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Beginners in Stock Trading
Issue №48 · ~7 min read
Weekend Recap: Week 7 (M2 W3)
The seventh Saturday of the year. The A, Annual Earnings, closes today. Monday opens the N.
A NOTE ON WHERE WE ARE
The A, Annual Earnings, is now fully covered. Two of its five pieces arrived in Wednesday's morning brief; the rest get their full treatment right here in today's recap. The C is fully covered too (Days 31-40). With both letters done, the fundamental side of CAN SLIM is half finished, two of seven letters internalized, with the N opening Monday and the S, L, I, M waiting in M3.
Practical milestone: as of today you have the full 14-point fundamental screen available, the 8-point C checklist from Day 40 plus the 6-point A checklist below. That's most of the heavy lifting on the fundamentals side. What's left through M3 is the technical and contextual layers: supply and demand, leadership, institutional sponsorship, market direction. The fundamental floor is set.
THE WEEK IN ONE PARAGRAPH
Here are the five pieces of the A, gathered in one place. The 3-year rule and David Ryan's 25/25/25 arrived in Wednesday's morning brief; ROE, stable vs accelerating, and the consolidated checklist get their fullest treatment right here:
The 3-year compound rule (Monday). 25% annual EPS growth compounded across each of the three most recent fiscal years, acceleration preferred over deceleration. Three years is the sweet spot: one year can be a coincidence, five years lets a business that's since stalled out still pass on old strength.
David Ryan's 25/25/25 (Tuesday, Trader Tuesday). Ryan's three straight U.S. Investing Championships (1985-87) ran on 25% current-quarter growth, 25% three-year annual growth, and 25% ROE, all at the same time. The combined filter narrows a roughly 75-100-stock C-passing universe down to about 10-25 names a quarter.
ROE, the quality multiplier. Return on equity (net income divided by shareholder equity) measures how efficiently a business turns shareholder capital into earnings. CAN SLIM uses two thresholds: 17% as the acceptable floor, 25%+ as the high-quality standard Ryan screened for. High ROE comes from one of two paths: genuine pricing power and asset-light economics, which is durable, or debt and aggressive buybacks shrinking the equity denominator, which is an accounting artifact. Debt-to-equity and share-count trend tell you which one you're looking at.
Stable vs accelerating. Two stocks can both pass the A and go on to do very different things. Stable A, three years growing at roughly the same rate (say 27% / 26% / 28%), tends to produce a solid 30-60% advance after a breakout. Accelerating A, three years climbing (say 18% / 25% / 35%), is the inflection signal behind 100-300%+ advances, the kind of move that shows up in the great-winners studies. Four checks tell you which one you've got in about two minutes: the three-year growth pattern, the most recent quarter versus the three-year average, the margin trend, and the ROE trend.
The A checklist. Six points that consolidate the week: three-year EPS growth of 25%+, acceleration vs deceleration, ROE of 17%/25%+, ROE trajectory, how to handle a partial three-year pass, and which of the two ROE paths a stock is on. Layered on top of Day 40's 8-point C checklist, that's a 14-point fundamental screen. Run the C first (screener-friendly, roughly 40-100 names), then the full A-checklist on the survivors, and you land on a real watchlist: typically 5-15 stocks a quarter.
THE ONE THING THAT MATTERS MOST FROM M2 W3
If you remember nothing else from this week: the A is the durability check that makes the C interpretable.
The C tells you a stock is having a strong current quarter. By itself, that's a useful but weak signal, strong quarters can come from coincidence, easy comparisons, one-time items, or genuine business strength, and the C-rule alone can't distinguish them.
The A, three consecutive years of strong annual EPS growth, separates the genuine business strength from the rest. A business that has compounded at 25%+ per year for three consecutive years is not having a coincidental quarter. It is a structurally-strong business currently producing structurally-strong earnings. The A's three-year window is the discipline that filters out the false positives the C alone would let through.
The mistake to avoid is thinking of the A as redundant with the C. Many stocks pass the C (75-100 per quarter in the S&P 500). Far fewer also pass the A (typically 25-40). Even fewer also clear the elevated 25%+ ROE threshold of the 25/25/25 standard (typically 10-25). The combined C-and-A pass is the durable-quality screen; either one alone has substantial false-positive rates. The 25/25/25 elevated standard further reduces the universe to the highest-quality fundamental cases, the kind of names David Ryan ran during his championship period.
When you screen, run both. Always. And when you have time, layer on the ROE quality multiplier and the financial-engineering check, those are the differences between a basic CAN SLIM application and an intermediate one.
Next Week
Monday opens M2 W4, the N, New highs / products / management. The N is the most counterintuitive of the seven CAN SLIM letters. Most beginners want to "buy low", and the historical research consistently shows this is the wrong instinct. Stocks making new 52-week highs outperform stocks making new lows over subsequent periods, by substantial margins. We'll cover why, with the supporting historical evidence, and the three categories of "new" the N captures (new highs, new products, new management).
Tuesday is Trader Tuesday: Pradeep Bonde, Stockbee, Episodic Pivots methodology, 24+ years of public trading record. His first broadcast feature. The fresh angle: how Bonde frames the N as a catalyst-driven setup, particularly how news catalysts (earnings, product launches, management changes, regulatory events) trigger the kinds of supercharged advances his Episodic Pivots framework is built around.
The rest of the week covers new management as a turnaround signal, new products as the iPhone-moment pattern, and the counterintuitive math of why "buy low" fails in growth-stock trading.
ONE READER QUESTION + ONE WEEKEND HABIT
A question this checklist raises immediately:
Q: "If a stock passes 14 of 14 on the C-and-A combined check, is that a buy signal?"
No. The 14-point pass is a high-quality pre-screen. It tells you the stock has fundamental quality at the level the methodology is built around. It does not tell you when to buy or how big a position to take. The remaining inputs, the chart-based timing (cup-with-handle, double bottom, etc.), the volume confirmation on the breakout, the position-sizing math, the broader market environment, all still need to align before the trade triggers. The fundamentals tell you what and whether; the chart tells you when; risk management tells you how big. A perfect 14-point fundamental score with no chart setup is not a trade. The discipline is the integration, not the fundamentals alone.
The weekend habit:
This weekend, take two stocks: one with a clean C-pass that has accelerating annual growth (high-conviction A), and one with a clean C-pass that has stable annual growth (basic A). Compare the two charts. The accelerating-A stock is more likely to currently be forming a notable base pattern; the stable-A stock is more likely to be in steady advance with periodic minor consolidations. The chart structure often reflects the fundamental trajectory.
TOMORROW, PATTERN OF THE WEEK #7
Tomorrow is Pattern of the Week #7, the second flat base of the year. The example is Monster Beverage in 2005. The first flat base (Day 21) used Amazon's 2009 chart to introduce the pattern's anatomy. Tomorrow's MNST 2005 example focuses on the leading-stock-of-its-era variant: when a flat base forms in a stock that's becoming the dominant winner of a multi-year cycle. Monster's chart from 2004-2007 is one of the great IBD-canonical teaching examples.
Reply with one thing
From your watchlist exercise above (or any 5 stocks you've been tracking), reply with the ticker that scored highest on the combined 14-point C-and-A check. Optional bonus: which point of the combined screen was the hardest to verify? We'll feature both in next Saturday's recap.
— Beginners in Stock Trading
Educational content only. Not financial advice. Past performance does not predict future results.
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