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Subject: RE: [CANSLIM] Investing 101
Date: Wed, 24 Jul 2002 09:48:11 -0500
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Let me chiime in. Both of you, Tom and Katherine are making basically the
same point.
For any group to have strength, it always has to be lead by at least one or
two high-performers. Those are the ones we ought to try to find. The
others are just lemmings being pulled along by the Pied Pipers.
-----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Tom Worley
Sent: Wednesday, July 24, 2002 9:41 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] Investing 101
Katherine, it's rare for me to disagree with you on anything, and for the
most part I must agree with you on this (better stated than last night's
post, BTW). There are several keys for me in what you say.
The first is: "Bottom line is than you should never let an *average*
become a *minimum.*" So long as you use an "average" to guide you in
selecting a "minimum" for screening purposes, then I am in agreement.
The second is more philosophical. I am not a group follower, I have often
found some of my best investments as the "leaders" in very poorly performing
groups. I still adhere to that today. So in terms of assessing from
technicals, what is working, I think a stock by stock approach is far
superior to a group by group approach.
----- Original Message -----
From: Katherine Malm
To: canslim@lists.xmission.com
Sent: Wednesday, July 24, 2002 10:25 AM
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.
Katherine
----- Original Message -----
From: Chazmoore@aol.com
To: 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=3D990144614-24072002><FONT face=3DArial color=3D#0000ff =
size=3D2>Let me=20
chiime in. Both of you, Tom and Katherine are making basically the =
same=20
point.</FONT></SPAN></DIV>
<DIV><SPAN class=3D990144614-24072002><FONT face=3DArial color=3D#0000ff =
size=3D2></FONT></SPAN> </DIV>
<DIV><SPAN class=3D990144614-24072002><FONT face=3DArial color=3D#0000ff =
size=3D2>For=20
any group to have strength, it always has to be lead by at least one or =
two=20
high-performers. Those are the ones we ought to try to find. =
The=20
others are just lemmings being pulled along by the Pied=20
Pipers.</FONT></SPAN></DIV>
<BLOCKQUOTE dir=3Dltr style=3D"MARGIN-RIGHT: 0px">
<DIV class=3DOutlookMessageHeader dir=3Dltr align=3Dleft><FONT =
face=3DTahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B>=20
owner-canslim@lists.xmission.com=20
[mailto:owner-canslim@lists.xmission.com]<B>On Behalf Of </B>Tom=20
Worley<BR><B>Sent:</B> Wednesday, July 24, 2002 9:41 AM<BR><B>To:</B>=20
canslim@lists.xmission.com<BR><B>Subject:</B> Re: [CANSLIM] Investing=20
101<BR><BR></FONT></DIV>
<DIV><FONT face=3DArial>Katherine, it's rare for me to disagree with =
you on=20
anything, and for the most part I must agree with you on this (better =
stated=20
than last night's post, BTW). There are several keys for me in what =
you=20
say.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>The first is: "</FONT><FONT=20
face=3D"Times New Roman">Bottom line is than you should never let =
an=20
*average* become a *minimum.*" </FONT><FONT face=3DArial>So long as =
you use an=20
"average" to guide you in selecting a "minimum" for screening =
purposes, then I=20
am in agreement.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>The second is more philosophical. I am not a =
group=20
follower, I have often found some of my best investments as the =
"leaders" in=20
very poorly performing groups. I still adhere to that today. So in =
terms of=20
assessing from technicals, what is working, I think a stock by stock =
approach=20
is far superior to a group by group approach.</FONT></DIV>
<DIV> </DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine Malm</A>=20
</DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV><B>Sent:</B> Wednesday, July 24, 2002 10:25 AM</DIV>
<DIV><B>Subject:</B> Re: [CANSLIM] Investing 101</DIV></DIV>
<DIV><BR></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=20
explaining it than yesterday.</DIV>
<DIV> </DIV>
<DIV>Fundamentals First Approach: Screen stocks for all CANSLIM =
required=20
fundamentals. That's a list of about 15 criteria including ROE, D/E, =
margins,=20
revenues, earnings, growth in earnings and revenues, etc. (It's a =
lengthy=20
list) Then look for technicals to confirm.</DIV>
<DIV> </DIV>
<DIV>Pro: you get superior fundamentals and then wait for a good =
technical=20
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=20
the *average* fundamentals of winners in the past. While it may seem=20
appealing, the truth is that the 20% this and 50% that which everybody =
takes=20
as a checklist is simply the *typical* for high quality stocks. In =
reality,=20
because fundamental reporting lags and accounting rules can obfuscate =
the=20
reality of business (good and bad, BTW), you really have to look at=20
fundamentals in context. For example, a company may have a bathtub =
quarter=20
because of extraordinary events. Should we eliminate the stock for one =
bad=20
quarter in a string of winners? What if a company is turning around, =
having=20
beefed up their strategic planning and execution, bringing on a new =
CEO, etc?=20
Bottom line is that if you *start* with a list of fundamental =
