If you've invested or traded for any length of time, you have probably picked up an Investor's Business Daily once or twice.  It's a good paper and I find the news and articles very interesting.  The news of the day is really only half of the paper though.  The other half is dedicated to finding and analyzing stocks that match what is referred to as CANSLIM.  CANSLIM is an acronym for the criteria used to analyze stocks in the IBD.  Each week, IBD publishes a proprietary ranking known as the IBD 100 where the 100 best CANSLIM candidates are printed with charts and a brief analysis.  The thing that has always bothered me about CANSLIM is the subjective buying.  Apparently if something breaks out of a cup and handle, it's a buy.  Identifying this pattern has always been troublesome to me.  I've never traded CANSLIM for that reason.

But hey, you shouldn't have to worry too much about picking the precise entry point because the rest of CANSLIM has really identified a quality company that's going to be great for your long term holdings, right?  Not exactly.  As in previous comparisons, I truly enjoy taking on conventional wisdom with reality.  The reality piece being the price of the mutual fund or ETF that employs the conventional wisdom du jour.  In this case, we analyze the price action for CSSGX for the past two years.  We compare it against the S&P 500 benchmark.

(Click to enlarge)

In this timeframe, the underperformance has been pretty dramatic.  Did I also mention that for this performance you can expect to pay a hefty 1.7% fee?

According to this weekend's IBD, the IBD 100 performance since inception is +239.3%.  So what's the difference between a 5% return and a 239% return?  There could be a number of things at play.  Maybe the cup and handle yields impressive power.  If this is true, it holds more power and an more of an edge than any other chart pattern.  I'm skeptical.  Some more likely candidates are CSSGX doesn't necessarily invest in the same securities as those printed in the IBD 100, but the criteria should be similar, right?  Transaction costs may also be to blame.  Imagine if you had to buy and sell 100 securities a week.  Hard to make money with the commissions.

Whatever the case may be, if you're struggling with CANSLIM, you can plainly see that you're not alone.  Even the pros can't seem to get it quite right.

I will conclude by saying that I feel IBD is a great paper that is chock full of ideas.  It also preaches discipline and risk management which are extremely important concepts.  I would not follow the advice of the publication to the letter, but the concepts are dead on.