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Computerized Investing > March/April 2003

The CAN SLIM Approach: Revising a Screen

PRINT | | | | COMMENTS (9) | A A   Reset

by John Bajkowski

 The CAN SLIM system has been popular with our members for a long time as a growth approach for selecting and managing a portfolio of stocks. The CAN SLIM approach is presented by William O'Neil in his book titled "How to Make Money in Stocks: A Winning System in Good Times or Bad," (Mc-Graw Hill, third edition, 2002). O'Neil developed the approach by studying the characteristics common to 600 of the biggest winning stocks from the 1950s through 2001. The rules of the system are based upon the fundamental and technical factors of these winners before they had their big price increases. O'Neil also founded Investor's Business Daily, a financial newspaper that presents stock and market information consistent with the CAN SLIM system.

 

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Discussion

Don from CA posted over 2 years ago:

The CAN SLIM approach does look like a sensible approach, yet the mutual fund CAN SLIM Select Growth, CANGX, since it's beginning has barely beaten out the SP500 fund, VFINX over the same time period. Morningstar ranks CANGX only 3-stars, an average fund. CANGX did well in 2008 with losses of -20.45%, however other years such as 2009 have been poor performers. Perhaps individual investors have done better than the fund designed to follow CAN SLIM. It would be interesting to know if CANGX follows similar buy and sell rules as AIII's Stock Investor Pro.


Wayne from IL posted over 2 years ago:

The stocks that tend to pass our CAN SLIM screen are so small that no mutual company could buy them. Over the long run, small companies outpeform large(r) companies, so I have to believe this attributes for a large amount of the underperformance by the mutual fund.


Ramesh from OH posted over 2 years ago:

Investors Business Daily interprets the climate of investing on a day by day basis on its front page. It specifically advises NOT to buy or hold any stocks during the time when it declares market to be in correction. Its rules for deciding on the climate for investing are specific but I have found them very difficult to apply because of the variability of the factors involved and also the way they are interpreted by IBD. Of course AAII's format for the CANSLIM screen is on a monthly basis and I have not seen it consider these vital aspect of CANSLIM investment where no buying is recommended as long as market is held to be in correction. This is bound to affect performance of the screen. Has AAII considered this at all? Has it asked IBD on what can be done to make the screen more representative of O'Neil's intent?


Roger from FL posted over 2 years ago:

Excellent comments, Ramesh. M, or market direction is a very basic principle in CAN SLIM. From two past remarks to me by Wayne, they have NOT even consulted with IBD or O'Neil. Why?

Wayne even told me on two occasions that the basis of their CAN SLIM is the research- apparently using 1983 data- of Marc Reinganum, and his AAII article of 1989. Things change.

I would ask why we are being fed an old 2003 article, especially since it is based on O'Neil's 3rd edition. There is a fourth edition out (~2009). Things change.

I have had a disagreement with AAII over its interpretation and treatment of O'Neil's strategy. Somehow its Chairman & President can't find the interest or time to reply to two of my letters on related issues.


Wayne from IL posted over 2 years ago:

Roger,

AAII has always stated that the screens we present are our interpretation. The screens we follow are based on the second and third editions of O'Neil's book and follow them as closely as the data in Stock Investor Pro allows. IBD feels comfortable enough with our interpretation to quote our backtesting results in the marketing literature. Also, O'Neil did not change anything in the 4th edition of his book. Wayne A. Thorp, CFA


Wayne from IL posted over 2 years ago:

AAII has always stated that the screens we present are our interpretation. The screens we follow are based on the second and third editions of O'Neil's book and follow them as closely as the data in Stock Investor Pro allows. IBD feels comfortable enough with our interpretation to quote our backtesting results in the marketing literature. Also, O'Neil did not change anything in the 4th edition of his book. Wayne A. Thorp, CFA


Roger from FL posted over 2 years ago:

Au contraire, Wayne. Please refer to my letter of July 29 to President Bajkowski & Chairman Cloonan, plus my letter to Bajkowski of April 28. Page 233 of O'Neil's 4th edition changes his rules on float, so AAII is still using an archaic rule on this. No wonder you don't get any stocks out of your filters when you filter on float. OK, they're your interpretation, but what good is it to individual investors who want O'Neil's interpretation when it comes to CAN SLIM?


Wayne from IL posted over 2 years ago:

O'Neil discusses filtering on float in the 2nd edition of his book but chooses not to give a specific value. The value we use is based on an extension of his research--we are not using some arbitrary value. Again, IBD quotes our backtesting results so I think they are comfortable with our interpretation. Also, float is not the primary reason why no companies pass the original CAN SLIM screen. This is probably why most of the parameters were relaxed in the 3rd edition of his book.


Roger from FL posted over 2 years ago:

Certainly a 4th edition takes precedence over previous ones. From O'Neil's 4th, p. 233: "Any size capitalization is acceptable in today's new economy al long as a company fits all the other CAN SLIM rules".
In my letter to Bajkowski of 4/28/11, I report that using Stock Inv Pro (trial) for CAN SLIM I get two passing stocks when the filter is <= 20 million shares, but that removing this filter -only- I got 12 passing stocks. Float as a filter, here, is the ONLY reason that 2 stocks pass vs. 12; that seems to be "primary".
You think that IBD "is comfortable", but I have challenged AAII on this: have a dialogue with O'Neil's group.
But I can tell you that this life member of AAII is uncomfortable, dissatisfied with AAII's stance on these issues. As stated above, I want O'Neil's interpretaiton of CAN SLIM, not AAII's.


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