RE: [CANSLIM] Reasonable Goal?

From: Tomas <tomas986@yahoo.com>
Subject: RE: [CANSLIM] Reasonable Goal?
Date: Sun, 25 May 2003 14:58:29 -0700 (PDT)
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Katherine,

As alway, your answer is well thought out, and
comprehensive.
I appreciate the time you spent to answer my question.

Yes, you can break the question into two parts.
But, I would like to make a little change.

1) Is it reasonable to assume that, using a CANSLIM
approach, 
that I can make 40-46% per year, AVERAGED OUT for the
next 10 years?

In other words, I understand that for bear markets, it
would
be hard to make 40-46% returns.  However, maybe you
can make
more than 40% in a bull market to compensate for the
bear market.
Like you said, it might be easy to make triple digit
return in
the last bull market.  I hope these kind of bull
markets (though
I don't see the last bull market happening that ofen)
will provide
a better chance of hitting the 40-46% average return
for 10 years
or so.

I am a new CS'er.  I just started seriously using CS a
few months ago.
So, I do not have previous year performance numbers to
base off.  Maybe
that is where the optimistic 40-46% return goal comes
in :).
However, I truly believe that if there is a will,
there is a way.

This is the game plan:
- -$10,000 starting funds
- -add $10,000 per year at the beginning of each year

Below is the calculation(Hope the table comes out OK).
 
The average return(ROR) is calculated for
40%, tax rate is 28% (even though I think it might
increase later),
and average margin used will be 25%.  For the first
two years, 
I did not put margin in.


ROR  Tax Rate   Margin 
40%  28%        25%

Age Year  Principal   Without Tax    With Tax      
With Tax and Margin
   
29  2003  $10,000.00  $14,000.00     $12,880.00    
$12,880.00   (no margin)
30  2004  $10,000.00  $33,600.00     $29,469.44    
$29,469.44   (no margin)
31  2005  $10,000.00  $61,040.00     $50,836.64    
$53,678.44
32  2006  $10,000.00  $99,456.00     $78,357.59    
$86,602.68
33  2007  $10,000.00  $153,238.40    $113,804.58   
$131,379.64
34  2008  $10,000.00  $228,533.76    $159,460.29   
$192,276.31
35  2009  $10,000.00  $333,947.26    $218,264.86   
$275,095.78
36  2010  $10,000.00  $481,526.17    $294,005.14   
$387,730.26
37  2011  $10,000.00  $688,136.64    $391,558.62   
$540,913.16
38  2012  $10,000.00  $977,391.29    $517,207.50   
$749,241.89
39  2013  $10,000.00  $1,382,347.81  $679,043.26   
$1,032,568.98
40  2014  $10,000.00  $1,949,286.93  $887,487.72   
$1,417,893.81
41  2015  $10,000.00  $2,743,001.71  $1,155,964.19 
$1,941,935.58


Without Tax Column  = strictly 40% return with no tax
consideration
With Tax Column     = 40% return with tax at end of
year
With Tax and Margin = 40% return with tax using margin


The "without tax" column would be a tax deferred
account.
I am not sure if a 25% average margin usage is
sensible or not.
Thus, the $2M goal can be reached at 2015 (age 41).

I could add another 10K to the initial capital
investment to help
out with the ROR.  With initial $20k capital, the ROR
can be 37%
per year.

The whole idea of asking the question is the first
place is to
figure out what I need to do to get to that goal.  So,
if the
expected ROR is just plain silly/optimistic, I need to
figure
out what other things I need to do to get to that
goal.

With all this said and done, I would not mind if I
reach the
goal of $2M when I am 45.


