I didn’t want to be too specific in this article. BUT, I see many new investors attempting to invest in the market without any previous knowledge. Careful here. The market is the best ever humbling teacher.
If you are serious about the stock market, you gotta have a proven investing system. A system that identifies your picking criteria, entries, exits, profit taking, and most importantly, RISK MANAGEMENT. The stock market is not the place for trial and error methodology.
Since this period is all about earnings and earnings season, I thought I would share a little about the system I personally follow, CANSLIM. Even though sometimes I am CANSLIMish!
The American Association of Individual Investors (AAII) did a 12-year study comparing all or most trading/investing systems. CANSLIM finished #1 top investing strategy.
Why am I linking CANSLIM to earnings?! See what it stands for.
C- Current quarterly earnings:
This quarter, a company’s EPS needs to have at least a 20% increase from the same quarter last year.
A -Annual earnings
The company’s EPS should increase at least 20-25% every year over three years to be considered an investment.
N- New
You need to check how innovative a company is. This innovation is not just the release of new products. It can also be a unique style of management. For example, a company’s share prices might increase if it acquires a profitable company at a reasonable valuation. Companies like these are considered good investments.
S -Supply and demand
You should buy shares of a company where the demand exceeds the supply.
L- Leader or Laggard
You need to compare the stock’s performance to its peers and competitors in the industry and check if it is leading the pack or lagging. Stocks that are leaders based on relative price strength ratings have outperformed 80% of all other stocks in price performance.
I-Institutional sponsorship
It takes a lot of money for a company to grow. A company’s growth is usually financed by its investors. You should always invest in companies with some solid institutional investors’ backing.
M- Market Direction
Knowing the market direction is as important as following the other criteria. 3 out of 4 stocks follow the market direction.
I didn’t want to get into many details. Instead, I wanted to give an idea regarding how company earnings, sales, etc can affect the price of the stock. However, DO NOT EVER BUY a stock just because fundamentals look good. The chart has to confirm that too. RISK MANAGEMENT.
Remember, CANSLIM might not be for everyone. This is investing! you have to pick what suits you, but have a system.
You can read my previous articles here:
https://thndrclaps.thndr.app/2022/08/24/buy-low-sell-high-or-buy-high-sell-higher/
And here:
