November 6th, 2005
A reader recently asked for “ideas on the best way to screen for Canslim type stocks, any good screeners out there?” Thank you, Reader, for asking but I’m not sure my answer, based on many years of experience and many hours studying charts, will satisfy to you.
By way of introduction to those unfamiliar CANSLIM, it is a methodology and process developed by William O’Neil and outlined in his Investors Business Daily and books; a description is available online at the IBD website and in all related print material. Additionally, there are many newsletters (CANSLIM.net, for example) and charting software (mine is TeleChart2005 and users periodically write to the bulletin board on Yahoo requesting help to create CANSLIM filtering formulas) that attempt to answer this specific question.
My feeling, though, is that it’s fruitless for the individual investor. I’ve found that it’s less rewarding trying to find those needles (for example the next Ultra petroleum (UPL), Cutera (CUTR) or Google (GOOG) …. Friday’s top 3 IDB100 stocks) in the haystack all available stocks than it is to decide 1) the market’s current direction, 2) which industries currently have favorable momentum and, lastly, 3) which stocks, many already identified by IBD as CANSLIM-qualified, within those industries are suitable to buy now.
I believe the greater challenge is not selling winners already owned prematurely (from fear that the next stock market crash is around the corner or that profit-taking after a successful ride up will erode gains generated) rather than trying to find the next winner before everyone else does.
Our goal is not hitting “home runs” but getting enough singles and doubles, while not striking out too often, so that the portfolio performance compares favorably against market indices, beating them by a sufficient margin to compensate for time, effort and assumption of risk.
While IBD applies CANSLIM metrics to approximately 5000 stocks, they continuously focus on 200 or so they rank highest. These are “promoted” in their IBD100 list, their New America list and their 85-85 list (stocks that rank among the top 15% and who’s charts are published periodically in the paper). These highly ranked stocks have momentum through a following among both individual investors and professional money managers. In most cases, their moves are not for a week or a month; their moves often extend several quarters, through multiple consolidations. I have been tracking the IBD100 lists for several years and, over that time, the list has included over 500 different stocks, some having substantial moves before being added to the list and others with moves of 100+% after. There are more than enough stocks from this list than I care to own in my personal portfolio.
So reader, my answer to your question is to focus on the stocks IBD has identified. You’ll beat the indices if you manage your portfolio according to the market cycle, make timely selections in line with the industry group rotations and don’t sell too early.