Hi = Katherine

I = read with interest your procedure The last paragraph seems indicate you do use = fundamentals and sector rotation for your screening. Then you use total technical analysis from that point = including exits. Correct?

If= that’s correct then would you begin to identify some of the patterns in the stocks you evaluate. I have purchased Bulkowski and trying to make sense out of it. = The patterns never seem to match his = diagrams.

Jo= hn A

-----Original Message-----
From: owner-canslim@lists.xmission.com = [mailto:owner-canslim@lists.xmission.com]On Behalf Of Katherine Malm
Sent: Monday, December = 17, 2001 9:53 PM
To: = canslim@lists.xmission.com
Subject: Re: [CANSLIM] = Point of View: Why bother with fundamentals?

----- Original Message -----

From: Katherine Malm

To: canslim@lists.xmission.com

Sent: Sunday, = December 16, 2001 10:12 AM

Subject: [CANSLIM] Point of View: Why bother with = fundamentals?

Proposed:=

If a typical CANSLIM/Intermediate term move in a stock lasts only a few = weeks, and in good markets, only a few months, why bother selecting portfolio = candidates using any sort of fundamental analysis? Returns in this time period are strictly based on price movement and can be maximized based on technical indicators and price/volume action alone.

Thoughts pro/con?

<= /p>

Hi = all,<= /p>

<= /p>

I was going to let this question go on for the rest of the week without = posting a response myself, but I figure if I don't do it tonight, it'll end up as = an "Ask Bill" on Investors.com or an "Investor's Corner" in Wednesday's IBD and spoil all the = fun.<= /p>

<= /p>

Before I give you my own response, I thought I'd give some background on the = question. I view this as a "Zen question." The value is in the asking, = not in the answer. And as many of you have each responded differently, you can = see that there is no "right answer" to this. There is only an = answer that is "right for you." An exceptionally bright friend of mine = that I have known for 30 years sent me an email this evening expressing = disbelief that *I* would ask such a question. He was also kind enough to answer it. = Another friend of mine who practices CANSLIM and is not a member of the list = expressed the same disbelief. The truth is, I have struggled with this question = again and again during the many years that I have practiced this chosen investing = style. I have especially struggled with it the last year as I have flipped = stocks over and over again. Why the heck would I go to so much trouble doing = fundamental research and choosing the "best" stocks in rising industries = only to sell them in a few weeks? Why go to all that trouble when I see lousy = stocks bounce off the bottom in September? How is it that a short = term trader can make profits by flipping stocks day after day based only = on supply and demand? How is it that people who knew nothing about = economics, markets, market history, fundamentals, technicals, finance, balance = sheets, income statements, return on equity, or cash flow could buy a stock in = late 1999 and make 500% in a minute and a half? Okay, maybe 7 minutes. I'm = sorry, but that bugs me.

<= /p>

This question is about an important underlying assumption of CANSLIM: Buy a = stock with excellent fundamentals in a rising industry when it breaks out of a = solid basing formation on at least 150% of average daily volume. Yet, WON has = never given us a scientific study to show that this is "statistically significant" or that investing based on this style in uptrending = markets has outperformed other styles including those based on pure fundamentals = or pure technicals. He has only given us anecdotal evidence. He shows us = example after example of "winning stocks." He has developed a database = used by institutions and individuals alike so that they can invest more = easily based on these assumptions. We have no evidence that his research was complete = or that it was sound. But we do know that it has been successful for him. = We can see that his examples are real. We know from our own experience and from = that shared by our friends that "it works." In some ways, it's = choosing a style "on faith."<= /p>

<= /p>

Here's my analogy for CANSLIM:

I had a beautiful silver bracelet. I paid $10 for it just as the style was = beginning to become popular. My goal was to sell it and make a profit. As = long as it was sitting in my closet, however, it was just a bracelet. When = I thought is was becoming even more popular, I put it out at a garage sale = and marked it $20, nobody bought it. I marked it down to $15. Still nobody = bought it, and in fact only one person during the entire two days = even gave it a second glance. It's still a bracelet and there's no money in my = pocket. I put it up for sale on EBAY and suddenly many people who like silver = bracelets were looking at it. It sold for $100 because enough interested buyers = were bidding for it at the same time. Was it "worth" $100? Not intrinsically. But it was "worth" what someone was willing to = pay for it at the time. I met my goal: I made money. Shortly after this, I = noticed many similar bracelets on EBAY selling for $25.

<= /p>

The point is, a company can have the potential to be a great company, but if = there is no demand for the stock, the price will not go up. Or, sometimes, the = price of a stock of a seeming worthless company will go up. Until it doesn't. = Every once in a while you will watch a very good company become a great = company and the stock will go up, and up, and up, and up. Until it doesn't. All you = need to know is market history to know that this is true. You don't need = exhaustive statistical studies. You can find example after example. But can you = find a good company that is underowned or undiscovered and has the = potential to become a great company? Can you determine when demand is beginning to overwhelm supply so that you can buy it at a good price? Can you tell if = there is continued demand for it that drives up the price? Can you determine = when is becoming overowned and sell it for as much as possible? Can you make = money on it? I believe you can. Fundamentals tell the story of a good company. = Due diligence tells the story of potential. Technicals tell the story of = supply and demand. CANSLIM has all of these in its toolbag. How you = chose to use them is your choice.<= /p>

<= /p>

Here is my answer to this question. As you can see, it is different than = everyone else's.

<= /p>

Narrowing down the universe of candidates based on excellent fundamentals and company/industry potential allows me to ride price movement with a = bonus. If the market is healthy and this stock is not yet "discovered" = and the company fulfills its potential, I may be able to ride it much longer = than the intermediate term. This stock could easily become the next DELL, MSFT, = INTC, CSCO, or HD. Fundamentals, well considered, put the odds for = selecting a "big winner" in my favor.

<= /p>

Thank you Kent, Gene, Perry, esetser, Norman, jans, Warren, Dan, Tom, Patrick, = Larry, Andreas, Dennis, TA and others who have answered but whose response I = did not see.

<= /p>

Happy Holidays and a Prosperous New Year to all,<= /p>

Katherine= <= /p>

<= /p>