RE: [CANSLIM] Reasonable Goal?

From: Tomas <tomas986@yahoo.com>
Subject: RE: [CANSLIM] Reasonable Goal?
Date: Mon, 26 May 2003 15:14:05 -0700 (PDT)
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Katherine,

> (1) When you took out the tax each year, were you
> investing the *after tax
> amount* into the next year as your base capital?
> Just want to be sure, as
> that will make a difference in your final
> calculations. 

Yes.  I did that.

As for the margin, maybe 25% is too high.  Maybe
15-20% on average is more realistic?  Or even less. 
Once I am comfortable with CS, I plan to leverage as
much margin as I can during bull markets.

I understand your scenerio.  Point taken.  However, as
long as I do not go into negative return(not sure how
hard that is in bear market), the average theory holds
up a little better.

I have built some buffer into the numbers, and I hope
that will compensate for the CS learning curve and
aggressive numbers.  For example, I can actually
contribute 15K each year taken from ESPP.  I
understand my numbers are still aggressive, but gotta
aim high :).

Since you are one of the senior members of CS, do you
mind me asking what is your usually return for the
last few years.  If this is too person, I understand.

Thanks,
tomas



- --- Katherine Malm <kmalm@earthlink.net> wrote:
> 
> Note to the list: This thread actually started
> offlist, but as Tomas has
> moved it on-list, to get the gist of the discussion,
> you'll need to read
> back to my original response....
> ===
> 
> Hi Tomas,
> 
> I haven't looked that closely at your numbers, but I
> want to be sure you've
> included a couple of things in the calculations:
> 
> (1) When you took out the tax each year, were you
> investing the *after tax
> amount* into the next year as your base capital?
> Just want to be sure, as
> that will make a difference in your final
> calculations. The other assumption
> is that you will always be 25% margined. When the
> market is weak, you're not
> going to want to do that. The general rule of thumb
> is that you don't want
> to begin margining until your portfolio is fully
> invested and each and every
> position is up at least 20%. In very strong markets,
> that's do-able, but
> you're assuming that 100% of the time over the last
> 8 years that you are
> going to be in that situation.
> 
> (2) The returns you're calculating are indeed
> assuming 40% *each and every*
> year, as you are rolling the end of year figure into
> the next year and then
> compounding it at a rate of 40%. That's hugely
> different than an *average*
> of 40%. Let me give you a silly example just to make
> my point.
> 
> Joe Investor claims that he made 100% returns *on
> average* over the last 2
> years. Year one he made 200%, year 2 he made -100%.
> The "average" return was
> [200% + (-100%)]/2 = 100%. *However* he actually has
> NO MONEY LEFT!!!! -100%
> in year 2 means he *lost all of his capital*! So...
> you can't assume an
> *average* of 40% and make your numbers work as you
> have outlined them.
> 
> Your model will become considerably more complex if
> you try and estimate
> returns for one year vs. another that *average* to
> 40%. Bottom line is that
> you have to be able to make that kind of return
> consistently, each and every
> year without fail to make the final figure. That
> means that as a brand new
> CANSLIM investor, you have to do everything right
> now and always. We have a
> saying we use often in CANSLIM-speak, that is, we
> pay a tuition to Mr.
> Market for the mistakes we make along the path to
> becoming excellent
> investors (i.e, you're going to make some big
> mistakes that will cost you
> some bucks as you learn to use the CANSLIM
> methodology.)
> 
> I'm a huge believer in setting goals, writing a plan
> to achieve them, and
> then measuring and assessing my performance over
> time. That's how I get
> better each and every year. Each year my focus is a
> bit different, based on
> the mistakes that I made the previous year and on
> the areas of investing for
> which I feel less comfortable. It's this process
> that makes us stronger and
> better as CANSLIM investors. However, I'm also a big
> believer in setting
> tough, but realistic goals. The process that you are
> going through is the
> first step and for the most part, is the easiest.
> The tough part is to break
> it down and come up with a to-do list of what you
> need to do to make the
> 40%/year.
> 
> Katherine
> 
> -----Original Message-----
> From: owner-canslim@lists.xmission.com
> [mailto:owner-canslim@lists.xmission.com]On Behalf
> Of Tomas
> Sent: Sunday, May 25, 2003 3:58 PM
> To: canslim canslim
> Subject: RE: [CANSLIM] Reasonable Goal?
> 
> 
> 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
> 
=== message truncated ===


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