The Bull Hunters Guide

This continues our series of in-depth looks at the different strategies that are commonly employed by big name investors when they go to choose the stocks that they’re going to invest their hard earned money into. In fact, though it’s the case that everyone out there seems to have their own system for doing things, there are a fairly set number of strategies that seem to pop up over and over again. It’s these that we’ve been examining, as we feel they’re the most noteworthy.

CANSLIM

Having discussed all the basic and secondary strategies already, we’re going to move on to a stock picking strategy that represents something of a modern hybrid of picking techniques. It’s known as CANSLIM, and the whole idea is that it allows one to pay attention to a lot of different objective factors at the same time (seven to be exact) in an attempt to pick a stock without relying on subjective forecasts of future values that might not end up holding water.

Because it’s such a complex strategy, we’re going to cover it in two separate blog entries. Three of the aspects will be covered this time, and four next time, finishing it up.

What Does CANSLIM Stand For?

First off, the C in CANSLIM stands for “Current Earnings”. This is meant to indicate that you need to look at whether or not a stock’s earnings per share have risen on a consistent yearly basis. Generally speaking, if a stock’s earnings per share are continuing to increase over a period of a year, it’s said to be in good condition as far as this criteria is concerned.

The A stands for “Annual Earnings”. This indicates that one should look at whether or not a company has shown a good consistent growth over a period of years. Clearly, this implies that companies with a history of at least a few years tend to be in better standing in the CANSLIM method. However, there’s something of an exception…

The N stands for “New”. This means that CANSLIM strategists tend to look for companies that are offering something new. Because they also look for consistent growth over a long history, this means that they usually seek out old companies that are undergoing changes that alter the way that they do business. This could be anything from new management, to a new product line.

Next time, we’ll cover the other four aspects of CANSLIM.

See you next week for part 8 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Recently, we’ve been discussing a host of stock picking strategies and looking at the applications of each. We’ve dealt with underlying fundamentals such as fundamental analysis, and qualitative analysis, as well as the two immediate offshoots from those: growth investing and value investing. We’ve even looked at a more modern methodology that comprises a fusion of both growth and value investing: GARP investing.

Income Investing

This week, however, we’re going to look at an investment strategy that is arguably the most straightforward of them all. In that the end goal of investing is to ultimately turn a profit and generate income, the stated goal of income investing is right in line with that: to pick the stocks that will provide the most steady income.

This runs counter to what many investors think about income. Typically, they view investments like stocks as being a risk with little to no guarantees outside of certain option spreads. For steady, secure income they look to more traditional alternatives like savings bonds. However, when we’re looking at stocks that pay out dividends, it’s certainly possible to draw a good steady income, just from one’s stocks.

Income investors usually tend to invest in those stocks that are tied to older, established businesses, rather than trying to find the next big thing. The reason for this strategy is that these companies have a very solid foundation in the marketplace and “aren’t going anywhere”. They have no real need to reinvest their earnings into themselves, so very often they tend to pay them out to their shareholders in the form of annual dividends.

The Highest Dividends

However, it isn’t just about picking those companies that pay out the highest yearly dividends. Good income investors will also look at a figure called the dividend yield, which is calculated by dividing the annual dividend paid per share by the price of the share itself. This will give one a percentage figure that determines the dividend yield. Typically, income investors look for a high dividend yield no matter what the actual numbers are – a figure somewhere around 5-8% seems to be the sweet spot that most are looking for.

In the end, income investing can be boiled down to the following summary: finding companies with good, high dividend yields that will allow the investors to receive a steady income in dividends over time without much concern for growth or undervaluing or any of the other principles that make up the other popular strategies.

See you next week for part 7 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Over the last few entries, we’ve been looking at different stock picking strategies and how they measure up, as well as the fundamental principles that inform them. The purpose here isn’t so much to find one magic strategy that always picks winners, but rather to inform the reader to be able to look at strategies and tell how sound they are based on the principles that form the backbone of those strategies.

Value and Growth Investing

In the last two entries, we talked about value investing and growth investing. In other words, investing based upon the perceived value of a stock, and investing based upon the projected growth of a stock over a period of time. Today, we’re going to expand upon both of those slightly by looking at a new kind of strategy that forms something of a hybrid of the two, taking the advantages of both are trying to meld them together into a cohesive whole. This is called GARP investing.

The GARP Strategy

The GARP strategy basically involves looking for companies that are undervalued by the market as a whole, yet have solid potential for sustainable growth in the near future. In particular, those who employ the GARP strategy tend to look for those companies that fall into the gap that’s overlooked by pure value or pure growth investors. In other words, a GARP investment would probably be not as undervalued as the pick of a pure value investor, but would still qualify as undervalued enough to earn a profit based upon its future growth potential.

The True Nature of The GARP Method

There is a lot of criticism about the GARP method out there, because of its perceived unwillingness to commit to one method or the other. This conception, however, betrays a misunderstanding of the true nature of the GARP method. The claim that it fails to establish meaningful standards of worthiness for an investment don’t hold water, because if one looks at GARP in isolation from other strategies, it still defines a very specific set of characteristics that adherents should look out for.

GARP = Growth At a Reasonable Price

See you next week for part 6 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Last time in this blog, we discussed value investing, which is essentially the strategy of finding a company that looks to have good prospects but is undervalued by other onlookers who are playing the market. One then buys stock in that company while it’s at a low price, and then enjoys the returns when their prediction pays off and the company’s value increases despite prevalent opinion to the contrary.

Growth Investing

Today, however, we’ll be looking at a competing strategy that has enjoyed just as much success and notoriety over the years: growth investing. Whereas value investors look at the present state of a company in order to forecast the wisdom in investing in them, a growth investor more or less ignore that in favour of attempting to assess a company’s future growth potential, regardless of its current price. In other words, while a value investor would ignore a high priced stock, regardless of the company behind it, a growth investor would not. He or she would look at the factors that would let them realize that that high priced stock is about to become a super-high priced stock, meaning they’ll be making just as much of a profit as the value investor would have in his or her value priced stocks.

Sudden explosive growth

Since a growth investor relies heavily on companies that experience sudden explosive growth, it makes sense that they would look to the two arenas that see that kind of activity most often: new businesses, and businesses in industries related to new technologies. There’s no hard and fast formula for determining whether or not a company that matches this criteria will actually experience the explosive growth that growth investors are hoping for, but by looking at certain matters of fundamental analysis such as whether or not the company has grown in the past, and matters of qualitative analysis such as how their current position in the market is looking, one can put together a reasonable assessment of a company’s potential future growth.

Risk levels for the investor

There is some sense in which growth investing is said to be riskier than value investing. While this may be so, it’s certainly a strategy that has met with a lot of success over the years, and continues to do so for those who know how to wisely employ it.

Join us next time as we look at more time-tested strategies for choosing the right stocks, at the right time.

See you next week for part 5 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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