Growth Investing with CAN SLIMfiles.meetup.com/503598/Richards_Momentum Investing Using CAN...

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American Association of Independent Investors November 2007 – Orlando

Fred RichardsStrategic Investing

Growth Investingwith

CAN SLIM®

DisclaimerThe content of this presentation is for the edification of the audience and has not been endorsed, nor approved of, by any of the persons, companies, nor websites mentioned herein, or during the course of this presentation.

The author and/or speaker has attempted to verify all information but does not take any responsibility for any action which a member of any audience (both in person or in a subsequent venue) makes of the information which is presented herein.

Results obtained in prior years are no guarantee of results either this year or in the future.

You and you alone are responsible for any decisions you make based upon the information obtained during the course of this presentation.

Fred F. Richards, Jr.

Disclaimer • We have been granted permission to use material by

Investors Business Daily, Inc.® and its affiliates.• CAN SLIM® and variations are marks of Investor's

Business Daily, Inc. and affiliates ('IBD®'). IBD does not license, review or approve of, and is not responsible or liable for any investment advice or other services provided by the user. The user is not an agent of, sponsored by, affiliated with, or owned by IBD and is not authorized by IBD to make any representations, warranties, or promises.

• These materials are for personal, non-commercial use only. No redistribution permitted. Registered trademarks owned by IBD and affiliates are used under the license agreement.

Rule #1

OptimistsMake more money

ThanPessimists!

Rule #2

• KISS + SF!

Keep It Safe, Simple & Stay Focused!

Strategic Investing Criteria• Companies with Increasing Revenues &

Profits• Concentrate on Winners not Diversification• Maintain Trading Discipline• Action Points are Important• Only one thing counts … improving our standard

of living through increased purchasing power!

The Conservative Portfolio

S&P 500 Simple Timing Indicator

NASDAQ Simple Timing Indicator

The CAN SLIM® Investment System

Using CAN SLIM®

• Strategic Investing looks at the broad economic picture.

• CAN SLIM® Investment System provides the tactical framework to locate profitable trading opportunities.

CAN SLIM® Parameters

• C - EPS > 18% Q/Q• A – EPS over 5 years > 15% annual growth,

Sales growth > 25% going forward• N – New CEO, new high price, new products, new

service• S – Less than 25M o/s• L – Leader in industry• I – Institution ownership < 35%,

3-10 institutions own shares• M – Market momentum

The Most Important is …

IBD®’s Market Pulse

Accumulation/Distribution Rating

Where to Find the A/D rating!

Stocks under Heavy Accumulation

Data source: Investor’s Business Daily. Used with permission.

The A’s in 2007

Data source: Investor’s Business Daily. Used with permission.

Distribution Days

• Original definition – a down day on increased volume.

• IBD’s definition – An occurrence where trading volume is, without any price appreciation, higher than that of the previous day.

• Are all distribution days equal?

Follow-through Days• Ideally, a follow-through rally confirmation occurs on a

day when the index's volume is both higher than the previous session and higher than its average over the past 50-days.

• If volume turns out to be higher than the prior session but lower than the average, you probably want to get back into the market more cautiously.

• The key is to view follow-throughs (or distribution days for that matter) within the context of the technical and fundamental characteristics of the broader market and leading stocks.

Distribution Days

• Original definition – a down day on increased volume.

• IBD’s definition – An occurrence where trading volume is, without any price appreciation, higher than that of the previous day.

• Are all distribution days equal?

Applying CAN SLIM®

A Perfect Cup & Handle Formation

CAN SLIM® Bases

• First Stage• Second Stage• Third Stage• Fourth Stage• Fifth Stage• Reset ?

Channels

• Horizontal• Sloping• Breakouts ?

Chart Reading too difficult?

IBD® Stock Ratings

•• A/D A/D -- Accumulation/DistributionAccumulation/Distribution•• EPS EPS –– Earnings per shareEarnings per share•• RSRS -- Relative StrengthRelative Strength• GRP – Industry Relative Price Strength• SMR – Sales + Profit Margin + ROE• SMARTSELECT® Composite Rating

The Ratings in the Tables

O’Neil advocates

• EPS+RS>=160 but RS > 70, a B rating in A/D and Composite rating > 80.

