CANSLIM rule

CANSLIM Investment Strategy

The CANSLIM investment strategy is a popular investment strategy developed by William O’Neil, author of the best-selling book How to Make Money in Stocks. The CANSLIM strategy focuses on identifying and investing in growth stocks, with the goal of generating superior capital gains. CANSLIM stands for seven fundamental criteria used to evaluate stocks:

C – Current Quarterly Earnings: Look for stocks with consistently rising earnings.

A – Annual Earnings Growth: Look for stocks with a history of long-term earnings growth.

N – New Products, New Management, or New Highs: Look for stocks with news about new products, management changes or that have recently achieved new highs.

S – Supply and Demand: Look for stocks with high volume and strong investor demand.

L – Leaders: Look for stocks that are leaders in their industry.

I – Institutional Sponsorship: Look for stocks that are owned and/or supported by large financial institutions.

M – Market Direction: Look for stocks that are in the same direction of a rising market.

The CANSLIM strategy starts with screening the universe of stocks to find those that meet the criteria, and then doing more in-depth research to find the best investment opportunities. The strategy also advocates taking profits and losses quickly, usually within a period of three weeks. It also advises investors to avoid stocks with large short interests (a high percentage of shares sold short) and stocks with extreme levels of volatility.

The CANSLIM strategy has been popular in both professional and individual investor circles because its success comes from a disciplined focus on fundamental analysis. While no investment strategy is perfect, the CANSLIM approach has helped many investors to make profitable real-money investments. With a strong focus on fundamental analysis backed by timely buying and selling decisions, the CANSLIM strategy provides investors with a reliable and consistent approach to maximising returns.

CANSLIM is an investing style that was developed by investor and author William O’Neil. The acronym stands for the key investing principles used to evaluate stocks: C – Current Quarterly Earnings; A – Annual Earnings Growth Rate; N – New Product; S – Supply and Demand; L – Leader or Laggard; I – Institutional Sponsorship; and M – Market Direction. This style of investing takes into account both fundamental and technical analysis.

Current Quarterly Earnings are short-term performance indicators that are used to measure past performance. The Quarterly Earnings O’Neil refers to is the rate of change in earnings over the last four quarters. Generally speaking, the higher the rate of change in the quarterly earnings of a company, the better its future performance is likely to be.

The Annual Earnings Growth Rate looks at the rate of growth in a company’s earnings over the last five years. Investors should look for companies that have an annual earnings growth rate of 15% or higher – this indicates that the company is doing well and has been consistently outpacing its competitors.

The New Product looks at whether a company has developed or released anything new within the last several quarters. If a company has released a revolutionary new product, chances are its stockVALUE will increase.

The Supply and Demand factor looks at the number of shares that are continually traded. If many investors are buying a company’s stock, the stockVALUE will tend to increase, as this indicates that investors expect the stockVALUE to rise in the future. On the other hand, if the supply of shares is excessive, the stockVALUE could be subject to significant fluctuations.

The Leader or Laggard factor looks at the performance of a particular stock in comparison to other stocks in the same sector. Stocks that have been underperforming in comparison to the sector may not be worth investing in, whereas stocks that are leading the sector in growth should be considered by investors.

Institutional Sponsorship considers the involvement of investment banks, funds, and large institutions that are investing in a particular stock. Generally speaking, strong institutional sponsorship indicates that the stockVALUE of the company is likely to increase because the institutions had done their research, and decided to invest in it.

Finally, Market Direction looks at the overall direction of the market. If the market is trending upwards, there may be greater opportunity for stocks to increase in stockVALUE. If the market is trending downwards, it might be a good idea to stay away from stocks until there is a trend in the opposite direction. These are the seven principles of CANSLIM investing. By applying the principles to stock evaluation, investors can make more informed decisions about which companies to invest in.