CAN SLIM, or can’t?
In Mar 2012, Forbes ran an article on O’Neil’s CAN SLIM growth screen – a screen I am becoming increasingly interested in. According to the AAII (American Associate of Individual Investors), the CAN SLIM screen has been a top performer over the last 5- and 10-year periods as of January 2012..
What is interesting is to look back to March 2003 on the Elite Traders’ forum. After a prolonged bear market in which growth stocks were hammered, scepticism was, predictably, high, as to whether such screens can work.
I’ve actually read O’Neil’s book whilst on holiday, and it does make for some interesting reading if you are a value investor. My impression is that it is difficult to implement in practice, as it relies on being able to spot “cup and handles”, and there seems to be lots of caveats and things to watch out for. I came away thinking it was very difficult to keep in one’s head. It relies a lot on technical and qualitative factors. That doesn’t seem to have stopped the AAII, though, and their take on the method has produced good returns.
I’ve seen a couple of other sites produce long-term screens that try to reproduce his strategy, and I’m pleased to report that the results have been impressive.
Stockopedia also has a CAN SLIM screen, but it has only been operating for a year. It doesn’t have data going back to 1998 like the American site does.
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2 comments
Does ARM fit the bill today?
It's almost impossible for anyone that has ever had a value bent to buy as it always looks expensive.
Asagi (no position)
Mark - "How to Make Money in Stocks" which lays out CAN SLIM is my favourite investment book possibly of all. While the back half of the book is very much a sales pitch for his newspaper IBD, the first half reads extremely well.
I've kicked myself so many times for not acting on highly obvious CAN SLIM stocks in the past. ASOS springs to mind, but so does Apple, Abcam, Domino's Pizza and others at different points. I'm less sure where those kinds of stocks are in this market, but the lesson from CAN SLIM is that P/E valuations don't matter when a stock is firmly in that top segment of the market where they blow out every interim statement and quarterly report.
The thing to understand is that it's actually not that risky to buy an expensive stock when it's got a solid profitable business model, in a fast growth sector with a huge tailwind, and is the leader of the pack. The technical side of the system is a bit more arbitrary, but essentially it's cobbled together from writers like Darvas's box technique. i.e. buy stocks that have an uptrend that are coming out of a sound base.
I love that stuff!