• Problem – Universe of stocks is too large for individual investor to sift through to make informed decisions.

Applying CANSLIM™A Cup & Handle with increasing volume on the right-hand side of the cup, a handle pull-back and its off to the races.

When did it become an A+190 stock?

What makes a stock move?

• Accumulation/Distribution – are institutions buying?

• Perception of Earnings Growth is investors focus!

• Relative Strength – how is the stock performing relative to the market trend!

• 80% of your profits are dependent upon the momentum tide in the market.

• Remember to sell the expectation of profits not the realization!

Finding Winning Stocks?

• The definition of a Winning Stock is one which increases in value 50% or more from the time it is first identified and you take a position.

Locating Winning Stocks

• The Magic Formula• B + (EPS > 80 + RS

> 80) and CR > 90• Increasing the filter

reduces the number of stocks found

• The Daily Graphs Online® Screen Filters

The Ratings Ladder – 10/15/2007

• B + 160 - 337• B + 170 - 228• B + 180 - 130• B + 190 - 61• A + 190 - 27

Strategic Investing Rules • $ = A + (EPS + RS >= 190) & CR >= 90• Condition Statements• Invest 6-8% of your portfolio value in each stock• No more than 15 stocks in your portfolio• Set an immediate 6% Stop Loss as your Action Point• Use a 6% Trailing Stop Loss based upon day’s closing price• Optional• Rebuy the Stock if sold using an Action Point violation if it still

meets a B+186 & CR >90 filter• Allow some slippage to avoid whipsaws• Never lower the Action Point

Strategic Investing Rules

• Only consider a stock for purchase when it meets the Strategic Investing filter of A + (EPS + RS >= 190) & CR >= 90.

• If the chart pattern appears ok and your due diligence requirements are meet, purchase the stock.

• Set an immediate Action Point.• Regularly review and remove non-performing stocks

from the portfolio.• Don’t be afraid of not being in the market!

Chart Reading 101

Using Daily Graphs Online®

Custom Screen Wizard

A + 190 - Modified

• This is the primary Strategic Investing search filter

• Used for the Conservative portfolio.

Chart Reading 101

How to read Daily DGO charts

• Look on daily for Q/Q EPS %• Look on daily for Sales growth %• What is A/D rating?• Add EPS + RS ratings• What is Composite rating?• Shares o/s, Float?• Average Daily Volume – blue/red bars• Note Sector Group

ISRG - Daily

How to read Weekly DGO

• Percentage of stock held by institutions• Are the number of institutions rising or

falling

ISRG - Weekly

Industry Groups

Industry Sector/Group Rank

• Where the sector ranks• Moving up or down• Group chart• All companies in group sorted by EPS +

RS rank.

Knowing when to sell is more

important than buying!

When to Sell ...

Using Action Points to Maximize your profit!

Action Points - Conservative

Decision Points for Selling

• Action Points based upon a trailing stop percentage

• Crossover of the 8 x 20 Moving Average indicator

• Moving down out of the channel if long• Drop in the A/D rating to C or worse• Drop in EPS + RS rating to less than 186

Rebuy Points

• B+186 or better and Composite >= 90• 8 day MA above 20 day MA• Still within channel?• For Long Positions, Never Reduce Action

Points

ETF’s are different

• More sector and area oriented• ETF ratings are different

– Acc/Dist rating – B or higher– Relative Strength – 80 or better– 50 DMA – 100,000 or better– ETF history of at least a year

• Bid/Ask spreads • Look at top ETF Dollar Volume for liquidity

ETF’s 9-7-2007

Now you know everything about

Growth Investing!

“Good Luck”

when the balls come rolling down the lottery chute!

Dow Jones Industrial Average12961.98

13,00014,000

15,000?

DJIA in Relative $USD

DJIA priced in Gold

DJIA in Crude Oil (WTIC)

Purchasing Power Counts

• Be careful of how you select your yardstick!

• Your standard of living is often determined by that yardstick.

• Don’t get fooled!

Only 3 numbers matter!

• When all the dust is settled, they are NOT P/E, D/E, current ratio, PEG, profit margin or inventory turnover.

• THEY ARE: • Price paid for shares,• Price received for shares, • Time held.

Optimists

Make more money

Pessimists!

William J. O’Neil’s Books

That’s all … Questions

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