• Index funds are becoming extremely skewed by a handful of their members due to market capitalization.
  • Market volatility provides an opportunity to potentially find companies with strong financials but being punished by a general sell off.
  • Applying due diligence and financial principles to determine strong, competitive companies could result in better returns than the S&P 500. This may increase diversity as well due to the market capitalization issue.


  • Build a model that would screen the majority of stocks with automated gates.
  • Iterate on criteria to produce a manageable number of stocks for the next step of due diligence.
  • Review each of the stock outputs for red flags, business model, and future outlook.
  • Build fund based on these stocks purchased in equal distribution.
  • Timing the market is nearly impossible, so buy when you have the funds to purchase.
  • Buy an equal percentage of an S&P 500 index fund each time you purchase the personal fund in order to easily analyze time weighted returns to determine opportunity cost and whether we were successful.
  • Perform this exercise yearly as new financials are available.

First Year Results

  • After fine tuning our screening methods, we were given a list of 46 stocks by our automated analysis
  • We eliminated 20 stocks after reviewing each company’s business model, services/products, etc.
  • These stocks were purchased at 3 intervals this year: July 24th, August 24th, and September 24th.
  • Results can be found in the table to the right along with the stock picks.
  • S&B 26 is the average returns of the stock picks.


In order to build something similar, this is what you’d need to do.

  1. Determine functions to filter by. These are what we chose:
  2. Determine if there are any industries you want to exclude. We excluded these sectors:
    • Energy
    • Financials
    • Real Estate
  3. In order to determine relative performance you’ll need to benchmark each company against the industry.
    • We averaged the last 3 years to determine our benchmark.
    • Divide the stock’s metric against the benchmark to determine the relative performance.
  4. Determine the minimum market cap you want to use.
  5. Determine the Poor/Moderate/Great breakdown per gate.
    • These percentages are based off the relative performance of the stocks in each sector
      • For example, if you find that communication Services averages ROE of 10%, then for our gates, moderate ROE would be 12.5% to 20% based on our breakdown, but only for Communication Services.
    • ROE
      • Poor < 125%
      • Moderate >= 125%
      • Great > 200%
    • Growth
      • Poor < 200%
      • Moderate >= 200%
      • Great > 400%
    • EBITDA
      • Poor < 80%
      • Moderate < 120%
      • Great >= 120%
    • FCF – Free Cash Flow
      • Poor < 80%
      • Moderate < 120%
      • Great  >= 120%
    • D/C-may want to manually screen.
      • Poor  >= 0%
      • Moderate >= 50%
      • Great >= 120%