CAN SLIM
Encyclopedia
CAN SLIM refers to the seven-pronged mnemonic
publicized by the American newspaper Investor's Business Daily
, which claims to be a checklist of the characteristics performing stocks
tend to share before their biggest gains. It was developed by Investor's Business Daily editor William O'Neil
who has reportedly made several hundreds of millions of dollars by consistently using its approach.
investment strategy formulated from the study of the 500 best performing stock market winners dating back to 1953 in the book How to Make Money in Stocks: A Winning System In Good Times or Bad, 3rd Edition (May 23, 2002) ISBN 0071373616. by William J. O'Neil. This strategy involves implementation of both technical analysis
and fundamental analysis
.
The goal of the strategy is to discover leading stocks before they make major price advances. These pre-advance periods are "buy points" that are emerging from price consolidation areas (or "bases"), typically in the form of a "cup & handle" price pattern, of at least 7 weeks on weekly price charts.
The strategy is one that strongly encourages cutting all losses at no more than 7% or 8% below the buy point, with no exceptions, to minimize losses and to preserve gains. It is stated in the book, that buying stocks from solid companies should generally lessen chances of having to cut losses, since a strong company (good current quarterly earnings-per-share, annual growth rate, and other strong fundamentals) will usually shoot up—in bull markets—rather than descend.
Some investors have criticized the strategy when they didn't use the stop-loss criterion; O'Neil has replied that you have to use the whole strategy and not just the parts you like.
O'Neil has stated that the CANSLIM strategy is not "momentum investing", but that the system identifies companies with strong fundamentals—big sales and earnings increases which is a result of unique new products or services—and encourages buying their stock when they emerge from price consolidation periods (or "bases") and before they advance dramatically in price.
(AAII), between January 1998 and December 2008, market portfolios traded according to CANSLIM principles gained an average of 1,351.3%, versus a loss of 6% in the S&P 500, with gains made every year regardless of bull
or bear
market performance.
Mnemonic
A mnemonic , or mnemonic device, is any learning technique that aids memory. To improve long term memory, mnemonic systems are used to make memorization easier. Commonly encountered mnemonics are often verbal, such as a very short poem or a special word used to help a person remember something,...
publicized by the American newspaper Investor's Business Daily
Investor's Business Daily
Investor's Business Daily is a national newspaper in the United States, published Monday through Friday, that covers international business, finance, and the global economy...
, which claims to be a checklist of the characteristics performing stocks
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
tend to share before their biggest gains. It was developed by Investor's Business Daily editor William O'Neil
William O'Neil
William J. O'Neil is an American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc...
who has reportedly made several hundreds of millions of dollars by consistently using its approach.
The investing mechanism and process
CAN SLIM is a growth stockGrowth stock
In finance, a growth stock is a stockof a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry...
investment strategy formulated from the study of the 500 best performing stock market winners dating back to 1953 in the book How to Make Money in Stocks: A Winning System In Good Times or Bad, 3rd Edition (May 23, 2002) ISBN 0071373616. by William J. O'Neil. This strategy involves implementation of both technical analysis
Technical analysis
In finance, technical analysis is security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands...
and fundamental analysis
Fundamental analysis
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and...
.
The goal of the strategy is to discover leading stocks before they make major price advances. These pre-advance periods are "buy points" that are emerging from price consolidation areas (or "bases"), typically in the form of a "cup & handle" price pattern, of at least 7 weeks on weekly price charts.
The strategy is one that strongly encourages cutting all losses at no more than 7% or 8% below the buy point, with no exceptions, to minimize losses and to preserve gains. It is stated in the book, that buying stocks from solid companies should generally lessen chances of having to cut losses, since a strong company (good current quarterly earnings-per-share, annual growth rate, and other strong fundamentals) will usually shoot up—in bull markets—rather than descend.
Some investors have criticized the strategy when they didn't use the stop-loss criterion; O'Neil has replied that you have to use the whole strategy and not just the parts you like.
O'Neil has stated that the CANSLIM strategy is not "momentum investing", but that the system identifies companies with strong fundamentals—big sales and earnings increases which is a result of unique new products or services—and encourages buying their stock when they emerge from price consolidation periods (or "bases") and before they advance dramatically in price.
Mnemonic
The seven parts of the mnemonic are as follows:- C stands for Current earnings. Per share, current earnings should be up to 25%. Additionally, if earnings are accelerating in recent quarters, this is a positive prognostic sign.
- A stands for Annual earnings, which should be up 25% or more in each of the last three years. Annual returns on equity should be 17% or more
- N stands for New product or service, which refers to the idea that a company should have a new basic idea that fuels the earnings growth seen in the first two parts of the mnemonic. This product is what allows the stock to emerge from a proper chart pattern of its past earnings to allow it to continue to grow and achieve a new high for pricing. A notable example of this is Apple ComputerApple ComputerApple Inc. is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company's best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad...
's iPodIPodiPod is a line of portable media players created and marketed by Apple Inc. The product line-up currently consists of the hard drive-based iPod Classic, the touchscreen iPod Touch, the compact iPod Nano, and the ultra-compact iPod Shuffle...
.
- S stands for Supply and demand. An index of a stock's demand can be seen by the trading volumeStock marketA stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
of the stock, particularly during price increases.
