CAN SLIM refers to the acronym developed by the American stock research and education company ''
Investor's Business Daily
''Investor's Business Daily'' (''IBD'') is an American newspaper and website covering the stock market, international business, finance and economics. Founded in 1984 by William O'Neil as a print news publication, it is owned by News Corp and is ...
'' (''IBD''). ''IBD'' claims CANSLIM represents the seven characteristics that top-performing
stocks
Stocks are feet restraining devices that were used as a form of corporal punishment and public humiliation. The use of stocks is seen as early as Ancient Greece, where they are described as being in use in Solon's law code. The law describing ...
often share before making their biggest price gains. It was developed in the 1950s by Investor's Business Daily founder
William O'Neil.
The method was named the top-performing investment strategy from 1998-2009 by the
American Association of Individual Investors
The American Association of Individual Investors is a nonprofit organization with about 150,000 members whose purpose is to educate individual investors regarding stock market portfolios, financial planning, and retirement accounts. AAII "assists ...
. In 2015, an
exchange-traded fund
An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the ...
(ETF) was launched focusing on the companies listed on the IBD 50, a computer generated list published by Investors Business Daily that highlights stocks based on the CAN SLIM investment criteria.
Investing mechanism and process
CAN SLIM is a
growth stock
In finance, a growth stock is a stock of a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry. A growth c ...
investing strategy formulated from a study of stock market winners dating back to 1953 in the book ''How to Make Money in Stocks: A Winning System In Good Times or Bad''.
This strategy involves implementation of both
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...
and
fundamental analysis
Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall state ...
.
The objective of the strategy is to discover leading stocks before they make major price advances. These pre-advance periods are "buy points" for stocks as they emerge from price consolidation areas (or "bases"), most often in the form of a "cup-with-handle" chart pattern, of at least 7 weeks on weekly price charts.
The strategy is one that strongly encourages cutting all losses at no more than 7% or 8% below the buy point, with no exceptions, to minimize losses and to preserve gains.
[ It is stated in the book, that buying stocks of solid companies should generally lessen chances of having to cut losses, since a strong company (good current quarterly earnings-per-share growth, annual growth rate, and other strong fundamentals) will usually shoot up—in bull markets—rather than descend. Some investors have criticized the strategy when they didn't use the stop-loss criterion; O'Neil has replied that you have to use the whole strategy and not just the parts you like.][
O'Neil has stated that the CANSLIM strategy is not ]momentum investing Momentum investing is a system of buying stocks or other securities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period.
While momentum investing is well-established as ...
, but that the system identifies companies with strong fundamentals—big sales and earnings increases which is a result of unique new products or services—and encourages buying their stock when they emerge from price consolidation periods (or "bases") and before they advance dramatically in price.
Acronym
The seven parts of the acronym are as follows:
* C stands for Current quarterly earnings. Per share, current earnings should be up at least 25% in the most recent financial quarter, compared to the same quarter the previous year. Additionally, if earnings are accelerating in recent quarters, this is a positive prognostic sign.
* A stands for Annual earnings growth, which should be up 25% or more over the last three years. Annual returns on equity should be 17% or more
* N stands for New product or service, which refers to the idea that a company should have continuing development and innovation. This is what allows the stock to emerge from a proper chart pattern and achieve a new price. A notable example of this is Apple
An apple is an edible fruit produced by an apple tree (''Malus domestica''). Apple fruit tree, trees are agriculture, cultivated worldwide and are the most widely grown species in the genus ''Malus''. The tree originated in Central Asia, wh ...
's iPhone.
* S stands for Supply and demand. A gauge of a stock's demand can be seen in the trading volume In capital markets, volume, or trading volume, is the amount (total number) of a security (or a given set of securities, or an entire market) that was traded during a given period of time. In the context of a single stock trading on a stock exchang ...
of the stock, particularly during price increases.
* L stands for Leader or laggard? O'Neil suggests buying "the leading stock in a leading industry." This somewhat qualitative measurement can be more objectively measured by the Relative Price Strength Rating of the stock, designed to measure the price performance of a stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
over the past 12 months in comparison to the rest of the market based on the S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of D ...
