I have spent a fair amount of time in the last couple of months coming up to speed on the CANSLIM and Minervini methods (read the books, subscribed to their tools, traded the methods for three months now). I am wondering if anyone else is following these methods and would care to share experiences/lessons.
Here's what I think at this point:
William O'Neil's book (How to Make Money in Stocks) was very valuable and worth the time to the read it. The parts on the use of fundamental analysis to identify high growth stocks were very useful even though similar material can be found elsewhere (Peter Lynch). What I found truly insightful were the parts on the stock price behaviour near the top of the stock's rally (breaking support, climax tops, weak action) and the inclusion of 100 graphs of successful companies from the past. I spent quite some time analyzing those. What I also found nice is that he covers all components of the investment strategy (what to buy, when to buy, how much to buy, when to enter, when to exit) and not just parts of it. The chapter on market trend identification was also very useful especially the discussion of bottoming out and how to get in again. I really liked the book.
I ended up thinking CANSLIM may be a good method to run a part of my portfolio focused on hypergrowth companies. The methods requires a fair amount of work (especially in the early part as you are learning it, I guess). The MarketSmith tool was very good, I found myself using it a lot. I was not quite convinced by his arguments to enter after price consolidation only (on breakouts from patterns). I understand the rationale (avoid getting stopped out on natural volatility pullbacks) but you can achieve it by other means - like entering in partial amounts and building the position up by pyramiding up without sitting and watching your stock to up 100% and waiting for the eventual 20% pullback and recovery. But I do follow it, just to be consistent, at least until I get better at the method.
Minervini's books were equally useful and worth the time to go through them. I especially liked the Stage 2 concept (don't enter overexteded stocks) and the concept of risk budget. Again, between his first and second book, he discusses the complete strategy and not just bit and pieces of it. Good books as well.
I found some parts of the books omitting important information: for instance, the 100 model stock charts only show the part where the stock runs up and not the part where it crashes afterwards. Or the fact that the model charts mention the stock went up 400%+ but do not mention that using this method, you would capture two times 20% of it, at best. But I guess they have a product to sell so you need to use your own judgement to analyze the information.
Once I was through the three books, I started trading the method (in May). I am at a point where I am looking for people familiar with the method to discuss. Anyone care to share experiences?
Submitted August 13, 2021 at 12:57PM by JKM1601 https://ift.tt/37HWYJW
