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Gone North, South or East Enders
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What goes up does not come down, or at least not much. Overall, it continues to go up. That's one of the basic principles in O'Neil's CANSLIM method. Although I don't strictly invest by CANSLIM rules, I do look for stocks trending up. If the stock is way overvalued chances are it will come down; however if the company is growing so fast that the rising stock remains bargained priced then I've probably found a winner. When researching, I tend to apply this process backwards. The screens are best at finding companies with both good fundamentals plus top-line and/or bottom-line growth. They also can find stocks with good price-to-book, price-to-sales and/or price-to-earnings ratios. At one time I thought this was enough. But when I started my first Marketocracy fund a couple of years ago I discovered that if a stock had been flat (or trending downward) forever, it was likely to continue that way regardless of the rise in price I thought it deserved. Although my free screeners can find price changes in a limited way, too often a rise or fall is a fluke. There's nothing better than my own eyes looking at charts to discern the overall trend. Therefore, once I have a candidate I look at it with Yahoo's Beta charting. This lets me see it for 5 yrs., 2 yrs., 1 yr., YTD, 6 mos., 3 mos., and 1 mo., one view after the other, in short order. I can add indexes such as the Dow Jones, NASDAQ and the S&P 500 to put things in even better perspective. Of course the best news I can get is that the stock consistently goes upward in all these views but, especially with microcaps, I really care most about the last 2 years. Also, when I have an entire group of good candidates I can see them all together on the chart. (I have to be careful that they all load successfully.) The chart lets me eliminate those lines consistently lagging at the bottom of the group. For recent bear market periods, when even good companies look lackluster, I often add a proven winner for comparison purposes. Also, when a company has been flattish for the past year, a glance at the charts can confirm that their usual growth pattern has somehow changed. It is probably time to sell. A trend is hardest to see when the stocks are roller coasters. Some very active traders love this type of pattern and will happily make money from the ups and downs. I don't have the skill to do this; so have to decide if the overall yearly progress upward is strong enough to make the ride worth the nausea. | ||