requirements=20
that are too stringent and based on averages, then you are missing =
"high=20
quality" companies. Bottom line is than you should never let =
an=20
*average* become a *minimum.*</DIV>
<DIV> </DIV>
<DIV>If you instead screen first for technicals, then you know right =
away that=20
supply and demand are acting a certain way. In other words, "what is =
working=20
right now?" It may turn out that what is working right now is not =
CANSLIMish=20
at all (cyclical, fallen angels bouncing, etc.) and you may choose to =
stay=20
away. BUT....if you are always screening for what is technically =
healthy, then=20
you *know* what is working and you will not be blinded to groups =
and/or stocks=20
that do indeed have excellent fundamentals, but may not meet each and =
every=20
average criteria. I think of it as reading "the preponderance of =
evidence" on=20
fundamentals and evaluating it in context during due diligence. Far =
more=20
important to evaluate "N" for sustainable growth potential, then =
verifying=20
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=20
time that essentially say that you should always look first at=20
technically healthy stocks and *then* look for confirmation that =
at least=20
one other stock in the industry is technically healthy. If you wait =
until the=20
entire group has high RS, then you will miss the leaders' moves. =
Here's one=20
from the other day, which was a followup to an IBD article from the=20
15th:</DIV>
<DIV> </DIV>
<DIV>
<DIV>Ask Bill O'Neil</DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN: 0in 0in =
0pt"> <o:p></o:p></P>
<P class=3DMsoNormal style=3D"MARGIN: 0in 0in 0pt"><B><I>Q</I></B>: =
<SPAN=20
style=3D"mso-bidi-font-size: 10.0pt">On the July 15 Winning Ways =
column, IBD=20
said it's more important to see other stocks in the industry group =
with high=20
relative price strength than a high Industry Group Relative Strength =
Rating=20
for the entire group. Why? <B><I>- Submitted from</I></B> =
<B><I>Red=20
Creek,</I></B> <B><I>N.Y<o:p></o:p></I></B></SPAN></P>
<P class=3DMsoNormal style=3D"MARGIN: 0in 0in 0pt"><B><I><SPAN=20
style=3D"mso-bidi-font-size: =
10.0pt"> <o:p></o:p></SPAN></I></B></P>
<P class=3DMsoNormal style=3D"MARGIN: 0in 0in 0pt"><B><I><SPAN=20
style=3D"mso-bidi-font-size: 10.0pt">A: </SPAN></I></B><SPAN=20
style=3D"mso-bidi-font-size: 10.0pt">The majority of leading stocks =
are in=20
leading industries. Studies show 37% of a stock's price movement is =
directly=20
tied to the performance of its industry group. Another 12% is due to =
the=20
strength in its overall sector. Therefore, roughly half of a stock's =
move is=20
due to the strength of its respective industry. But note that just =
because the=20
relative strength of the group is on the low side, does not =
necessarily mean=20
the group is bad. Sometimes, there are only a few true leaders in a =
group. If=20
the group happens to be large or it is just beginning a move, the =
group=20
relative strength rating may be skewed to the low side. This is why =
it's=20
important to see other stocks in the same group with high Relative =
Price=20
Strength Ratings rather than a high rating for the entire group=20
itself.</SPAN></P></DIV><A=20
=
href=3D"http://www.investors.com/editorial/feature.asp?v=3D7/24"></A></DI=
V>
<DIV> </DIV>
<DIV>Katherine</DIV>
<BLOCKQUOTE=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=3DChazmoore@aol.com=20
href=3D"mailto:Chazmoore@aol.com">Chazmoore@aol.com</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>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Wednesday, July 24, =
2002 8:58=20
AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] Investing =
101</DIV>
<DIV><BR></DIV><FONT face=3Darial,helvetica><FONT =
size=3D2>Katherine: Yesterday,=20
while commenting on the need to constantly be revising our prospect =
lists,=20
you went on to observe that the stocks that go up are those with =
core=20
CANSLIM characteristics, and then observed that technicals should =
lead the=20
way to the winners. I always enjoy your comments and usually print =
them for=20
future reference, but I must confess I feel like the student who =
dosed off=20
in class and missed a key test question. <BR><BR>To me, good =
fundamentals=20
mean the company is in excellent financial health with a light to =
moderate=20
debt load, and has been very profitable for at least four or more =
quarters.=20
CANSLIM, IBD, and DGO lets us determine these facts very quickly. =
Then with=20
a little research we can perform the fine tuning. =
<BR><BR>Technically, the=20
Group Industry Relative Strength, the Price Relative Strength, and =
the=20
Accumulation/Distribution Rating gives us clues as to when it may be =
safe to=20
buy. <BR><BR>The actual purchasing moment is determined by an =
analysis of=20
the price chart, as we look for a break out from a prior resistance =
level.=20
<BR><BR>Is this the point you were making? Find the best companies =
then wait=20
for the technicals to tell us when to enter the market? <BR><BR>I =
think I=20
missed something because you concluded by saying we should not start =
with=20
fundamentals to find good quality candidates. <BR><BR>Charley</FONT> =
</FONT></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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