- L stands for Leader or laggard? O'Neil suggests buying "the leading stock in a leading industry". This somewhat qualitative measurement can be more objectively measured by the Relative Price Strength Rating (RPSR) of the stock, an index designed to measure the price of stockStockThe capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
over the past 12 months in comparison to the rest of the market based on the S&P 500S&P 500The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
or the TSE 300 over a set period of time.
- I stands for Institutional sponsorship, which refers to the ownership of the stock by mutual funds, particularly in recent quarters. A quantitative measure here is the Accumulation/Distribution Rating, which is a gauge of mutual fund activity in a particular stock.
- M stands for Market indexes, particularly the Dow JonesDow Jones Industrial AverageThe Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
, S&P 500S&P 500The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
, and NASDAQNasdaq CompositeThe Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market, meaning that it has over 3,000 components. It is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. ...
. During the time of investment, O'Neil prefers investing during times of definite uptrends of these three indices, as three out of four stocks tend to follow the general market pattern.
CAN SLIM Performance
According to the American Association of Individual InvestorsAmerican Association of Individual Investors
The American Association of Individual Investors is a nonprofit organization with about 150,000 members whose purpose is to educate individual investors regarding stock market portolios, financial planning, and retirement accounts...
(AAII), between January 1998 and December 2008, market portfolios traded according to CANSLIM principles gained an average of 1,351.3%, versus a loss of 6% in the S&P 500, with gains made every year regardless of bull
Market trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...
or bear
Market trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...
market performance.
See also
- Investor's Business DailyInvestor's Business DailyInvestor's Business Daily is a national newspaper in the United States, published Monday through Friday, that covers international business, finance, and the global economy...
- William O'NeilWilliam O'NeilWilliam J. O'Neil is an American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc...
- Warren BuffettWarren BuffettWarren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
- Benjamin GrahamBenjamin GrahamBenjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
- Value investingValue investingValue investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
- New York Stock ExchangeNew York Stock ExchangeThe New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
- Dow Jones Industrial AverageDow Jones Industrial AverageThe Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
- Stock marketStock marketA stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
CANSLIM Internet Resources
- William O'Neil's Investors Business Daily. News, tutorials, commentary
- IBD's CAN SLIM(R) Investing System Outperforms: +1521.7 vs. S&P 500 +54.92
- CANSLIM.net offerring FREE and paid resources for CAN SLIM(R) investors since 1996
- CANSLIM.com - Offers an opt-in mailing list for a daily breakouts report
- Can Slim Private Clients manages money for clients using the CAN SLIM system
Books Referencing CAN SLIM
- Master Traders: Strategies for Superior Returns from Today's Top Traders (Wiley Trading), by Fari Hamzei and Steve Shobin (Hardcover - Oct 6, 2006)
- Technical Analysis: The Complete Resource for Financial Market Technicians, by Charles D. Kirkpatrick and Julie R. Dahlquist (Hardcover - Aug 18, 2006)
- Technical Analysis from A to Z, 2nd Edition, by Steven B. Achelis (Hardcover - Oct 2, 2000)
- Online Investing Bible (Bible (Wiley)), by Jill S. Gilbert, Thomas S. Gray, Claire Mencke, and Jill Gilbert Welytok (Paperback - Jan 2001)
- Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, by Jon Leizman (Hardcover - Feb 15, 2002)
- The McGraw-Hill Investor's Desk Reference, by Ellie Williams (Hardcover - Oct 19, 2000)
- International Encyclopedia of Technical Analysis, by Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (Hardcover - Feb 2000)
- Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), by Ellen Hertz (Paperback - Aug 31, 2005)
- Applying Elliott Wave Theory Profitably, by Steven W. Poser (Hardcover - Jul 18, 2003)
- Trade Your Way to Financial Freedom (2nd ed), by Van K. Tharp (Hardcover - 2007)
- The Vital Few vs. the Trivial Many : Invest with the Insiders, Not the Masses, by George Muzea (Paperback - Oct 29, 2004)
- Understanding Stocks, by Michael Sincere (Paperback - Aug 19, 2003)
- All About Retirement Funds : The Easy Way to Get Started by Ellie Williams Clinton (Paperback - Sep 17, 2003)
- The Hedge Fund Edge: Maximum Profit/Minimum Risk Global Trend Trading Strategies (Wiley Trading), by Mark Boucher (Hardcover - Oct 30, 1998)
- How Legendary Traders Made Millions by John Boik (Paperback - Mar 23, 2006)
- Dave Landry's 10 Best Swing Trading Patterns and Strategies by Dave Landry (Paperback - Nov 1, 2003)
- How to Make Money Selling Stocks Short by William J O'Neil and Gil Morales (Paperback Dec 24, 2004)
- The How to Make Money in Stocks Complete Investing System: Your Ultimate Guide to Winning in Good Times and Bad by William J O'Neil (Paperback August 10, 2010)
- Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market by Gil Morales and Chris KacherChris KacherChris Kacher is a stock investor and strategist with a background in the nuclear sciences. He is a co-founder of a stock advisory service VirtueOfSelfishInvesting.com.Chris Kacher is a protégé of William O'Neil...
(August 23, 2010)