CANSLIM as a reliable stock trading system

SGI

CANSLIM is a reliable stock trading system for both international and Vietnamese stock brokers, as well as individual investors.

CANSLIM as a reliable stock trading system

It was created and developed by William J. O’Neil, a successful American investor and stock broker. Nonetheless, this system has its own strengths and weaknesses. Let’s take a closer look at the initials C-A-N-S-L-I-M.

Current quarterly earnings per share

To provide proof, William. J. O’Neil listed companies with their share benefits increasing greatly every quarter such as Dell Computer, America Online and Cisco Systems. These are “super” shares with huge increases over a short period of time. This is one of the first criteria that investors should take into consideration because it enables them to choose companies with greatly increased benefits in the current quarter, the latest quarter with a year-on-year increase. Investors seek companies with big quarterly profits, probably which are “gold mines” for investors.

However, it should be noted that the period O’Neil mentioned was the time when the US securities were enjoying a strong uptrend when big companies were making huge profits. Several shares increased by tens or even hundreds of times. Obviously, not many companies can grow that much and meet this criterion.

In fact, some figures from a company may show good results over a few quarters, but nothing can guarantee that the company can maintain such good results over a long period of time. It is probable, that when the company shows a report of such good results, the share prices have reached their peak, or the share prices could be undergoing certain changes.

Annual earning increases

The share filters enable investors to seek big increases in profits from the listed companies. Investors are advised to seek shares with profits increasing steadily over the last few years, with a strong preference for shares with big increases over the past few quarters.

However, in contrast to the trend of making good benefit increases every year, companies with steady increases in sales and profits for 5-10 consecutive years should also be noteworthy companies, especially for their low market prices.

The investment opportunity here does not only give special priority or substantial weight to “super products”, but also pays significant attention to good businesses with stable performance, operating in major areas like electricity, water, chemicals and insurance, but for some reasons, their shares are at low price in the market.

New products, new management, new high

A company is highly valued if it possesses, creates or trades in a new product; or has a board of talented directors with great interest in their work, and working for the benefit of the company and the shareholders.

Additionally, the share selection criterion also suggests that investors should buy shares at the time the shares have risen to a new price. This is absolutely reasonable because an introduction of new products that satisfy the market needs can certainly bring about big sales and profits for the company.

According to my survey, some investors chose to buy breakout stocks. These are strong shares that often set new highs, and investors should pay special attention. Yet quite a few investors are more interested in falling stocks or stocks with big changes. This can’t be a rational strategy because the prices of these shares may plummet to even lower prices.

Supply and demand

This criterion indicates that a share is involved in exciting transactions, which means such a share attracts lots of customers and is very likely to rise to a higher price in the next period. In contrast, a share with low liquidation may be a weak trading share that cannot draw attention from investors.

Yet this criterion is rather controversial because we will probably ignore several strong shares if we only care about liquidation and sessional value of the shares.

This can be considered to be one of the common paradoxes in the stock market because lots of companies’ experience gloomy trading sessions and are ignored by investors before they see the price of their stocks soar at several sessions. Shares which are potential but have not attracted investors are usually traded in small numbers. They are only in the center of attention when sufficient positive information has been provided about them, and that is when lots of investors are buying and bragging about them.

This is actually a dangerous period for inexperienced investors. Popular shares are usually traded at high prices and the U-turn after that will certainly cause panic among lots of investors, causing them to fall into losing situations.

Leader or laggard

William. J. O’Neil also talked a lot about “super” shares such as of Xerox or MCI Communication (WorldCom) during the dotcom bubble period. As investors have known, these companies later went bankrupt, and their shares dropped dramatically when false financial statements were discovered.

As far as investment activities are concerned, it is not important whether a stock is on the top or at the bottom or whether it has large or small capitalization. It is significant that the concerned company has survived a serious quality test. If it is a medium and small stock with supporting assets which are sufficiently attractive and is at a low price, it will sooner or later be able to draw attention from investors.

Institutional

Some good Vietnamese companies like VNM, VCB, CTD, VIC and HPG are usually held by professional investors or institutions. Investors are advised to choose famous and reliable stocks to buy. This is also rather controversial because professional investment funds may buy some stocks at the wrong time, or sometimes buy some stocks when they are at their peak.

Therefore, it is necessary to inspect the structure of the shareholders, but it is also essential to inspect the performance of such investment funds to see the performance rates of the funds in recent years.

We may feel safe when we buy shares held by major investment funds, but the other side of the story is that the large numbers of transferred freely shares are huge, causing the shares to be diluted. That also means, a big increase in share prices really needs a powerful force in buying. This is hard to happen, compared to shares with medium or small capitalization.

Market

It is important to make accurate predictions about market trends when planning a growth and investment strategy. This is one of the most significant factors in short-term transactions and speculations. It is extremely hard to make predictions about trends, and carrying out timely transactions is one of the biggest challenges for individuals as well as professional investors.

It is always reasonable and rational to inspect every single stock and evaluate every investment opportunity in the market, whether the market is undergoing good or bad times. There are always ups and downs in the market, and there are times when dumping at low prices happens, and only experienced investors can sense and realize such opportunities. It is therefore advisable to notice every single opportunity before making predictions about market trends.

Translated by Nguyễn Gia

Lê Đức Khánh, Marketing Strategy Director, PSI

Các tin, bài viết khác

Đọc nhiều nhất

Customers are being served at BaoVietBank.

BaoVietBank in deep trouble

BaoVietBank has strong shareholders like Bao Viet Holdings, Vinamilk and CMC Corporation, but despite of this support, it has failed to achieve any significant success in the past. What is even worse is that by September 2019, BaoVietBank showed the highest percentage of bad debts in the entire banking system, with negative growth in both capital raising and lending.