When we began offering the Investing for Growth primer in October (Keyword:FoolMart if you haven't picked up a copy yet), we did so, as I mentioned in the primer itself, with the understanding that the model was still a work-in-progress, and that we fully expected the creative readers who call themselves Fools to improve the approach relatively quickly. Needless to say, as soon as we published the primer, people were already at work trying to tighten the model's focus and improve its average return (currently just over 26% a year since 1980).

I thought I'd write a brief update here on the current state of affairs for Investing for Growth (IFG). First, let's look at what hasn't worked. Two ideas I looked at to improve the model were mechanical sell-stops to protect the portfolio against a steep decline in any one stock before the model kicks it out, and re-balancing the portfolio every quarter so that one stock doesn't grow to an unusually large percentage of the portfolio. Neither worked, to put it bluntly. The sell-stops kicked the portfolio out of as many soon-to-be winners as it did protect the model from losers, and the re-balancing offset some of the advantage of letting a strong winner grow unchecked.

There are three variations on the IFG theme, however, that we're currently following in the folder, and each shows some promise.

The first is Mike Buckley's YPEG variation. (For a definition of the YPEG and an explanation of how one calculates it, see the fribble entitled "A YPEG Lesson.") What Mike is doing is using a fundamental valuation tool to generate a price target for each of the IFG stocks. If the YPEG price target suggests that an IFG stock has at least 33% of growth room ahead, Mike includes it in his current list. This approach limits the number of IFG stocks which qualify, which is part of Mike's intention since he's using it as a companion strategy to Beating the Dow.

The second variation is Todd Gunerman's. Todd developed a series of screens using the Telescan commercial software in order to emulate Value Line's criteria for their Timeliness rankings, an essential component of the Investing for Growth approach. Todd's method bypasses Value Line completely and tries to create a comparable approach to IFG by screening for the individual stock characteristics directly.

The third variation is my own, one based on Relative Strength rankings from Investor's Business Daily. Instead of relying on Value Line's Industry ranking as my link to market momentum, the Relative Strength ranking is used as the final element. This variation is somewhat of a departure from the traditional IFG approach because it does away with the automatic update every quarter. Instead, a stock is replaced when its Relative Strength ranking falls below a minimum level.

Our hope is that all of these three variations will lead to improvements in Investing for Growth. And we hope you'll join in the discussions we're having about the approaches in the IFG folder (on the Fool's School message board). Come help us make IFG even better.