Hi Paul! Nice to hear from you.
Yes, I have a MBA in Finance and Accounting. (Double Major.) Yes, I know all about discounted cash flow, Return on Equity, and traditional fundamental analysis. But, I've learned something else. Fundamentals don't move stocks. Oh, eventually, earnings will. Let me repeat that, Eventually, earnings will move the price of stock. Either up or down.
But the price on any given day is set by emotions. It's the perception of the value (as represented by the price) that is bid by traders of the stock. Those traders who think the value will go up in the future (ie. earnings will rise or the 'discount rate' goes down) bid the price up. Those that think future earnings will go down or the discount rate to go up, sell.
A lot of traders don't know that's what they're doing. They buy (or sell) because they think the PRICE is going up (or down). Few stop to consider that they're bidding the value of the company higher or lower. That is how stock get 'overbought' and 'oversold'.
So what?
I decided to become a 'growth investor' rather than a 'value investor'. Why? The really great fortunes are made with growth stocks. Sure Warren Buffet has done great. How much better would he have been had he invested in MSFT rather than KO? Suppose he bought CSCO rather than G? Did he have DELL in his portfolio? Nope! Does he have SUNW now? Sorry! I'm not here to bash Mr. Buffet, but I want to focus on those stocks that have a chance to seriously outperform.
Before you write me off as a gambler, I must say I look at the fundamentals of a company and I have to understand and believe in its business plan. I could never bring myself to buy Amazon, for example. I couldn't see buying a company that loses money on every book it sold.
Now for a couple of points on CANSLIM. The 8% sell rule is for new purchases. It does not dictate a sell whenever a wining stock drops 8%. However, it calls for an 8% stop to keep you from making a serious mistake.
I will agree the buy rules are easier to understand and implement than the sell rules. Personally, I find selling the most difficult part of investing. So, what I've taken to doing is to take partial profits in one of my winners if I find there may be new opportunities that I should be investing in. JDSU was one of those I bought last fall.
Paul, there's no one way to invest and be successful. I'll be frank: I haven't heard of most of the companies you mentioned. I wish you well with them.
CANSLIM can be used as a method to assist you in timing when to buy the great growth companies: MSFT, CSCO, EMC, ORCL, HD, PFE, etc. If you choose to ignore it, well, that's your choice.
Best,
Adairm |
