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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In the last couple of installments, we’ve talked about things like acknowledging that slumps and temporary downs are a normal part of the stock market, as well as the fact that analysis of past performance is not in any way a reliable indicator of future performance. Today, we’re going to put those two principles together to understand a little bit about how to deal with situations that look truly bleak; how to handle them without resorting to panic.

Panic is the enemy of your finances

Panic is the enemy in any situation regarding finances. Financial matters are extremely important to all of us because they represent more than our bank account or our portfolio, but also our livelihood and the quality of life that we are able to lead. As such, every financial decision is one that warrants a lot of sound deliberation and consideration before committing to it. It’s unfortunate, then, that the fast pace of the stock market sometimes encourages people to make rash decisions, especially when they think they see dark clouds looming on the horizon.

The downward trend of panic

Say that you have money invested in several different stocks, and you’re beginning to notice an overall downward trend. For whatever reason, this leads to a panic. You start to picture how it would be to lose every cent that you’ve invested and be reduced to nothing. You sell off every stock you own and adopt a totally new strategy, investing in a number of totally new stocks across the board, whose performance seems more likely to live up to your standards. However, in doing so, you miss out on a unpredicted surge in the stocks you just sold.

Adjust your investment strategy

If you had taken just a little more time to think about things, you might have realized that your stocks were in a sound industry, one that had been around for years. As such, the risk of a total bottoming out is virtually nil. You could have adjusted your strategy and maybe invested in some other stocks without totally selling off your current interests. However, panic robbed you of that potential.

Panic is the enemy. Let rational, sound judgment be the basis of your financial life, not it.

See you next week for part 5 of Basic Investment Strategies.

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

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The tip we’re going to cover this time deals with fads and trends and what effect they really have on particular stocks and the market as a whole. You often hear of people “analyzing” stocks by looking at their past performance and trends, in hopes of gleaning some bit of insight into how the stock will perform in the future. Despite the conventional wisdom, this is by and large a waste of time.

The Gamblers Folly

Ever hear of the Gambler’s Folly? Imagine a guy watching a Roulette wheel in Las Vegas. He sees it come up black an astonishing ten times in a row. He might say to himself, “That’s it. Statistically speaking, red is bound to come up next, the odds favor it!” and put all his money down on red, certain that it’s time had come. However, imagine as well that a different man who had not been watching the wheel just now walked up for the first time. Would it be more reasonable for him to bet on red as well? Of course not.

The reality is that each time the wheel is spun, there is a perfectly equal chance of whether it will come up red or black, and what colors have come up on the previous ten spins have absolutely nothing to do with influencing that outcome. The stock market, of course, isn’t just a game of chance, but the point still stands: past performance is a very unreliable indicator of future performance. There are just way too many variables involved in the market at any given time to think of things that way.

The Next Big Thing In The Market

Nevertheless, you’ll always hear people talking. They might go on and on about some great new technology or service that has been seeing astonishing gains recently. It’s “the next big thing“, they’ll say, and people tend to buy into it in droves.

However, the cold fact is that once people are talking about a stock, it’s probably already too late for you to get in on it. The reason they’re talking about it is the good past performance it’s had, and as we’ve just seen, that’s no way to judge a stock. Therefore, resist the temptation to look at past performance and follow fads in investing. You’ll never get ahead that way.

Instead, take the time to learn about the factors that really do influence the market and study them. It’s the only way to formulate a predictive strategy that can be called anything close to accurate.

See you next week for part 4 of Basic Investment Strategies.

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

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