Conference nyoss1::market_investing

    
    
    Based on some reading and some tinkering, here is one set of screens
    which I've come up with...  please comment about what you like/don't
    like  (e.g. this screen will probably keep you out of growth stocks):
    
    1.  Low relative valuation.  This might be selected based on the
    	lowest 40% of P/E's (a bit crude), or could be done based on
    	ROE / P/E :  if this is 50% or 75% higher than the median
        ROE / median P/E.  (more work but more valid).
    
    2.  Current Assets / Current Liabilities > 2.0
    
    3.  Current Assets > Current Liabilities + Long Term Debt
    
    4.  Cash + Equivs > Long Term Debt
    
    5.  Conservative accounting procedures used
    
    6.  {?} Stable dividend.  Sort by current yeild and prefer higher
            yeilding stocks to lower yeilding stocks.
    
    
    Comments/ideas?
    

    While all of these criteria make sense when buying/selling
    individual stocks, I think one ought to make some judgement
    regarding whether the overall climate for equities is
    favorable or unfavorable. I'm curious about the sort of
    indicators people normally use to decide if they should
    even be in the market in the first place (perhaps another note?).
    I've read Marty Zweig's book but I disagree with him
    on one fundamental point: sometimes I believe it makes
    a great deal of sense to "fight the tape". 
    
    A rising tide does lift all boats but unfortunately for us
    the converse is true as well :-)
    
    - Ganesh.
             

    
    
    There's a typo in .1, (1); 'lowest 40%' should be 'lowest 20%':
        
    1.  Low relative valuation.  This might be selected based on the
    	lowest 20% of P/E's (a bit crude), or could be done based on
    	ROE / P/E :  if this is 50% or 75% higher than the median
        ROE / median P/E.  (more work but more valid).
    
    
    Another criteria has been suggested by Mark Boyer which is along
    the same lines as those proposed in .1:
    
    Market Price < (Current Assets - Long Term Debt) / #Shares Outstanding
    
    where 'long term debt' includes lease obligations and 'certain' pension
    liabilities.
    
    re: -.1
    
        I'd also like to hear about general market timing approaches;
        there's some evidence in this week's Barrons that general timing
        of the market may just work after all!
    
        btw, I'm out of the market at the moment except for DEC stock,
        which I'm hoping will inch up a bit before I sell.  Dangerous
        games, I know.
    
        I figure that if I don't have the stomach to weather a 20% drop
        in valuations, then I have no business being in this market.
    
    /Jim
    

From: [email protected] (Youngsil Bae)
Subject: Investment Champion's CANSLIM method: an explanation
 
Someone asked for an explanation of "CANSLIM" for those who
haven't yet read "How to Buy Stocks." Here it is:
 
CANSLIM:
 
C= current earnings per share (should be high compared to the
same quarter of the past year)
 
A= annual earnings per share (should be high and steady for
the past 5 years)
 
N= new highs (stock should be close to or hitting new highs)
 
S= shares outstanding (the fewer the better)
 
L= leader (that's what the stock price action should be
relative to other stocks in the same industry and relative to
the market)
 
I= institutional sponsorship (your stock should have it to
make it move, but not too much sponsorship)
 
M= market direction (go with it, not against it)

    
    Look for companies that have excellent products. 
    
    Valuation criteria such as:
    	* P/E
    	* Compound ROE
    	* Debt/Equity
    are excellent measures of how sound the company is from a financial
    perspective. These are good criteria for deciding how much the stock
    should be worth to you - to prevent overpaying. BUT, the bottom line 
    is that if your investing - NOT Speculating, then you expect to be
    affiliated with the company for a number of years and the companies key
    competitive strength will be its product lines.
    
    cheers,
     -Rich

        Here is a brief list of some of the things you should look at when
buying/selling a stock.  This list follows the guidelines developed by the
NAIC and typically used by investment clubs affiliated with them.  Note that
these are not rules to follow but guidelines to help you make the decision.
These guidelines are not all inclusive, other variables may to be looked
at, and none of them outweigh any other. They should all be carfully considered
as well as other information you can obtain on a particular company to help
you decide. 

1. How many shares of preferred and common stock were authorized and
   outstanding?

2. Did the latest quarter sales and earnings per share (EPS) increase or
   decrease from last years?

3. At what rate of increase/decrease have sales and EPS been doing over
   a 10 year period? (Typically plotted on semi-log graph)

4. From the graph estimate a trend line for the next 5 years for sales and
   EPS.  In most cases this depends in your judgement and estimate of where
   the company may be going during that future period.

5. Has the pre-tax profit on sales been trending up, down or neutral over the
   past 5 years?

6. Has the earnings on invested capital been trending up, down or neutral
   over the past 5 years?  (EOIC = EPS/Book Value)

7. Is the current P/E above or below the its past 5 years average P/E? Is it
   above or below the industries average P/E? 

8. If the comapany pays a dividend what has been its payout over the last 5
   years?  What has been its high yield over the last 5 years? (High Yield =
   Dividend/Low Price)
 
9. Determine a forecasted high price over the next 5 years from its average
   high P/E from the last 5 years times the forecasted EPS 5 years from now.  
   Determine a low price over the next 5 years based upon:

	a. Average Low P/E times the estimated low EPS. Estimated low EPS
	   is the present year EPS.

	b. Average low price of the last 5 years.

	c. Recent severe market low price.

	d. Present dividend/High Yield.

