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#11
08-25-2005, 05:09 PM
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Re: The Intelligent Investor
lastsamurai,
Can you elaborate a bit on the CANSLIM system? Ive done a little bit of reading about it in the past but would like to hear from someone using it a little bit more. What are you using to trade the system? How has it been working out for you? 
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#12
08-25-2005, 07:15 PM
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Re: The Intelligent Investor
[ QUOTE ]
As a fun exercise, after you read the book, skim this forum and see how many posters praise Graham but then give advice that would sicken him. [img]/images/graemlins/smile.gif[/img] [/ QUOTE ] I guess you would be referring to stuff like the following... [ QUOTE ] The theory evolved into more advanced theories. The system i still use today is the CANSLIM system by william Oneil. [/ QUOTE ]
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#13
08-26-2005, 03:10 AM
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Re: The Intelligent Investor
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#14
08-26-2005, 07:25 PM
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Re: The Intelligent Investor
[ QUOTE ]
web page [/ QUOTE ] [ QUOTE ] C= Current earnings per share should be up 25% or more and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters. A= Annual earnings should be up 25% or more in each of the last three years. Annual return on equity should be 17% or more. Learn more... [/ QUOTE ] Ben would say earnings growth is one component of a stock's value. Companies with 5% earnings growth, 0% or even negative earnings growth have value. Using arbitrary limits like 25% is silly. More growth, and higher ROE make for higher values, but don't necessarily make a stock worth owning. [ QUOTE ] N= A company should have a new product or service that's fueling earnings growth. The stock should be emerging from a proper chart pattern and about to make a new high in price. Learn more... [/ QUOTE ] Ben would throwup on the words "proper chart pattern". It's nice to have new products, but Ben and Warren Buffett made lots of money on companies with no new products, even companies going out of business. [ QUOTE ] S= Supply and demand. Shares outstanding can be large or small, but trading volume should be big as the stock price increases. Learn more... [/ QUOTE ] Liquidity has little to do with value. Ben would spit milk out his nose reading this. [ QUOTE ] L= Leader or laggard? Buy the leading stock in a leading industry. A stock's Relative Price Strength Rating should be 80 or higher. Learn more... [/ QUOTE ] Ben had to grab a hanky, he laughed so hard when he read "Relative Price Strength Rating should be 80 or higher" that he cried. [ QUOTE ] I= Institutional sponsorship should be increasing. Invest in stocks showing increasing ownership by mutual funds in recent quarters. IBD's Accumulation/Distribution Rating gauges mutual fund activity in a stock. Learn more... [/ QUOTE ] Cause institutional investors are so smart? Ben doesn't buy stocks because they are "popular". [ QUOTE ] M= The market indexes, the Dow, S&P 500 and Nasdaq, should be in a confirmed up trend since three out of four stocks follow the market's overall trend. Learn more... [/ QUOTE ] Ben says ignore Mr. Market. Pay attention to the companies you own and don't worry about the rest. You can believe in CANSLIM if you want. But don't pretend that it's checklist comes from Ben Graham or that he'd recommend anyone use this "system". His basic advice is to buy stocks that are signficantly below Intrinsic Value (the "margin of safety"), where-ever you find them, and sell when they reach Intrinsic Value. Intrinsic Value is the discounted stream of cash flow an investor can reasonably expect to recieve from the company over time. No charts. No caring what the "market" is doing. No hard and fast rules on earnings growth. No care what institutions are doing. No hard and fast rules on product introductions. Coke hasn't had a very important product introduction in decades, but is still a screaming buy at the right price. If you do it right, charts can't help you. If you are looking to buy KO at $30, and it's at $35 and the chartists tell you it's going up, you don't care. It's not cheap enough yet. If it goes to $29, and the chartists tell you it's going down, you don't care. If it goes down to $15, you buy more. It all works well if you do a good job of estimating IV. Oh, did I mention IV is always an estimate? That's the trick to Value Investing. None of the CANSLIM tools can help you. If you estimate IV well and buy and sell based on IV, you'll do well. If not, well, feel free to try CANSLIM or throw darts at the Wall Street Journal. You'll do about the same either way.
