RE: [CANSLIM] What works in this market?

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: [CANSLIM] What works in this market?
Date: Thu, 17 Jul 2003 12:25:23 -0500
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Hi Pritish,

My general observation on industry groups is that mining specifically in
"top" industry groups misses the move in the leadership in the group itself.
This is particularly important during market periods where leadership is
changing (sideways markets). That's primarily because the same general
monies are staying in the market, but are rotating from one group to another
as the underlying attractiveness of that particular group changes. During
secular bulls, where more and more money is constantly being pumped into the
market (for example, late 90's), the leadership tends not to change as
often, so mining only among the top groups isn't as problematic.

I view industry action as a means for (1) assessing the overall risk in the
group itself based on the action of the current leaders and (2)
supplementing a bottoms-up approach to mining which looks first for
technical strength in the stock itself, independent of group action. I never
use it to restrict my initial pass at candidates.

All in all, I consider the most important factor in mining for CANSLIM
candidates is to find strength in the stock and in the business itself.
These leaders may (and often do) come from industries that have lower
rankings, but the action of the leaders *pulls* the remainder of the group
along for the ride. This happens even in non-CANSLIM groups such as
cyclicals, etc., so it's still up to us to use selection criteria to also
find those new leaders that possess the strongest CANSLIM characteristics.
Underlying all the fundamental numbers and technical attributes is a company
with a growth "story." This company has strong competitive advantage, unique
products/services, a fresh perspective on an old market, a knack for
translating invested resources into profits, and a management team that does
this relentlessly over long periods of time. Sometimes, there is something
unique in world events that creates these growth opportunities in a
particular industry. For example, the sudden need for heightened security
around the world. Sometimes it's something unique about the business itself
that drives the change within the industry. For example, the manner in which
Home Depot redefined the home improvements retail business or the way
MacDonald's created the "technological hamburger" and the fast food
industry. That's why newer companies tend to be good CANSLIM candidates.
They tend to be fresh faces with a fresh spin on the industry, the markets
they serve, the products/services they offer, etc. These also tend to be
small to mid-cap companies. That doesn't mean that a big cap company can't
possess these characteristics. It happens every now and then when a big
behemoth reinvents themselves. There are also times in the market where
large cap is favored for it's apparent lower risk and/or for the dividends
that often accompany these investment vehicles.

Technicals such as high RSRanks or stocks making new highs are simply ways
of getting one's eyeballs on the stocks that are showing outperformance to
the market. Reading the chart itself gives one a clearer view of
price/volume action, reflecting the manner in which the market is perceiving
value in the stock. Due diligence lets one determine what makes the business
tick and whether it stacks up against the CANSLIM yardstick in a way that is
acceptable.


Katherine

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Pritish Shah
Sent: Thursday, July 17, 2003 10:48 AM
To: canslim@lists.xmission.com
Subject: [CANSLIM] What works in this market?



I was going through and reviewing all my successful buys and I found the
following

1) These are micro to mid cap companies (Notice: none of them were large
cap)
2) They are hitting all-time highs (this is becoming a key factor for me to
buy anything)

Example stocks: TCHC, TARO, APPX, WFSI, ANSI, ESI, FWHT

For some odd reason, I was expecting the big winners to be in the top 50
industry sectors. WFSI, AMHC, TCHC etc are examples of such stocks that are
not in the top industries. ANSI, APPX, TARO, FWHT, ESI are in the top 20.

Has anybody else seen such commonalities? If yes, please share. One of WONs
recommendation is to consider only buying stocks that are no more than 8
years old and coming out with new products.

Pritish


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