CAN SLIM is the investment style popularized by William O'Neil in Investor's Business Daily. CAN SLIM investing focuses on investing based on seven measures:
- Current Earnings. Per share, current earnings should be up to 25%. Additionally, if earnings are accelerating in recent quarters, this is a positive prognostic sign.
- Annual earnings, which should be up 25% or more in each of the last three years. Annual returns on equity should be 17% or more
- New product or service, which refers to the idea that a company should have a new basic idea that fuels the earnings growth seen in the first two parts of the mnemonic. This product is what allows the stock to emerge from a proper chart pattern of its past earnings to allow it to continue to grow and achieve a new high for pricing.
- Supply and demand. An index of a stock's demand can be seen by the trading volume of the stock, particularly during price increases.
- Leader or laggard? "the leading stock in a leading industry". This somewhat qualitative measurement can be more objectively measured by the Relative Price Strength Rating (RPSR) of the stock, an index designed to measure the price of stock over the past 12 months
- I stands for Institutional sponsorship, which refers to the ownership of the stock by mutual funds, particularly in recent quarters. A quantitative measure here is the Accumulation/Distribution Rating, which is a gauge of mutual fund activity in a particular stock.
- M stands for Market indexes, particularly the S&P 500, and NASDAQ. By buying in strong markets you can improve the odds of success as three out of four stocks tend to follow the general market pattern.
As you might expect Investor's Business Daily (IBD) provides useful resources to find stocks meeting these criteria.
The ideas build upon strategies mentioned by Jesse Livermore and those who followed him such as Nicolas Darvas.
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