CAN SLIM is an acronym developed by the American investor William O'Neil, intended to represent the seven characteristics that top-performing stocks often share before making their biggest price gains.
The method was named the top-performing investment strategy from 1998-2009 by the American Association of Individual Investors. [1] [2] In 2015, Innovator IBD 50 exchange-traded fund was launched focusing on the companies listed on the IBD 50, a computer-generated list published by Investors Business Daily that highlights stocks based on the CAN SLIM investment criteria. [3]
The seven parts of the acronym are as follows: [4] [5]
CAN SLIM is a growth stock investing strategy formulated from a study of stock market winners dating back to 1953 in the book How to Make Money in Stocks: A Winning System In Good Times or Bad. [6] This strategy involves implementation of both technical analysis and fundamental analysis.
The objective of the strategy is to discover leading stocks before they make major price advances. These pre-advance periods are "buy points" for stocks as they emerge from price consolidation areas (or "bases"), most often in the form of a "cup-with-handle" chart pattern, of at least 7 weeks on weekly price charts. [7]
The strategy is one that strongly encourages cutting all losses at no more than 7% or 8% below the buy point, with no exceptions, to minimize losses and to preserve gains. [6] It is stated in the book, that buying stocks of solid companies should generally lessen chances of having to cut losses, since a strong company (good current quarterly earnings-per-share growth, annual growth rate, and other strong fundamentals) will usually shoot up—in bull markets—rather than descend. Some investors have criticized the strategy when they didn't use the stop-loss criterion; O'Neil has replied that you have to use the whole strategy and not just the parts you like. [8]
O'Neil has stated that the CANSLIM strategy is not momentum investing, but that the system identifies companies with strong fundamentals—big sales and earnings increases which is a result of unique new products or services—and encourages buying their stock when they emerge from price consolidation periods (or "bases") and before they advance dramatically in price. [8] O'Neil's two forays into mutual funds ended quickly [9] and with lackluster returns. [10]
The late William O'Neil ... developed a stock-picking technique he called "CAN SLIM." It often produced outstanding hypothetical gains. But his two mutual funds struggled to generate decent returns.