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CANSLIM

CANSLIM system for stock picking is the brainchild of William J. O’Neil, the founder of
Investor’s Daily. It was the outcome of an analysis of 600 stocks carried out by O’Neil between
the period 1943 till 2002. The analysis enabled him to recognise 7 indicators which enable
identification of stocks on the verge of a long term bull run. These indicators have been detailed
below.

C Current Quarterly Earnings Per Share: Should show an increase of at least 18% to 20% above
the same quarter one year prior. Earnings per share may be modified to Free Cash Flow per
share; especially when the financial statements seem fishy.

A Annual Earnings Per Share: Should show meaningful growth over the last five years, and
should show consistency, with increases each year over the prior year. Again, Free Cash Flow
per share may be a better indicator.

N New Products, New Management, New Highs: There should be new products or services
being sold, or new management offering innovation; stock prices should be reaching new highs.

S Supply and Demand: There should be a small or reasonable number of shares outstanding to
create buying pressure; and there should be volume increases when a stock begins to move up.

L Leader, not Laggards: Relative Price Strength and Industry Group Relative Strength are great
indicators to identify what O'Neil would call a "Leader"

I Institutional Sponsorship: if the stock is owned by a small number of institutional investors


with a good track record or it exhibits an increase in investment by such investors then it is a
positive sign.

M Market Direction: If the general market is bearish, it may be prudent to wait until the optimum
price has been reached. If the market is bullish, it is a favourable sign.

It may not be possible for stocks to satisfy all of the above conditions. However, every year there
are a few stocks in the Indian markets which satisfy 6 or all conditions. Historically, Eicher
motors is one such stock. There are a few more. Most have exhibited good returns - much above
market average.

Note: The use of any method of stock picking requires the stock picker to behave prudently
given market conditions. The consequences of using a particular method are solely the
responsibility of the person applying the method.

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