What do you think of when you hear the term ‘CANSLIM’, no, it is not a type of fitness instrument, it is a system which helps you to select stocks by a combination of fundamental & technical analysis techniques.
The story behind CANSLIM
William J. O'Neil is a famous American entrepreneur, stockbroker and writer. In his early career (in 1958) where he was working at Hayden, Stone & Company as a stockbroker made an investment strategy, this system made the use of computers. Two years later he was accepted to Harvard Business School's first Program for Management Development (PMD). From his research, O'Neil invented the CANSLIM strategy and became the top-performing broker in his firm.
What is the CANSLIM investing strategy?
CANSLIM is an acronym for
- C – Current Earnings
- A – Annual Earnings
- N – New
- S – Supply and Demand
- L – Leader or Laggard
- I – Institutional Sponsorship
- M – Market Direction
Let’s discuss each criterion in detail:
- Current Earnings: It refers a quarter to quarter increase in the current earnings per-share, generally, investors want the EPS to over 20%, but the higher the better.
- Annual Earnings: An year on year increase in annual earnings, generally inventors want the EPS to grow 20% over the last 3-5 years.
- New: Look for a company that constantly innovates, making new models, prototype, research, patents plays a major role in the company’s progress. Few good examples of this could be Tesla, Apple, Google.
- Supply and Demand: A product which has low supply coupled with high demand can create a huge demand for the stock.
- Leader or Laggard: Buying an industry leader stocks will always be a good option, these stocks would be the first ones to bounce back from the market correction or price declines. Ex. Asian Paint or HDFC Bank.
- Institutional Sponsorship: High institutional holdings are good picks, as the more the investments that an institution does in the company, more is the confidence and faith of the institution in the company.
- Market Direction: Time and again we have seen that out of every four stocks, three stocks follow the current market trends (studies have shown that 85% of the stock follows the ongoing market trend) and one should not ignore these trends.
CANSLIM can be said as one of the simplest methods to identify stocks that have a good possibility to see a price appreciation. Investors should make sure that all the seven criteria’s work for the stock that they are looking to invest in.
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