How Profitable is CANSLIM?

But, like any other method, it's only as good as you make it.

You can't master it overnight. It takes years to learn how to fully profit from it. It only works in a rising market, and not in every rising market. And most importantly, you have to adapt it to your own style.

Cutting Losses
CANSLIM insists on three things:

1) Stocks in a breakout rarely drop 7-8% below pivot;
2) Buy 5% or less above pivot;
3) Cut your losses at 7-8% below your buy point.

Some stocks zoom 300, 400, even 1,000% after a breakout. Many thinly traded CANSLIM stocks zoom through the pivot on just a few thousand shares. With the growing popularity of CANSLIM/IBD, it is often mathematically impossible for all CANSLIM followers to buy 10c. above pivot. Besides, many breakouts gap up 10, 20, or even 30% above pivot. Nobody gets to buy at the ideal price. Does it mean you shouldn't buy at all? I don't know about you, but I will take a 295%, 395%, and definitely a 995% gain any time.

Let's say you buy 10% above pivot. Where should you put your stop: 8% below your purchase price or 8% below the pivot?

If you put the stop 8% below your purchase price, that's 2% above the pivot. You are likely to be stopped out in a normal pullback, while the stock is still in an uptrend. What do you do then? Buy back? Then what?

If you put your stop 8% below the pivot, that's 18% below your purchase price. What about cutting your losses at 7-8%?

"A" for Annual Growth
"A" in CANSLIM calls for 3 years of revenue/earnings growth. But things in the market have gotten much faster and finickier. 3 years is all many zoomers get in their lifetime, and many run after just a quarter or two of explosive earnings. So what does it matter if the growth fizzles after that? You still get to pocket the gain. Besides, "N" stands for new products, new services, or new management. New management usually means a turnaround. I have never seen a new turnaround with three years of strong growth in its recent past. What's there to turn around if the company has been growing gangbusters for 3 years?

"S" for Supply and Demand
CANSLIM is frustratingly fuzzy on this one. A stock with 4B shares followed by 20 analysts does not trade the same as a small undiscovered zoomer. Plus, I have never been able to get an answer to this: Is there such a thing as a stock "overowned" by institutions?