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Non-Tech : C-A-N-S-L-I-M: A Simple, Easy to Use Stock Picking System -- Ignore unavailable to you. Want to Upgrade?

To: John T. who wrote (8)	7/12/1999 8:39:00 AM
From: The Other Analyst	Read Replies (1) \| Respond to 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.

To: John T. who wrote (8)	7/13/1999 11:07:00 PM
From: The Philosopher	Read Replies (1) \| Respond to of 42

But the problem I see is that the canslim method seems not to take the current price into account anywhere. It doesn't even look at how the current price fits with past prices. If IBM fits the criteria, say, then according to canslim you should buy it even if it were selling, for some reason, for $1,000 per share. IMO, there are two things to look for. One: is this a good stock to buy for future growth? Two: what is a fair price to pay for this stock? Canslim ignores the second element entirely. If you overpay even for good stocks, you will not make money no matter how good the stock is. My personal approach is to evaluate the company. (Although I don't use the canslim method, I use some of its elements.) Then if I think it is a worthwhile investment, I ask what price I'm willing to pay for it. If the stock is selling above that price, but if the price is one the stock might come to sometime in the next 12 months, I put in a buy at that price and wait for the stock to come to me. IMO, market price buys are almost always a mistake. There are exceptions, but not many.