Like most people, I was looking for a stock selection system that would help me identify multi-bagger stocks. That is, stocks that can double in price in a short period of time.

After a lot of research and browsing on the web, I finally found a system that has given me very good returns. Of course, this system is not unbeatable. I am also sure finance experts have come up with better strategies than the one I follow.

What I needed, though, was an easy and simple to understand method of stock picking. This is what I follow:

The strategy is known as CANSLIM.

CANSLIM is a stock investment strategy based on a study of 500 of the stock market winners. It dates back to 1953 and is described in the book How to Make Money In Stocks: A Winning System In Good Times or Bad by William J O'Neil.

What is CANSILM?

Each letter in CANSLIM stands for common characteristics that are found in the greatest stock market leaders over the past 50 years.

C: Current earnings per share

This figure can be found on rediff stock quotes. It tells you how much profit the company has made for each share given to its shareholders. As per this strategy, earnings per share should at least increase by 15-18 per cent every year.

A: Annual earnings

That is, the net profit made by a company. This should have increased by 20-25 per cent or more consistently for the last three years. Annual earnings can be found in the stock quotes in rediff and after a look at the P&L account section.

N: New management

The company should either be under new management, have a new product or have a new service.

S: Shares of common stock outstanding

As far as possible, this figure should remain small. It tells you how many shares a company has issued to investors like you. If this figure is small, the earnings per share discussed above increases. One can get this number after a look at the equity capital in the balance sheet.

L: Leadership

The company should be a leader in its industry, or atleast in the top three positions in the sector/ industry/ segment it operates in.

I: Institutional sponsorship

Look at the mutual funds that are buying this particular stock or holding this stock for a sufficiently longer period. This information is also available on rediff on the right hand side of the stocks quotes. If well performing mutual funds are holding your stock/s, then your chances of making money are good.

M: Market trend.

In a falling market, even the best stock will not be able to perform. Try and enter a upward market. That is, buy a particular stock when the share market is moving up. It is a simple to do this today as the Indian markets are on a bullish phase currently.

However, care must be the watchword when the share markets don't do too well.

CANSLIM or not, always tread with caution

The strategy is one that strongly encourages cutting all losses at no more than 8 per cent or 10 per cent below the buy point, with no exceptions. This will help you minimise losses and preserve gains.

The book says buying stocks from solid blue chip companies should generally lessen chances of having to cut losses, since a strong company will usually shoot up in a bull market (when the stock market .

CANSLIM strategy is not momentum investing; the system identifies companies with strong fundamentals, big sales and earnings increases which is a result of unique new products or services.

This strategy for me has worked very well. I have been able to beat the BSE Sensex and the NSE Nifty consistently.

Hope it makes your investing experience much more easier. With all the important information required to succeed using the CANSLIM method very easily available on the Net, I don't need any sophisticated system to find good stocks.

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