10. Zone the buy/hold/sell range by taking the forecasted high price minus
    a forecasted low price and divide by 3.  The buy range is from the 
    forecasted low price to the upper part of the first zone. The maybe range
    is the second zone. The sell range is the third zone with the upper part 
    the forecasted high price. As an example assume the forecasted high price
    was $100 and the forecasted low price was $25.  Therfore zone = (100-25)/3=
    $25.  Buy zone is low price($25) to low price($25)+zone($25) which is
    $50.  Maybe zone is from $50 to $50+zone($25) which is $75. The sell is
    from $75 to forecasted high of $100.

11. Determine potential gain vs. risk of loss ratio.  This is (high price -
    present price)/(present price - low price).  As a rule of thumb the NAIC
    recommends this ratio to be 3 or greater.

12. Determine the average yield over the next 5 years by taking the average
    EPS over the next 5 years and multiply it by the average payout from the
    last 5 years. 

13. What is the company's long term debt to equity ratio?

14. What have been the insider and institutional decisions  on buying, holding
    and selling?

15. What has been the company's financial strength, stock price stability,
    price growth persistence and earnings predictability?


	I am sure we could add many more items to this list and you should
if more information is available. All of the information discussed above can
be obtained from the company's annual report, Value Line Stock Reports or
Standard & Poor's Stock Reports.  For more detailed explaination the NAIC
publishes an investors manual. They can be contacted at NAIC, 1515 East
Eleven Mile Road, Royal Oak, Michigan, 48067.

    Yesterday's (2/13/92) USA TODAY (in the MONEY section) has an article 
    about the 20th Centuries Investors MF company and how their "fund 
    managers" pick their stock portfolios. It's quite interesting.
    I did not keep my copy. But, if you are interested, you can always find
    a copy in the library. Or, maybe someone here has it and will type it
    in.
    
    Mike

.3>        I figure that if I don't have the stomach to weather a 20% drop
>          in valuations, then I have no business being in this market.

Or any other market more risky than T-bills.  There will never come a day when
there is no chance of a 20% drop.

Of course, if you stay out of the market, you will miss out on the usual 5%
or so premium of equities over T-bills.  Financial markets (usually) reward
risk takers.

.3>        there's some evidence in this week's Barrons that general timing
>        of the market may just work after all!

There's always been a lot of evidence that it will work.  Unfortunately, there
is also a lot of evidence that it won't.  Over the years, the stock market 
has generated a lot more evidence than profits.
 
If the author of that Barron's article is right, it may be possible to get out
when the risk-return ratio is unfavorable and get back in when it is 
favorable.  If not, not.

    
    re: -.1  20% drops, etc.
    
    I didn't mean to imply that I'd only be in a market that had no
    possibility of a 20% decline, just that, feeling skittish about the
    future of the market, I'm more likely to get scared by a drop and get
    out when I shouldn't.
    
    The more I read about 'when to sell' guidelines, the more I realize
    that my selling criteria are pretty bad anyway.  I'm trying to get
    to the point where emotions are not part of the selling equation, but
    in truth that's easier said than done.  At least for me, it is.
    
    One method that I've read about is to set stops based on the volatility
    of the stock, resistance levels, and overall bullishness of the market.
    A more bullish market would allow for more room for 'corrections'.
    
    I'd be interested to hear the criteria that others use to decide when
    to sell.
    
       /Jim
     
    
    

.9>    I'd be interested to hear the criteria that others use to decide when
>      to sell.

I thought you'd get more answers on this one.

Since I generally use buy-and-hold, I sell for three reasons:

	when I need the money, in which case I try to sell from my money market 
	funds

	when my portfolio is imbalanced, either because I've sold too much
	from the money market, or because the relative values in my portfolio
	have changed a lot

	when I get a queasy feeling about some part of my portfolio, which 
	does not happen too often


Here's more advice I read somewhere:

Whenever you buy, write down the reasons why you bought.  When anything happens,
or once a month when nothing happens, look over your reasons.  If they have
been proved wrong, sell.  If they no longer apply, sell.  If you think up
new reasons to hold, you are probably just fooling yourself.

RE .0 buy criteria:

>    1.  Low relative valuation.  This might be selected based on the
>    	lowest 40% of P/E's (a bit crude), or could be done based on
>    	ROE / P/E :  if this is 50% or 75% higher than the median
>        ROE / median P/E.  (more work but more valid).
>    
>    2.  Current Assets / Current Liabilities > 2.0
>    
>    3.  Current Assets > Current Liabilities + Long Term Debt
>    
>    4.  Cash + Equivs > Long Term Debt
>    
>    5.  Conservative accounting procedures used
>    
>    6.  {?} Stable dividend.  Sort by current yeild and prefer higher
>            yeilding stocks to lower yeilding stocks.

	Is there a database where one could do a search of 
	all/most public stocks applying criteria like the
	above?  There must be, right?  I thought I saw an
	ad for one on CD; unfortunately I don't have a CD
	reader on my Mac.

    
    see note 73