CAN SLIM: A Techno-Fundamental Strategy

Picking the right stocks has become tricky and difficult these days. Stock prices fluctuate wildly from one day to the next. The big problem is knowing which stock will drive the market beforehand. The objective of stock picking can’t be achieved perfectly overnight as there is no magic wand to wave. Still, the investors have powerful options to pick the right stocks. Those are namely, Fundamental analysis and Technical analysis of the stocks.

The fundamental analysis provides confidence to hold the stocks. Conversely, technical analysis allows entry and exit checkpoints for fairly accurate stock price prediction. Besides, combining the two strategies can be a win-win situation for the investors, as stated by experts.

What is CANSLIM Method?

• William O’Neil, an American entrepreneur, stockbroker, writer and a research analyst had created the concept of CAN- SLIM strategy, combining the technical and fundamental analysis together to predict growth stocks.
• Through the CANSLIM method, the investors select quality stocks based on given criteria using a techno- fundamental strategy that promises potentially higher returns in the future.

Key Factors of CAN SLIM strategy

William O’Neil ascertained the seven common facts about the top-performing stocks in the market after analyzing the markets for multiple decades. He took the first alphabet of key factors and abbreviated them to form CAN SLIM criteria.

Now let’s understand each of these key factors that need to be considered while picking growth stocks: –

These are the seven criteria through which William O’ Neil had developed the CAN SLIM methodology.

Drawbacks of CAN SLIM Strategy

Following are the drawbacks of the strategy: –

• The strategy focuses on growth stocks that generate an above-average rate of growth, and big potential rewards for the investors. The investors need to check out the complete key factors and not just a few parts they like.
• CAN SLIM is suitable for a bullish market, where trading is extraordinarily heavy. However, the strategy struggles to keep up in the bear market.
• The investors have to carefully and actively track the quarterly business performance. So, the stocks that do not comply with the CAN SLIM criteria can be removed from the selection list.
• The CAN SLIM strategy is easy to understand but difficult to implement. Besides, stocks picked through CAN SLIM have high risk as they are quickest to drop under a market downturn.

Benefits of CANSLIM Methodology

Following are the benefits of the strategy: –

• The strategy is ideal for investors who cannot hold stocks for longer period say for more than 5 to 6 years.
• On average investors hold 15 to 20 stocks in their portfolio. However, the television channels and Youtube videos that provide financial information are jammed with recommendations of stocks to the investors. Speaking of Nifty50, it already has a list of 50 stocks with limited selection criteria.

On the other hand, the CAN SLIM strategy provides investors the opportunity to pick stocks by performing their own research to select the right stocks.

Conclusion

CAN SLIM is an effective strategy that combines fundamental and technical analysis tools to identify growth stocks. For investors who are looking for a medium to long-term stock market investment can use this strategy to shortlist the stocks and track their performance before investing.