When circumstances change, a reasonable investor will adjust. Consistency isn't worth much if it puts you out of sync with reality.
Over the years, the S factor in — supply and demand — has changed to some extent.
For example, in the first edition of William O'Neil's "" in 1988, the summary of the S chapter says, "stocks with a small or reasonable number of shares outstanding will, other things being equal, usually outperform older, large capitalization companies.
This remains generally true, particularly if you take note of the words "older" and "usually.
In the fourth edition, however, the S chapter summary says, "Stock of any size capitalization can be bought using the CAN SLIM system. But small-cap stocks will be substantially more volatile, both on the upside and on the downside.
The emphasis changed, didn't it? As longtime readers of IBD know, many big-cap stocks — such as Priceline.com (PCLN), Apple (AAPL) and Google (GOOG) — became big gainers and fast movers in recent years.
In many respects, these big stocks acted like small stocks in their ability to break out aggressively and hustle to .
The short answer is that the stock market today is a high-volume world. The ability of institutions to move a big stock is greater. Consider these facts: In 1945, there were 68 mutual funds. In 2012, there were 16,380 funds, if you include exchange-traded funds, unit investment trusts and closed-end funds. (The count is even higher if you add hedge funds.) In 1980, mutual funds owned 3% of the shares of U.S. stocks, according to NYSE, Wilshire Associates and the Federal Reserve Flow of Funds Report. In 1990, the figure was 8%. By 2004, mutual funds owned 25%.
Mutual funds' willingness to trade rather than sit also increased. Turnover of shares as a percentage of assets was in single or low double-digit percentages from 1945 to 1975. From 1980 on, turnover soared to a range of 22% to 40%. As Vanguard Group founder John Bogle wrote in Financial Analysts Journal in 2005, "Once an own-a-stock industry, funds became a rent-a-stock industry.
Hedge funds grew in the 1990s, bringing a cowboy-capitalist approach — quick on the draw whether buying, selling or shorting.
Add this up, and you have a stock market with more buying and selling power than ever before. These changes are why IBD says institutional activity shapes the stock market.
This is why you now read "stock of any size capitalization" works with CAN SLIM. Stocks with bigger floats can move more rapidly than they could in the past because the buying and selling power has ballooned.
How does an individual investor simplify these S-factor realities into a useful, concrete approach
"The best way to measure a stock's supply and demand is by watching its daily trading ," O'Neil writes in the fourth edition of "How to Make Money in Stocks.
Look for stocks declining in quiet volume, rising in strong volume and with institutional support. It's that simple, but few individual investors take the time to learn how to track the S factor.