Re: [CANSLIM] New Investors needs help... a short story

From: "DMC197807" <dmc197807@comcast.net>
Subject: Re: [CANSLIM] New Investors needs help... a short story
Date: Mon, 4 Aug 2003 10:29:58 -0700
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Next in Thread: Re: [CANSLIM] New Investors needs help... a short story Yien T Lung
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Yien,

You are learning some lessons about the investing world.  The easiest and
most delightful story that investor windbags like to tell and retell is the
folksy tale of Uncle Warren who "bought and never sold" shares like KO and
the Washington Post.  It is an easy and wonderful tale to tell, and what the
naive derive from it is 1) that we can all do it, too and 2) that "buy &
hold forever" is a viable methodology.

Both are wrong.  Instead of listening to others' silly and erroneous
distillations of what Uncle Warren did and didn't do, it's better to get a
copy of Lowenstein's biography of Warren and see how he did it.  First of
all, without a doubt WB could recognize good value and run an insurance
company to beat the band.  With the cash flow from the insurance company
(all he had to do was beat the premium payout requirement, which he did
quite easily) he could afford to buy and hold forever.  However, since few
of us own profit gushing insurance companies, the idea of buy & hold forever
is almost impossible.  We want to buy low and sell high, lather, rinse,
repeat.  (Of note as well are WB's various other activities, including risk
arbitrage, currency and commodity speculation and a few disastrous
investments in companies).

In any event, WB caught the great bull wave, but he's gone nowhere in the
last 5 years:

http://stockcharts.com/def/servlet/SC.web?c=BRK/A,uu[h,a]mahlyiay[d19900804,
20030804][pb40!f][vc60][iut]&pref=G

You know, thinking about investing like WB is like thinking about having a
movie career in Hollywood like Tom Hanks.  Tom did it, but it's hard to see
someone else doing it.  We all have to find our way differently.

Good, that's a bunch of information that you can't use.  Now, for some you
can.  There are only 3 numbers which matter, when all the dust is settled.
They are NOT p/e, d/e, current ratio, PEG, profit margin or inventory
turnover.

THEY ARE:  Price paid for shares, Price received for shares, Time held.

Now, MILSCAN (Canslim to some of you) is a very interesting approach, and
can possibly, with strong position and money management systems, help you to
buy low and sell high in a timely timeframe.

Here's how I think of these factors, in descending order of importance:

M is for the market and the market trend.  We are at an inflection point
here, so it's lookout below, or perhaps lookout above.

N is for new highs in the stock, breaking out above the pivot point

L is for an relative strength rating of 70 or better

A is for annual earnings growth (this is for additional comfort)

C is for current quarterly earnings (this is for additional comfort)

I is for institutional sponsorship  (this is a timing issue--I think I trust
the chart over this, for some reason)

S is for supply of stock (looking for a relatively low no. of shares--here I
want to exclude the over-issued monsters like CSCO and INTC where it will
take a ton of momentum to move the billions of shares outstanding).

In closing, using TA and FA together is a good idea, but when in conflict,
trust the TA.  Remember, out of 7000 stocks we are looking for 1 or 2 names
a week on which to carefully place our hopes.  As the emperor said, "Ni ban
zhi, wo fang xin."

DMC



- ----- Original Message -----
From: "Yien T Lung" <ylung@engin.umich.edu>
To: <canslim@lists.xmission.com>
Sent: Monday, August 04, 2003 9:47 AM
Subject: [CANSLIM] New Investors needs help... a short story


>
> Hi all,
>
> I am quite new to this forum and I was hoping that some of you, more
> experienced canslim users, would kindly offer me some starting tips or
> share your procedure in the search for new potential buys.
>
> Let me continue by sharing my initial experience with you guys. I started
> investing 2 years ago after my friend recommended me to read books about
> Value Investing, more specifially, books about Warren Buffett. I read and
> summarized almost every single book I could get my hands on about Warren
> Buffett...and was almost too eager to start my road to be a millionaire.
>
> So what is value investing? Basically, I intepret it as investing in
> securities that are currently being traded at a value below its true
> "intrinsic value". The idea is that the market has been too harsh and
> pessimist about the prospects of a particular stock,..and you as a
> investor believes that this company has the potential to get back on track
> and that the current problems it is facing is only temporary.
>
> Sounds easy, but I found the hard way that it is not.
>
> In my impulsive and eagerness to make money? I plunged my hard earned cash
> into securities like Qwest (Q), Tyco (TYC),...among others. I bought Q
> when it was trading around 8.50. I thought to myself...this is a company
> that has a book value of at least 20 dollars. If only half of that book
> value is written off, I will still be safe. So I bought the stock, and saw
> it plunge in value to less than 1 dollar. Again, I thought it was ok
> because I am a "value investor"...and I need to hold my buys for the "long
> run"... A new management comes in and the stocks starts doing better...
> However, the new management finds out that there are a lot of improver
> entries and must restate earnings. That restatement totally wipes out the
> book value of the company!!! This taught me never to believe on BS alone.
> Now, even after two full years, the stock has not yet recouped to my
> entry level.
>
> My other experience was TYC. I bought it when it was 26. I read a lot of
> news from respected value managers that Tyco is a very sound company with
> a lot of small businesses that generate lots of free cash flow. Good hein?
> Well, I thought so too. I bought it and it went up all the way to 35. I
> thought, I should "stay for the long run" and let it run its way up.. But
> the next thing, the stock began to go south. That was the time when there
> was a lot of talk about the ex CEO being a crook and stuff like that. I
> held the stock for quite some time...and I will be very hopeful if the
> stock trades at around the price I got in....
>
> So here I am today. After losing a lot of hard earned cash, I decided to
> give Mr. O'Neill's methodology a try. If you read some of this value
> investing, a lot of these people dont believe that technical analysis
> works..and my friend (a Buffett believer) doesnt think too highly of Mr
> O'Neills methodology. But I am willing to give it a try. Please help me
> get started.
>
> Thanks
>
> Yien
>
>
>
>
>
>
>
>
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