Letters to the Editor

    To the Editors:

    The April 2008 AAII Journal article on shadow stocks [“Market Weakness Hits the Model Shadow Stock Portfolio”] indicates that during the first quarter of 2008 a buy was issued for Alloy, Inc., but other data indicates that Alloy had negative earnings in the fourth quarter of 2007. Doesn’t this violate your buy rule

    Wayne Lattimer

    James Cloonan Responds:

    When we bought Alloy it was before their fourth-quarter loss. At the time, their third-quarter earnings of $0.90 gave them a past 12 months earnings of +$0.22. Alloy passed the screen during that three-month period when we bought it.

    To the Editors:

    I recently subscribed to AAII’s Stock Investor Pro. I also religiously read William O’Neil’s Investor’s Business Daily (IBD) and use selected on-line services that are available with that print subscription.

    I have come to believe that the better stocks in the currently best-performing industries and sectors are more likely to outperform in the next several months—the timeframe of a good deal of my investing. I rely heavily on IBD, from which I let the market movement guide a number of my investment decisions. Ideally, however, I would like to have access to a stock screening capability that could help me gain confidence in advance of my buy/sell decisions. In this regard, I have disappointedly followed the CAN SLIM, CAN SLIM Revised, and Driehaus Momentum screens at the Stock Screens area of AAII.com.

    On March 31, 2008, the CAN SLIM Revised screen identified eight candidates, of which seven turned out to be reasonable performers through May 15, 2008. Interestingly, four of these were ranked number one by IBD for fundamental strength. Of the seven gainers, none was the leader in performance in its industry.

    I have just discovered that the Historical PEG and Estimated PEG screens conducted by AAII seem to better project CAN SLIM candidates. The PEG screens also identified at least 50 other more promising companies in a number of unrelated industries that rank high in IBD and have done very well over this period.

    I think it is time to rethink and revise the AAII screen for CAN SLIM candidates to better capture the shorter-term momentum aspect that Mr. O’Neil has so successfully espoused and focus a little less on long-term growth in sales and EPS. There may be a clue in the AAII PEG screens.

    Wayne O. Johnson., Ph.D.

    The Editors Respond:

    The stock screens are designed to educate and expose members to a wide range of stock filtering approaches. When a stock screen is developed that follows a stock market guru such as William O’Neil, we examine books, articles and interviews to establish quantitative criteria used by a given guru to select stocks. The William O’Neil CAN SLIM screens were developed using the quantitative procedures culled from his book “How to Make Money in Stocks: A Winning System in Good Times or Bad.” The CAN SLIM screens are trying to capture the types of stocks believed to be desirable by the author in the book, which may or may not currently match the stocks highlighted in Investor’s Business Daily. Notably, valuation does not come into play with the CAN SLIM approach discussed in O’Neil’s book, however it is central to the PEG (P/E ratio to earnings) approaches. Our CAN SLIM approaches are tied to specific editions of O’Neil’s book, which discuss the use of the 52-week relative strength rank as well as stocks hitting new highs.

    To the Editors:

    Many thanks for publishing a fine article and introducing us to Dick Davis [“The Stock Market and the Media: Turn It on, But Tune It Out,” May 2008 AAII Journal]. He certainly puts media in their rightful place. Over the years I have been shocked to see the media more interested in spin than reporting the actual facts for the news items about which I had close knowledge. Also, many reporters have limited or no education about the subjects upon which they write.

    Frank Faust

    To the Editors:

    Hooray for Dick Davis’ cogent synopsis of the market. In one brief article he squashes the whipsaw masters and the purported enlightened all-knowing pundits [May 2008 AAII Journal]. Sadly, we fundamental analysis types must admit that earnings, cash flow, etc. are only a small part of price fluctuation. Thank you for stating it so clearly!

    Paul Seger