CANSLIM Stock Trading Strategy.
This was my investment bible for the past six years. Wow. what a waste of of time. This is William J. O’Neil’s stock trading method: CANSLIM. CANSLIM stands for
C – Current earnings per share
A – Annual earnings
N – New something. Either new market, product, etc.,
S – Shares
L – Leader
I – Institutional support
M – Market direction.
So basically find stocks that fit the CANSLIM criteria and the chart to match… then bam! You’re gonna get 50-100% returns and then you’ll be able to wine and dine with beautiful people and afford the iPhone. This sounds great in theory. But that’s all it is—just a theory. Warning, this may piss off the die hard CANSLIM fans (that I used to be part of).
First of all, finding a stock to fit CANSLIM is hard. So William J. O’Neil pimps out his super expensive newspaper, Investor’s Business Daily to find those stocks for you. Then you have to study the charts for cup and handles, double bottoms, flat bases, base-on-base patterns, and other base patterns. Then once you find those patterns, figure out the pivot point , and buy within the buying price during a breakout in heavy volume.
If the stock you bought drops below 8% then sell and move on. If it goes up then hold on to it. Then there’s a bunch of rules of when to sell for profit.
So other than looking for the perfect CANSLIM stock, you have to use some heavy duty technical analysis to pick the stock at the correct time. And you know what I said about technical analysis.
I did that for six years and got very little returns. Even William J. O’neil says he’s right about 1/3 of the time. So, let’s see here. If you’re wrong that means, according to CANSLIM rules, you have to sell when the stock drops below 8%. So your one successful stock pick has to go up greater than 16% for you to break even. Not to mention you have to cover the commission costs as well.
But most traders don’t have the l337 stock trading skills as William J. O’Neil. So most traders using this method would probably be right 1 out of 4 or 1 out 5 times. That means they would need to make 24-32% from that one stock to break even.
This strategy is also bad because of the frequent trades. They don’t really suggest buy and hold method. If you are successful, you would have a lot of commission costs, and you would have to pay a lot of taxes. Not to mention you would probably subscribe to Investor’s Business Daily to use this method effectively. Investor’s Business Daily is NOT cheap. So your stock picks better make up for the cost of the newspaper too. Hey, if you want to be super successful CANSLIMer there are seminars you can go to for thousands of dollars or buy more subscriptions like DailyGraphs and others.
Are there people who do well with this method? Of course there are. They do well in the bull market especially. Well, anybody can do well in a bull market since most stocks go up in that period! You can probably throw darts to pick your stocks and it’ll probably go up! In a bear or a sideways market, you better be really good or lucky to be profitable using CANSLIM. In fact, they suggest you not even buy stocks during a bear market. There’s was also a mutual fund that specialized in this strategy too. Guess what their returns were like? Not very good.
William J O’Neil is probably richer than me. But he owns the super expensive Investor’s Business Daily (and other products) and gives seminars that costs an arm and a leg. So some of his wealth was probably gained through those. And he does have a lot of sheep following him around. But you know who’s richer than him? Warren Buffet. I think Warren is doing all right without using CANSLIM.
My best stock that I bought during my CANSLIM days was not even picked by using CANSLIM. And that was Google. Also my index funds are doing super awesome. My current strategy is the super lazy man’s strategy. Buy index funds in diversified areas and just hold onto them. Works just as well as when I used CANSLIM. It also saved a lot of time and money too.
Stumble it!
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Interesting.