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

November 2007 Copyright 2007 Strategic Investing 1

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

Presenter

Presentation Notes

We believe a successful investor must understand not only the world economy but also technical and fundamental analysis of the bond and equity markets. Strategic Investing looks at the broad economic picture while CAN SLIM® provides the tactical focus to locate profitable trading opportunities. KISS + SF!™ uses the IBD® ratings to help investors learn 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 ?

Presenter

Presentation Notes

After a stock has suffered a major decline — say, 60 to 80 percent — the base count can be "reset" and the next base becomes the first-stage base. The bottoming phase is not the first-stage base. Why? Because a proper base must have a prior uptrend. The stock should have gone up at least 20 percent before forming a base, demonstating its ability to make meaningful advances in price.� If a stock breaks out of a base and is unable to increase 20-25 percent, but rather forms another base on top of that base, this would normally not be counted as another base because little appreciation has occurred between stages. A stock with a base on top of a base pattern that occurs during a bear market should be watched closely. Leading stocks that are held back from making strong upside moves because the general market is weak are usually the first to hit new highs once the bear market ends. Recognizing and counting bases during a stock's bull run helps one to weigh the risks associated with initiating or adding to positions on the next base breakout. Purchases at fourth- or fifth-stage base breakouts are more prone to failure because the stock has already gone up substantially from the initial breakout and may be running out of steam.�


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?

A+190


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.

Presenter

Presentation Notes

Want is the definition of a Winning Stock?


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!

Presenter

Presentation Notes

For new investors, we recommend a Action Point that is set on a trailing stop basis of 6% below the purchase price or the Closing Price. The Action Point is never reduced. For sophisticated investors, other Action Point criteria could be used. If the market is in a Confirmed Rally per the IBD, the use of a 40 or 50 day moving average could be used to set the Action Point. However, if the market trend is down, the 6% trailing stop is probably the best. We also look at the chart as well as the up/down volume before the stock is repurchased. However, we do not reduce the Action Point. When a stock has been sold because the Action Point has been energized, the stock is eligible for repurchase if it does not fall below the B + (EPS + RS >= 186) and CR >=90. To avoid getting whipsawed, we use a Buy Limit order that is 50 to 75 cents higher than the Action Point before the repurchase is made.


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.




BIDU


CRNT


FTK


VDSI


POT


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

Than

Pessimists!


William J. O’Neil’s Books


That’s all … Questions

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