The Screening Algorithm
This factor screening strategy begins with a universe of 6,000 stocks of all sizes, industries, and geographical locations, the algorithm selects the highest quality companies based on the metrics described above. But it doesn’t stop there. It then applies a second filter that only allows companies that are not too far above their fair value. These companies tend to trade at premium prices, and this algorithm allows for that, but it places a limit in order to avoid over-paying.
We run the screening algorithm every four weeks, and it produces a list of 10-15 candidates for further consideration. We then look at each candidate and eliminate any that have made it through by virtue of bogus numbers, lack of trading volume, or rumors of accounting irregularities or solvency risk.
The final list of stocks that make it into the model portfolio consists of 5-7 thoroughly vetted names. These finalists tend to be smaller than average in size, and younger than average in age. But there are also names that are blue chip companies that have temporarily fallen out of favor, and might be poised for a significant rebound.
