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Non-Tech : C-A-N-S-L-I-M: A Simple, Easy to Use Stock Picking System
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To: John T. who wrote (8)7/12/1999 8:39:00 AM
From: The Other Analyst  Read Replies (1) of 42
 
Visualize a chart with (actual future-pretend we have a crystal ball) growth rate on the x axis and p/e on next year's earnings (again assum ing a crystal ball) on the vertical axis. Now imagine how a large group of stocks would form a scatter plot on this chart. An upward sloping line can be drawn through these points. The line is where all the points should be if the future were known, but of course the future is not known so they are above and below the line. Eventually the stocks will move towards the line.
Canslim comes along and says let's look at the right side of the chart, the high growth companies. That will work because there are many companies below the line on the right side. But it will miss some that are above the line on the right.
I'm saying a better approach is to use a screen that gives you all the companies below the line. Low p/e by itself is not enough, because you get some low growth companies that are priced above the line. What you want are low growth stocks that are undervalued, and high growth stocks that are undervalued. And you want to avoid high growth stocks that are overvalued, and low growth stocks that are overvalued.
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