Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Monday, December 19, 2005

What is CANSLIM?

...Sometimes I overlook the simple things and forget that everyone is not familiar with CANSLIM or Investor’s Business Daily. I should never assume that everyone knows what CANSLIM is and what it represents. My entire trading philosophy is rooted with CANSLIM and the teachings of William O’Neil. I have modified the system to my own style and trading characteristics but I remain loyal to the basic CANSLIM principles. The actual definition of CANSLIM listed below was taken from Investopedia.com and not investors.com because this description is simple and to the point.

Question from Member:
What is Canslim? I am new to investing and my vocabulary is not up to par. Thank you.

My Answer:
CANSLIM is a method for selecting stocks created by Investor's Business Daily co founder William O'Neil. Each letter in the acronym stands for a key factor to look for in a company.

C - Current quarterly earnings per share has increased sharply from the same quarters' earnings reported in the prior year. (Beware of items in financial statements that can cause earnings distortions.)

A - Annual earnings increases over the last 5 years.

N - New products, management, and other new events. In addition, the company's stock has reached new highs.

S - Small supply and large demand for a stock creates excess demand, and an environment in which stock prices can soar. Companies acquiring their own stock reduces market supply and can indicate their expectation of future profitability. Look for low debt-equity ratios.

L - Choose leaders over laggard stocks within the same industry. Use the relative strength index as a guide.

I - Pick stocks who have institutional sponsorship by a few institutions with recent above average performance. Be cautious of stocks that are over owned by institutions.

M - Determining market direction by reviewing market averages daily. (The most important in my opinion!)

If you are interested in learning about CANSLIM or about investing in growth stocks, I highly suggest “How to Make Money in Stocks” by William O’Neil. You can pick up a cheap copy on Amazon, eBay or check your local library.
Piranha

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