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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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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Recently, we’ve been talking about stock picking strategies. Which ones work, which ones don’t, and more importantly, how to tell the difference between the two. In particular, we’ve looked at fundamental analysis and qualitative analysis, two of the major schools of thought when it comes to determining the inherent value of a company that one is considering investing in.

Mechanical stock picking strategy

Today, we’ll switch gears a little bit and look at a stock picking strategy that’s a little more mechanical in its approach. This is known as value investing. Value investing is often considered to be the most fundamental of all strategies, and as such, it’s thought to be rather sound in most cases.

Value Investing

When one practices value investing, one tries to find stocks that are said to have strong “fundamentals” as a result of investigating them with fundamental analysis. The “value” of a stock is determined, however, not just by the strength of its fundamentals, but also by the price at which it’s selling. A good value investor, only looks for strong companies whose stock is currently selling at a very low price because the rest of the market mistakenly thinks of that company as being rather poor, and “undervaluing” it. The idea is, basically, that there’s nowhere for that company to go but up, and the value investor is among the only ones who can see that.

The good value investor

Of course, just buying any old cheap-o stock isn’t going to fly. The value investor, more than those who use other strategies, has to really know something about what he or she is investing in. They must recognize that one is really investing in a “company”, not just in a “stock”. That company is run by people; it’s supported by numbers and strategies of its own. By looking at these, a good value investor can confidently assess that a company is really on its way up rather than its way out.

As a combination of both fundamental analysis and qualitative analysis, value investing is one of the most lucrative and powerful investment strategies out there for a trader who is willing to do his or her homework.

See you next week for part 4 of Stock Picking Strategies.

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

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Hello again, and welcome back. This time, we’re still discussing the different theories on how best to choose a stock that is poised to give big gains in the future. It sure sounds simple enough, but there are a lot of conflicting ideas out there, and we’re planning to examine each one in turn to see just how well they hold up.

The goal of fundamental analysis

Last time, we talked a bit about fundamental analysis, and how its main goal was to look at the numbers of a company in order to generate a mathematically supported future projection for the company’s cash flows. Since this is essentially the same kind of appraisal one would do when buying a company, it makes sense to apply it to the stock market, and indeed most of the strategies we’ll discuss here are simply an extension of evolution of the idea of fundamental analysis in some way or another.

Qualitative analysis

The first of these is qualitative analysis. What qualitative analysis has to say might seen very obvious, but it’s something that some of us don’t care to admit because it tends to throw a very large monkey wrench into our carefully controlled fundamental analysis calculations. The main idea behind qualitative analysis is that attention must be paid to the subjective, “quality”-based parts of a company, as well as the objective aspects of the situation (the numbers).

Appraising a company

To appraise a company in the qualitative sense, investors tend to need to do a lot of research and ask a lot of questions. Of course, in many cases, a lot of the research will already be done for them, but they still have to take the initiative to seek it out before they put their money down. Questions like the following tend to be very helpful in accessing the subjective quality of a company.

Where did the company come from? No company springs up overnight. Discover the company’s origins, and by extension, whether or not the company really seems to have a solid foundation under it.

Company policies

What ideas drive company policies? Companies that are in their respective industries to turn a fast buck and then cash out may have good numbers on paper but are clearly not wise ideas for long term investors. It pays, then, to know a thing or two about the philosophy behind a company’s leaders.

A close eye on “who’s in charge”

Who are the people in charge of this company? Oftentimes, a company will change hands, and this can happen without small scale investors even being aware of it if they aren’t paying attention. For this reason, it’s important to keep a close eye on the individuals in charge of the companies you’re invested in, in order to make sure that the individuals running them seem qualified for the job.

Of course, it’s also important to analyze the industry as a whole. No company exists in a vacuum, and the trends that affect the industry will affect the companies within that industry as well.

Real value of a company

As we can see, this whole concept of using “strategies” to pick stocks is going to be a lot more complicated than perhaps we foresaw. Of course, there are some sound tips coming up, and plenty of valuable information, but for now, meditate on this all important concept: the real value of a company has to be measured at least in part by real human inquiry, not just calculations and optimistic graphs.

See you next week for part 3 of Stock Picking Strategies.

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

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