Hey guys, I'm back with another post to talk about the decision I've made regarding some of the stock trading strategies out there. I've decided that like anything else, you have to pick a focus stay the course. That's why I've decided to settle on one specific stock trading strategy for our experiment here at Stock Market Investing Today and that strategy is called CANSLIM. Of all the research I've done so far, the book called How To Make Money In Stocks A Winning System In Good Times Or Bad by William J O'Neil outlines his system for us and if you haven't read it, I highly recommend it.
On the back cover, the headline says that "ANYONE CAN LEARN TO INVEST WISELY with this bestselling investment system!"
But the question is, can they? Well, we are about to find out if that is true.
In the updated 4th edition of his book on page 5 of the introduction, he even states that people can start with as little as $500 to $1,000. He also states that he started his investment empire with just 5 shares of Proctor & Gamble stock. Now, I've had his book for quite sometime and have been a subscriber to his newspaper the Investor's Business Daily for a few years. But one thing that I have failed to do is actually apply what he teaches. I mean it all sounds good. It looks good finding buy points, reading stock charts and in the past, now that I think about it, I actually did purchase to stocks but I wasn't really sure what I was supposed to be doing.
In re-reading his updated book, I did learn that you can only learn by doing. That learning from our investing mistakes is the key. To keep our losses small and our wins big. Elsewhere I read that he even advocates being right one out of three times is enough to make you a winning stock market investor. Almost like a baseball player.
In order to apply his strategy, it is necessary to read the IBD. I think it's and excellent paper, much better than the Wall Street Journal that I subscribed to for awhile. It used to be a problem to get his paper but now with the web, I can have a version of the eIBD in pdf format available a few months after the market closes even though delivery would be spotty in my area. The subscription is worth it, because it does keep you focused and is more geared toward helping the small investor with it's stock market data.
I will say from the outset here that this stock market trading strategy will take some time to hone my skills. So, I have decided to work on perfecting and implementing what he recommends over the course of a two year time period before giving it the thumbs up. One of the things I noticed is that while the book is good, the strategy seems sound, it could be broken down a little bit better for the beginning investor. I even got a little lost on the steps to take. I know what I am supposed to be looking for but how do I keep track of it and identify a winning stock as it's happening. It's easy to look at a stock price and volume chart and declare it a winner AFTER it has already proven itself. How can I put together what he says into the best set of stock market trading strategies for me? And, how do I stay focused and get side tracked when I go to the bookstore and see a book on the newest stock option trading strategy. How do I resist the urge to be a daytrader or a value investor who wants to buy stocks cheap or "on sale" as they say it.
The key I think is a system of specific steps that I follow each day as I read the stock market investing news from the previous day. How do I use the IBD and investors.com to it's fullest and how do I organize the stocks I find? These steps will be the foundation. Fortunately, the paper lays out my beginning steps.
Here are the first two steps:
- Consider buying stocks with each of the last three years' earnings up 25% or more and Return on Equity (ROE) of 17% or more and recent earnings and sales accelerating.
- Recent quarterly earnings and sales should be up over 25% or more.
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