Regards,
tomas

- --- Katherine Malm <kmalm@earthlink.net> wrote:
> I'm answering this to you directly rather than to
> the list, because it looks
> like your question was to me offlist. If you find
> the input valuable, then
> I'll post it to the list in general, as I'm sure
> there are others who have
> the same questions that you do!
> 
> =====
> Hi Tomas,
> 
> Overall, my impression is that you are really asking
> 2 different questions:
> (1) Is it reasonable to assume that, using a CANSLIM
> approach, that I can
> make 40-46% per year, *each and every year without
> fail* over the next 10
> years?
> (2) Is it a good idea to plan my future assuming
> that I'll have $2.5m in 10
> years if I start with $10,000 now and add $10,000
> per year?
> 
> While I know that you would rather someone say "yes"
> to both questions with
> certainty, the truth of the matter is that one can't
> do so. If that's the
> assumption, then what does that leave you with?
> 
> I think that there are few things that *can* be said
> with certainty:
> 
> (1) If you follow a disciplined approach to CANSLIM
> investing, you will
> consistently outperform the market.
> 
> The real problem is that not all markets are
> conducive to a long-only
> CANSLIM strategy with the same degree of risk. For
> example, in the late
> 90's, it was fairly easy to make triple digit
> returns, even without using
> margin. That meant that a big bundle of money was
> available to reinvest in
> the following year. Then, when the Bear hit, it
> became far more challenging
> to make these kinds of returns without taking on
> additional risk and/or
> adding complementary shorting strategies for the
> downswings. While the
> market was plunging 60 or 70%, however, the
> *typical* (not exceptional)
> long-only CANSLIM investor was more likely making
> 0-30%. Sure, that's
> outperformance to the market, but it's not 40-46%
> per year, each and every
> year. Those assumptions (and realities) make a huge
> difference in the
> dollars compounded at the end of 10 years.
> 
> (2) You will have to pay taxes and if the dollars
> are in a taxable account;
> the dollars available for investing in the following
> period after you've
> paid taxes will be less.
> 
> Even though I know you'd like to keep the
> assumptions simple for the sake of
> discussion, you just can't ignore this. If you don't
> have monies available
> elsewhere to pay the tax man, then you can't roll
> entire positions and/or
> profits into new positions in the following year.
> That can make an enormous
> difference in the actual dollars you end up with at
> the end of 10 years. If
> the dollars are in a tax deferred account, then all
> monies are available to
> compound in the following year. Taxes, even though
> they have to be paid
> eventually, don't impact the dollars that you can
> accumulate from one year
> to the next. (And if you play on margin, which
> cannot be done in a tax
> deferred account, then you're talking about an
> entirely different set of
> assumptions.)
> 
> 
> (3) The manner in which you add the $10000 per year,
> whether incrementally
> month my month, quarter by quarter, or in one lump
> sum, will affect the
> overall return.
> 
> If all your added dollars from one year to the next
> are not added in one
> lump sum, then you do not have the luxury of
> investing them in positions so
> that the $10K works for you all year. If you add,
> for example, month by
> month, then the money will be more likely to sit
> idle for some time until
> you close one position and then open a new position.
> If you instead choose
> to put the money to work right away, then you are
> adding new positions with
> very small dollar amounts, and the additional
> transaction costs will eat
> into your returns. If you have a few super
> performers, you don't necessarily
> have the luxury of adding to the position whenever
> you want, as the risk of
> losing money increases if you add when the stock is
> not pulling out of a
> fresh basing pattern. Those potential losses can
> impact your overall returns
> dramatically.
> 
> 
> So, that said, maybe it makes sense to get to the
> crux of the matter. Can
> one theoretically achieve 40-46% returns per year
> with CANSLIM? Well, yes,
> theoretically. In reality, you then have to ask
> yourself, "what returns have
> I been able to achieve given the market backdrop and
> my current skill set?"
> Say, for example, you've been able to make
> consistent 20% returns *each and
> every year* for the last 5 years. You will have to
> *immediately* increase
> your performance by a factor of 2+ to get to 40-46%
> per year. If you haven't
> already been doing that, what specifically, will you
> have to do to make it
> happen? What is the likelihood you will succeed?
> What is the "worst possible
> scenario" if you don't? And remember, that even
> though with CANSLIM you will
> always outperform the market, over long periods of
> time (and 10 years is a
> long time), the average return on the market is
> somewhere in the vicinity of
> 8-11%. Here's one more statistic for you to show the
> power of a sideways
> market such as about '62-'80 and '30-'45. If an
> investor had put $1000
> dollars into the market in about 1962 and let it
> ride the ups and downs of
> the market in an index fund, by 1980 (nearly *20*
> years), they would have
> just about $1000 in the account. In inflation
> adjusted terms, that means
> they *lost* their effective buying power. CANSLIM is
> certainly not a buy and
> hold strategy, but if you are not an excellent
> investor and make too many
> mistakes, then you will, at best, just end up making
> the market average.
> 
> Running the numbers:
> -$10,000 starting funds
> -add $10,000 per year at the beginning of each year
> -take no monies out of the funds for taxes
> -compound each and every year at 11% per year
> 
> The final sum at the end of 10 years is $214,008.51.
> 
> Katherine
> 
> 
> 
> 
> -----Original Message-----
> From: Tomas [mailto:tomas986@yahoo.com]
> Sent: Sunday, May 25, 2003 10:29 AM
> To: kmalm@earthlink.net
> Subject: Re: [CANSLIM] Reasonable Goal?
> 
> 
> Katherine,
> 
> I was hoping you have some comments on this subject.
> Do you think I am just too optimistic?  Or is this
> goal within reach.
> 
> 
> Thanks,
> tomas
> 
> --- Tomas <tomas986@yahoo.com> wrote:
> > This question is for the senior CS'ers.  If an
> > investor is 29 years old right now, and his goal
> is
> > to
> > make $2M by 40 to retire, is this a reasonable
> goal?
> >
> > The assumption is that he will start with $10K and
> > add
> 
=== message truncated ===


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