Growth Investing with CAN SLIM

Transcription

2 Disclaimer The content of this presentation is for the edification of the audience and has not been endorsed, nor approved of, by any of the persons, companies, nor websites mentioned herein, or during the course of this presentation. The author and/or speaker has attempted to verify all information but does not take any responsibility for any action which a member of any audience (both in person or in a subsequent venue) makes of the information which is presented herein. Results obtained in prior years are no guarantee of results either this year or in the future. You and you alone are responsible for any decisions you make based upon the information obtained during the course of this presentation. Fred F. Richards, Jr. November 2007 Copyright 2007 Strategic Investing 2

3 Disclaimer We have been granted permission to use material by Investors Business Daily, Inc. and its affiliates. CAN SLIM and variations are marks of Investor's Business Daily, Inc. and affiliates ('IBD '). IBD does not license, review or approve of, and is not responsible or liable for any investment advice or other services provided by the user. The user is not an agent of, sponsored by, affiliated with, or owned by IBD and is not authorized by IBD to make any representations, warranties, or promises. These materials are for personal, non-commercial use only. No redistribution permitted. Registered trademarks owned by IBD and affiliates are used under the license agreement. November 2007 Copyright 2007 Strategic Investing 3

7 Strategic Investing Criteria Companies with Increasing Revenues & Profits Concentrate on Winners not Diversification Maintain Trading Discipline Action Points are Important Only one thing counts improving our standard of living through increased purchasing power! November 2007 Copyright 2007 Strategic Investing 7

12 Using CAN SLIM Strategic Investing looks at the broad economic picture. CAN SLIM Investment System provides the tactical framework to locate profitable trading opportunities. November 2007 Copyright 2007 Strategic Investing 13

13 CAN SLIM Parameters C - EPS > 18% Q/Q A EPS over 5 years > 15% annual growth, Sales growth > 25% going forward N New CEO, new high price, new products, new service S Less than 25M o/s L Leader in industry I Institution ownership < 35%, 3-10 institutions own shares M Market momentum November 2007 Copyright 2007 Strategic Investing 14

19 The A s in 2007 November 2007 Data source: Copyright Investor s Business 2007 Strategic Daily. Used Investing with permission. 20

20 Distribution Days Original definition a down day on increased volume. IBD s definition An occurrence where trading volume is, without any price appreciation, higher than that of the previous day. Are all distribution days equal? November 2007 Copyright 2007 Strategic Investing 21

21 Follow-through Days Ideally, a follow-through rally confirmation occurs on a day when the index's volume is both higher than the previous session and higher than its average over the past 50-days. If volume turns out to be higher than the prior session but lower than the average, you probably want to get back into the market more cautiously. The key is to view follow-throughs (or distribution days for that matter) within the context of the technical and fundamental characteristics of the broader market and leading stocks. November 2007 Copyright 2007 Strategic Investing 22

22 Distribution Days Original definition a down day on increased volume. IBD s definition An occurrence where trading volume is, without any price appreciation, higher than that of the previous day. Are all distribution days equal? November 2007 Copyright 2007 Strategic Investing 23

27 IBD Stock Ratings A/D - Accumulation/Distribution EPS Earnings per share RS - Relative Strength GRP Industry Relative Price Strength SMR Sales + Profit Margin + ROE SMARTSELECT Composite Rating November 2007 Copyright 2007 Strategic Investing 28

29 O Neil advocates EPS+RS>=160 but RS > 70, a B rating in A/D and Composite rating > 80. Problem Universe of stocks is too large for individual investor to sift through to make informed decisions. November 2007 Copyright 2007 Strategic Investing 30

30 Applying CANSLIM A Cup & Handle with increasing volume on the right-hand side of the cup, a handle pull-back and its off to the races. A+190 When did it become an A+190 stock? November 2007 Copyright 2007 Strategic Investing 31

31 What makes a stock move? Accumulation/Distribution are institutions buying? Perception of Earnings Growth is investors focus! Relative Strength how is the stock performing relative to the market trend! 80% of your profits are dependent upon the momentum tide in the market. Remember to sell the expectation of profits not the realization! November 2007 Copyright 2007 Strategic Investing 32

34 Finding Winning Stocks? The definition of a Winning Stock is one which increases in value 50% or more from the time it is first identified and you take a position. November 2007 Copyright 2007 Strategic Investing 35

35 Locating Winning Stocks The Magic Formula B + (EPS > 80 + RS > 80) and CR > 90 Increasing the filter reduces the number of stocks found The Daily Graphs Online Screen Filters November 2007 Copyright 2007 Strategic Investing 36

37 Strategic Investing Rules $ = A + (EPS + RS >= 190) & CR >= 90 Condition Statements Invest 6-8% of your portfolio value in each stock No more than 15 stocks in your portfolio Set an immediate 6% Stop Loss as your Action Point Use a 6% Trailing Stop Loss based upon day s closing price Optional Rebuy the Stock if sold using an Action Point violation if it still meets a B+186 & CR >90 filter Allow some slippage to avoid whipsaws Never lower the Action Point November 2007 Copyright 2007 Strategic Investing 38

38 Strategic Investing Rules Only consider a stock for purchase when it meets the Strategic Investing filter of A + (EPS + RS >= 190) & CR >= 90. If the chart pattern appears ok and your due diligence requirements are meet, purchase the stock. Set an immediate Action Point. Regularly review and remove non-performing stocks from the portfolio. Don t be afraid of not being in the market! November 2007 Copyright 2007 Strategic Investing 39

46 How to read Daily DGO charts Look on daily for Q/Q EPS % Look on daily for Sales growth % What is A/D rating? Add EPS + RS ratings What is Composite rating? Shares o/s, Float? Average Daily Volume blue/red bars Note Sector Group November 2007 Copyright 2007 Strategic Investing 47

68 Decision Points for Selling Action Points based upon a trailing stop percentage Crossover of the 8 x 20 Moving Average indicator Moving down out of the channel if long Drop in the A/D rating to C or worse Drop in EPS + RS rating to less than 186 November 2007 Copyright 2007 Strategic Investing 69

70 ETF s are different More sector and area oriented ETF ratings are different Acc/Dist rating B or higher Relative Strength 80 or better 50 DMA 100,000 or better ETF history of at least a year Bid/Ask spreads Look at top ETF Dollar Volume for liquidity November 2007 Copyright 2007 Strategic Investing 71

77 Purchasing Power Counts Be careful of how you select your yardstick! Your standard of living is often determined by that yardstick. Don t get fooled! November 2007 Copyright 2007 Strategic Investing 78

79 Only 3 numbers 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. November 2007 Copyright 2007 Strategic Investing 80