(or the S&P/TSX Composite Index
The S&P/TSX Composite Index is the benchmark Canadian index, representing roughly 70% of the total market capitalization on the Toronto Stock Exchange (TSX) with about 250 companies included in it. The Toronto Stock Exchange is made up of over 1, ...
for Canadian stock listings) over a set period of time.
* I stands for Institutional sponsorship, which refers to the ownership of the stock by mutual funds, banks and other large institutions, particularly in recent quarters. A quantitative measure here is the Accumulation/Distribution Rating, which is a gauge of institutional activity in a particular stock.
* M stands for Market Direction, which is categorized into three - Market in Confirmed Uptrend, Market Uptrend Under Pressure, and Market in Correction. The S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of D ...
and NASDAQ
The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
are studied to determine the market direction. During the time of investment, O'Neil prefers investing during times of definite uptrends of these indexes, as three out of four stocks tend to follow the general market direction.
See also
*Value investing
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. The various forms of value investing derive from the investment philosophy first taught by Benjamin Graham ...
*New York Stock Exchange
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed c ...
*Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a stock market index of 30 prominent companies listed on stock exchanges in the United States.
The DJIA is one of the oldest and most commonly followed equity inde ...
*Stock market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...
*Growth stock
In finance, a growth stock is a stock of a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry. A growth c ...
*Investment strategy In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics an ...
References
{{reflist
External links
CAN SLIM on Investopedia
Books Referencing CAN SLIM
*''Market Wizards'', by Jack D. Schwager (Paperback - 1993)
*''The Hedge Fund Edge: Maximum Profit/Minimum Risk Global Trend Trading Strategies (Wiley Trading)'', by Mark Boucher (Hardcover - Oct 30, 1998)
*''International Encyclopedia of Technical Analysis'', by Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (Hardcover - Feb 2000)
*''Technical Analysis from A to Z, 2nd Edition'', by Steven B. Achelis (Hardcover - Oct 2, 2000)
*''The McGraw-Hill Investor's Desk Reference'', by Ellie Williams (Hardcover - Oct 19, 2000)
*''Online Investing Bible (Bible (Wiley))'', by Jill S. Gilbert, Thomas S. Gray, Claire Mencke, and Jill Gilbert Welytok (Paperback - Jan 2001)
*''Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading'', by Jon Leizman (Hardcover - Feb 15, 2002)
*''Applying Elliott Wave Theory Profitably'', by Steven W. Poser (Hardcover - Jul 18, 2003)
*''Understanding Stocks'', by Michael Sincere (Paperback - Aug 19, 2003)
*''All About Retirement Funds : The Easy Way to Get Started'' by Ellie Williams Clinton (Paperback - Sep 17, 2003)
*''Dave Landry's 10 Best Swing Trading Patterns and Strategies'' by Dave Landry (Paperback - Nov 1, 2003)
*''The Vital Few vs. the Trivial Many : Invest with the Insiders, Not the Masses'', by George Muzea (Paperback - Oct 29, 2004)
*''How to Make Money Selling Stocks Short'' by William J O'Neil and Gil Morales (Paperback Dec 24, 2004)
*''Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)'', by Ellen Hertz (Paperback - Aug 31, 2005)
*''How Legendary Traders Made Millions'' by John Boik (Paperback - Mar 23, 2006)
*''Master Traders: Strategies for Superior Returns from Today's Top Traders (Wiley Trading)'', by Fari Hamzei and Steve Shobin (Hardcover - Oct 6, 2006)
*''Technical Analysis: The Complete Resource for Financial Market Technicians'', by Charles D. Kirkpatrick and Julie R. Dahlquist (Hardcover - Aug 18, 2006)
*''Trade Your Way to Financial Freedom'' (2nd ed), by Van K. Tharp (Hardcover - 2007)
*''The How to Make Money in Stocks Complete Investing System: Your Ultimate Guide to Winning in Good Times and Bad'' by William J O'Neil (Paperback August 10, 2010)
*''Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market'' by Gil Morales and Chris Kacher (August 23, 2010)
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