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#16
08-26-2005, 11:55 PM
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Re: The Intelligent Investor
Its worth noting that CANSLIM was arrived at through extensive analysis of the criteria for successful stocks prior to their attaining huge gains.
It may not be Graham's thoughts, but it is extensively tested by computer analysis. A benefit Graham did not have! From the Preface to "How to make money in stocks" by William O'Neil... [ QUOTE ] The system consists of buying and selling rules derived from an extensive analysis of all the greatest winning stocks each year for the last half-century. All known fundamental and technical (price and volume) variables and facts were studied in exacting detail to determine what common characteristics occurred just before these super stocks had huge price increases and how these variables changed when the stocks topped and began substantial declines. The buying and selling rules in this book represent only the time-tested facts of how the stock market actually works, not my personal opinions and certainly not the current personal views and beliefs of most Wall Street analysts or strategists on TV. [/ QUOTE ]
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#17
08-27-2005, 02:01 AM
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Re: The Intelligent Investor
[ QUOTE ]
Its worth noting that CANSLIM was arrived at through extensive analysis of the criteria for successful stocks prior to their attaining huge gains. It may not be Graham's thoughts, but it is extensively tested by computer analysis. A benefit Graham did not have! From the Preface to "How to make money in stocks" by William O'Neil... [ QUOTE ] The system consists of buying and selling rules derived from an extensive analysis of all the greatest winning stocks each year for the last half-century. All known fundamental and technical (price and volume) variables and facts were studied in exacting detail to determine what common characteristics occurred just before these super stocks had huge price increases and how these variables changed when the stocks topped and began substantial declines. The buying and selling rules in this book represent only the time-tested facts of how the stock market actually works, not my personal opinions and certainly not the current personal views and beliefs of most Wall Street analysts or strategists on TV. [/ QUOTE ] [/ QUOTE ] It's called back-testing, and it's validity for predicting future behavior is questionable. At worst it's just pattern matching. If there are repeating patterns in the market, say like the Dogs of the Dow, they run the risk of being killed by market efficiencies. Too many traders buying the Dogs so they aren't as cheap anymore, and selling them early, so they don't return as much, for example. The same for CANSLIM. If it works, then the more adherents it gets, the more expensive CANSLIM stocks become and the less they return. Ben Graham wasn't immune to the same allure. The Intelligent Investor has many rules of thumb, depending upon what type of investor you are. And all his life he attempted to devise mechanical rules of valuation that anyone could follow to beat the market. The problem was that even if you can find undervalued stocks through a mechanical formula, and publicize that formula, you invite a lot of competition for said stocks, and you don't find many anymore. I, and I think Buffett would agree, find this the weakest area of Graham's thinking. The other problem is that mechanical formulas, is that there are many important components of value that won't be measurable. For example, all companies growing 25% per year aren't of equal value. Some have strong barriers to competition and the ability to continue to grow for many years to come. Others are reaching the limits of their growth, and might have limited competitive advantages. They might depend on brilliant management that will be retiring soon. Separating one from the other takes judgement and analysis, and can't be done by a spreadsheet or a computer, at least not yet  Walter Schloss worked with Buffett at Graham's investment company, and left around the same time to found his own fund. Walter's long term record (detailed in the "SuperInvestors of Graham&Doddsville" essay at the end of TII) is outstanding, not far from Buffett's. He focuses on the classic Grahamian stocks trading at very low multiples of earnings and book value, i.e. very close to Graham's formula for investing. It's a very mechanical type of investing, which is similar to what I do as well. Based on my successes (and my many failures) I guarantee Walter has spent a great deal of time reading "between" the lines of financial statements trying to determine the good from the bad in a group of companies trading for two thirds of book value. Otherwise his results would have been lousy.
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