals and evaluating it in context during due diligence. Far more
important to evaluate "N" for sustainable growth potential, then verifying
excellent execution through a read on the fundamentals.</DIV>
<DIV> </DIV>
<DIV>Last point is on group RS. I have an entire library of IBD articles over
time that essentially say that you should always look first at
technically healthy stocks and *then* look for confirmation that at least
one other stock in the industry is technically healthy. If you wait until the
entire group has high RS, then you will miss the leaders' moves. Here's one
from the other day, which was a followup to an IBD article from the
15th:</DIV>
<DIV> </DIV>
<DIV>
<DIV>Ask Bill O'Neil</DIV>
<DIV>
<P class=MsoNormal style="MARGIN: 0in 0in 0pt"> <o:p></o:p></P>
<P class=MsoNormal style="MARGIN: 0in 0in 0pt"><B><I>Q</I></B>: <SPAN
style="mso-bidi-font-size: 10.0pt">On the July 15 Winning Ways column, IBD
said it's more important to see other stocks in the industry group with high
relative price strength than a high Industry Group Relative Strength Rating
for the entire group. Why? <B><I>- Submitted from</I></B> <B><I>Red
Creek,</I></B> <B><I>N.Y<o:p></o:p></I></B></SPAN></P>
<P class=MsoNormal style="MARGIN: 0in 0in 0pt"><B><I><SPAN
style="mso-bidi-font-size: 10.0pt"> <o:p></o:p></SPAN></I></B></P>
<P class=MsoNormal style="MARGIN: 0in 0in 0pt"><B><I><SPAN
style="mso-bidi-font-size: 10.0pt">A: </SPAN></I></B><SPAN
style="mso-bidi-font-size: 10.0pt">The majority of leading stocks are in
leading industries. Studies show 37% of a stock's price movement is directly
tied to the performance of its industry group. Another 12% is due to the
strength in its overall sector. Therefore, roughly half of a stock's move is
due to the strength of its respective industry. But note that just because the
relative strength of the group is on the low side, does not necessarily mean
the group is bad. Sometimes, there are only a few true leaders in a group. If
the group happens to be large or it is just beginning a move, the group
relative strength rating may be skewed to the low side. This is why it's
important to see other stocks in the same group with high Relative Price
Strength Ratings rather than a high rating for the entire group
itself.</SPAN></P></DIV><A
href="http://www.investors.com/editorial/feature.asp?v=7/24"></A></DIV>
<DIV> </DIV>
<DIV>Katherine</DIV>
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A title=Chazmoore@aol.com
href="mailto:Chazmoore@aol.com">Chazmoore@aol.com</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A title=canslim@lists.xmission.com
href="mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>
</DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Wednesday, July 24, 2002 8:58
AM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> [CANSLIM] Investing 101</DIV>
<DIV><BR></DIV><FONT face=arial,helvetica><FONT size=2>Katherine: Yesterday,
while commenting on the need to constantly be revising our prospect lists,
you went on to observe that the stocks that go up are those with core
CANSLIM characteristics, and then observed that technicals should lead the
way to the winners. I always enjoy your comments and usually print them for
future reference, but I must confess I feel like the student who dosed off
in class and missed a key test question. <BR><BR>To me, good fundamentals
mean the company is in excellent financial health with a light to moderate
debt load, and has been very profitable for at least four or more quarters.
CANSLIM, IBD, and DGO lets us determine these facts very quickly. Then with
a little research we can perform the fine tuning. <BR><BR>Technically, the
Group Industry Relative Strength, the Price Relative Strength, and the
Accumulation/Distribution Rating gives us clues as to when it may be safe to
buy. <BR><BR>The actual purchasing moment is determined by an analysis of
the price chart, as we look for a break out from a prior resistance level.
<BR><BR>Is this the point you were making? Find the best companies then wait
for the technicals to tell us when to enter the market? <BR><BR>I think I
missed something because you concluded by saying we should not start with
fundamentals to find good quality candidates. <BR><BR>Charley</FONT>
</FONT></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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Previous Article (by Date): Re: [CANSLIM] Investing 101 "Katherine Malm"
Top of Thread: [CANSLIM] Investing 101 Chazmoore@aol.com
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