Assessing Potential “Big Stock” Leaders in the Age of Instant Information
In the course of operating our investment website we receive a large number of emails from individuals who claim that the investment methodology “invented” and espoused by William J. O’Neil, otherwise known by the acronym CAN SLIM®, has not worked well for them in this environment. To some extent we might agree, since the old ways of buying stocks based on fundamental information that “the crowd” already knows and technical information (e.g., chart “breakouts”) that the crowd all sees at the same time suffer from a particular contrarian handicap. That handicap is simply the idea that if everybody already knows it and everybody sees it all at the same time, what edge does one really have?
Great speculators, like Jesse Livermore, have had an intuitive feel, developed by years of experience, for where money was flowing in the markets. One might make note of the fact that while O’Neil frequently cites Livermore in his work, Livermore never used a “techno-fundamental” template like CAN SLIM®. Livermore relied on his understanding of technical action and an overall feel for the “leading issues of the day,” as he put it, in the market at any given time. Livermore’s “leading issues of the day” concept is the essential source for what we have identified as the “Big Stock Theory” in our books and which we apply in the markets today.
A “big stock” is essentially a stock that quickly attracts the attention of institutional investors given its status as a company serving as a driving force at the leading edge of new, breakthrough developments in the current economic environment. This is expressed as highly innovative new products and services that address a specific set of consumer needs in creative, new, and more effective ways. Over the past year we have witnessed huge upside price moves in a number of stocks of companies doing exactly this while failing to meet the essential “CAN SLIM®” characteristics. We chose four of our favorite examples from a long list of “anti-CAN SLIM®” stocks that have had big moves over the past year.