The CANSLIM approach seeks companies with a proven record of quarterly and annual earnings with sales growth. Companies showing strong relative price strength and support from leading institutions. The strategy does not mind paying rich premiums for stocks with good prospects. The CANSLIM approach has 7 criteria. Only the first two on the list below are Fundamental related.

• C = Current Quarterly Earnings
• A = Annual Earnings Increases
• N = New Products, New Management, New Highs
• S = Supply and Demand
• L = Leader or Laggard
• I = Institutional Sponsorship
• M = Market Directions

The C and A part of the acronym are fundamental analysis related. To me this is the important part of the concept. Improvement in Earnings, Sales, ROE over the recent quarters and years is the key component of my Model Portfolio, CANSLIM Growth. Liquidity constraints are also applied to eliminate uninvestable stocks. The N part of the acronym can only have the New High component tested using my backtester. I found that requiring a New High criteria for a stock makes its performance over time worse. The S part of the acronym can be tested in my backtester and I found that when screening for management stock ownership increases, using this as a factor makes the performance over time worse. The L part of the acronym does not provide better performance. This is Relative Strength of an individual stock and it does not work for this portfolio. The I part of acronym (Institutional ownership), my back-tester cannot test. The M part of the acronym is Relative Strength of the market in general and my backtester could not test the Relative Strength of the market overall.

The Model Portfolio is made up of 20 to 25 stocks. The criteria used to select the stocks is using the fundamental only criteria (C & A) in the CANSLIM approach. CANSLIM represents the seven characteristics that top-performing stocks often share before making their biggest price gains. It was developed in the 1950s by Investor’s Business Daily founder William O’Neal. I have adopted most of the fundamental CANSLIM principles to create a powerhouse of a Model Portfolio. I do not use Stops, technical analysis, opinions about management or relative strength for this Model Portfolio.

The stocks in the portfolio will generally be 80% Small Cap stocks with 20% larger than Small Cap. The monthly turnover will be around 35% of the stocks being replaced each month.

These type of stocks will have a good liquidity. Minimum Liquidity constants have been included in the criteria for selection from the software package to only pass thru investable stocks.