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What Is CAN SLIM?

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  • Written By: Ray Hawk
  • Edited By: E. E. Hubbard
  • Last Modified Date: 15 October 2014
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CAN SLIM is an acronym for a stock market investment strategy formulated by William J. O'Neil, the founder of the popular stock market newspaper Investor's Business Daily. Each letter stands for an element a company should possess before it's considered a wise investment. The CAN letters are: “C” which stands for quarterly earnings per share that have increased sharply from the previous year; “A” for an annual earnings increase over that of the last five years; and the “N” for new factors in the company, such as recently introduced products or management teams. SLIM represents the following: “S” stands for an investment environment where there is a small supply of company stock, but a large demand for it; “L” means the stock under consideration is a leader in its particular industry; “I” indicates a stock with institutional sponsorship by large investors who demonstrate above average performance in the market; and the “M” equals a stock that has a positive market direction for growth.

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The CAN SLIM method of investing is known as value investing, where the true worth of a company in the market is looked at, as well as how the company is perceived by competitors and industry analysts. This is a form of fundamental analysis, but the process also utilizes some of the technical analysis approach to investing that relies more heavily on statistics and mathematical models to predict stock direction. Value or fundamental investing strategies are also long term and more accurately targeted to very large stocks, such as those represented by the Dow Jones Industrial Average on the NYSE. Technical analysts tend to focus investment strategies on more volatile segments of the market, such as technology stocks and companies with smaller capitalization levels.

Investment strategies such as O'Neil's were made for the US trading environment, particularly the New York Stock Exchange (NYSE), though the finance theories CAN SLIM is based upon can be transferred to almost any modern stock market environment. Stock market investing is a complicated business overall, and many investors look to acronyms as a form of mnemonics, or memory trigger, to guide decision making as they employ a range of finance theories. The familiarity of the theory is one of the reasons the principles of CAN SLIM remain popular, and O'Neill continues to write best selling books based on his ideas and to lecture around the US to sold out venues.

While O'Neil has made millions of dollars by using his CAN SLIM methodology over the years, including increasing his initial portfolio 20-fold in 26 months by using the approach, it is no guarantee of success. He first published the elements of the concept in his book, The Model Book of Greatest Stock Market Winners, in 1971. Other elements of the CAN SLIM strategy can be traced back to earlier writing by O'Neil in the 1950s, however, and the trading environment of international finance has changed greatly since then.

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Soulfox
Post 2

@Melonlity -- one of the problems with a lot of those "dot com" companies is that they couldn't present a reasonable strategy as to how they would turn a profit. Back when those were attracting investors, we heard a lot about some new economy and such notions that things had changed to the point where approaching investments in a traditional way was laughably out of date.

As we saw from the death of a lot of those companies, the rules hadn't changed all that much and you will notice there are a lot of the high profile dot coms are still around and doing just fine. Those companies could articulate ways to turn a profit and that is what made them different from the rest of the pack.

In other words, traditional investment strategies such as the ones spelled out in CAN SLIM still work quite well. The rules haven't changed all that much over the years, so traditional approaches still work. "Old" isn't necessarily the same as "obsolete."

Melonlity
Post 1

How well does this strategy hold up in modern times? Take a look at the "dot com" boom of the 1990s. A lot of elements that investors look for were present in many of those companies, but the market tanked on a lot of those stocks and dragged the economy into a recession.

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