Minutes

AAII Orange County Chapter

Monthly Meeting, September 30th, 2006

Oasis Senior Center

800 Marguerite

Corona del Mar, CA 92625

Reported by: Rex Chen

 

Title: Intermediate Stock Selection Techniques using Investors Business Daily (IBD)

 

Speaker: Justin Nielsen, Education Content Manager, IBD

 

            Chapter President Bob Welge brought the meeting to order at 9:00 am.  Due to double-booking of the auditorium room, admission for today’s event is free of charge.  As a reminder to the audience, Bob announces that Chapter elections are coming up on November 4th, 2006 with displayed ballots listing the candidates.  Bob then introduces today’s speaker, Justin Nielsen, from IBD and his presentation on Intermediate Stock Selection Techniques using Investors Business Daily (IBD).

           

Justin began by describing market psychology and the importance of keeping emotions out of investing.  In this talk, Justin introduces CAN SLIM, a simple, fact-based investing system derived from an extensive analysis of all winning stocks for the last five decades.  This investment methodology was developed by renowned investor and IBD founder, William J. O’Neil.  Using the CAN SLIM technique, stock selection is based on the following criteria:

§         C = current earnings (>=25% or more for the past 2 quarters)

§         A = annual earnings (>= 25% per year for the past 3 years)

§         N  = new products/services/trends, 52-week price highs, management, market leadership

§         S = supply and demand

§         L = leader or laggard

§         I = institutional sponsorship

§         M = market direction (uptrend or downtrend)

 

From the criteria above, CANL describes the fundamentals of the company while SIM is based on technicality of the specific stock.  By following the IBD method, investors buy stocks based on fundamentals and technicalities, but sell on technical analysis only.  In general, one should stay away from laggard, and understand that institutions control 70% of stock volume transactions.  Unlike the classic thinking of “buy low, sell high” CAN SLIM reckon to “buy high, and seller higher.”  Justin explains that a typical stock undergoes 1.5 to 2 years of run, then forms a consolidation period, and finally top and roll over.  During normal “Bear Market," a leading stock will on average correct 72% of the stock price.  When next "Bull Market" begins, only 12% of the former leaders will return to lead the market gain.  A simple "buy and hold strategy" even for stocks with outstanding fundamentals is very difficult and prone to risks.

 

Sharing from his experiences, Justin then describes four rules for buying stocks.  These rules are:

§         Buy Rule #1: Make sure market is right for buying (confirmed rally).  Great stocks usually begin their big moves as the market is turning positive.  Pay attention to actual prices, volume, and ignore the market news.

§         Buy Rule #2: Screen Market for Stocks with Great Fundamentals.  The pyramid for investment screening starts from market direction, top sectors, industry group, and finally stock pool.

§         Buy Rule #3: Only Buy Stocks Emerging from Proper Bases.  Investors should see a prior uptrend of at least 30% before the stock begins a new base.  Furthermore, most bases must be at least 7-8 weeks long. 

§         Buy Rule #4: Do not buy stocks that are over-extended

 

            Following the conclusion of Justin’s presentation and taking questions from the audiences, Bob adjourned the meeting at 11:00 am.