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35
08/2012
www.tradersonline-mag.com
TRADERS´
STRATEGIES
O’Neil developed the basic
points of his investment
strategy by studying these
exceptional rises in stock
prices and analysing the
criteria and similarities of these
companies prior to their price
rallies. In the following we show
some examples of legendary
gainers:
• Xerox introduced the first fully
automated copier for standard
paper and it revolutionised
the office world. The stock
increased twentyfold from 1957
to 1962.
• The stock of Flightsafety
International increased from
3.20 USD in June 1977 to over
50 USD within four years. The
company developed a new type
of high-tech-simulators for the
training of aircraft- and ship-
captains. Although there was a
strong bear market in 1977 the
stock reached a new 52-week
high in the middle of 1977 and
increased heavily afterwards.
• The rise of Wal-Mart stores
began in June 1980 when
the stock broke above the
8-dollar mark – afterwards
it was accumulated heavily
accompanied by a massive
increase in volume. In June
1983 the stock increased above
80 USD which equals a tenfold
increase within three years.
The discount-market-principle
brought cheap prices to
compared to the same quarter
of the previous year; the higher,
the better. O’Neil mentions some
examples for the increase in profit
that companies announced prior
to the major price increase of the
stock. For example, the Dell‘s
profit increased about 74 and 108
per cent in the two quarters prior
to its big rally. Google announced
112 and 123 per cent increase in
profit prior to their breathtaking
price increase. Apple reported
an increase in profit of 350
per cent in the quarter prior to
the heavy price explosion. If
someone argues that the market
does not reflect fundamental
data sometimes, this statement
is wrong concerning the long
term. Strong price rallies in
stocks of fast growing companies
were always accompanied by
a dynamic increase in profits
throughout America‘s stock
market history.
A = Annual Earnings Increase
One single good quarterly profit
may turn out to be a flash in the
pan by hindsight. To eliminate
this risk, the yearly profit growth
should be as high as possible as
well.
N = New Product, New
Enterprise or New Service
What did 95 per cent of the
biggest gainers that O’Neil
analysed, have in common?
Innovation! New companies, new
consumers and 1.5 million jobs
for the Americans.
• The price of Home Depot
increased hundredfold during
1981 to 2000. The company
was founded by two dismissed
hardware store workers. Home
Depot represents the classic
story of the American dream
and made many stockholders a
fortune.
• Bill Gates revolutionised
and redefined the computer
market. The price of Microsoft
increased hundredfold from
1986 to 1999. The stock had all
the characteristics that made it
a winner from the beginning: a
new product, high sales- and
profit-growth as well as a high
return on equity. In autumn
1986 the stock made new highs
– accompanied by a massive
increase in volume – and
started its exceptional rally. The
average weekly sales increased
fourfold during the breakout.
The CANSLIM-Criteria
The essential criteria that 95
per cent of the biggest gainers
on Wall Street had in common,
can be summarised by the
“CANSLIM-guideline”. Every letter
stands for a group of important
characteristics.
C = Current Major Increasing
Quarterly Earnings per Share
The enterprise should show
an obvious increase in profit
F1)
Cup-and-Handle Formation Prior to Rally
Every speculator dreams of having bought Apple in 2003. If you had
identified the CANSLIM-criteria then, Apple fulfilled it all and would
have been a buy candidate.
Source: www.traderfox.de