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NAIC (1996) describes the Challenge Tree as "a systematic approach to improving the performance of your portfolio" and as a way to "compare the merits of one stock against another" (p. 147).  NAIC Stock Analyst software provides the actual Challenge Tree form.  NAIC Investor's Toolkit provides a Challenger feature that combines the principles of the Challenge Tree form together with a "cost to switch" evaluation (which Stock Analyst provides separately). 

Highlights of the Challenge Tree approach include:

• Don't sacrifice quality to improve potential return.  The quality of a potential replacement stock must be equal to or higher than the quality of the stock currently held.
• Consider replacing stocks that fall substantially short of the criteria for US/DS > 3 and Total Return > 15% with stocks (of equal or higher quality) that do meet that criteria.  Consider this especially when the potential replacement stock offers "... sound reasons to expect substantial price appreciation in the next six to eighteen months." (NAIC, 1996, p. 148). 
• "Do not hold lesser-quality stocks as a bull market winds down ..." (NAIC, 1996, p. 154).
• Do not assume that a company which has doubled in value cannot continue to appreciate.  Evaluating this situation requires judgment and a thorough understanding of the company.

Click here for a discussion of the proper use of the Challenge Tree/Challenger at the BetterInvesting Compuserve Forum.

References

NAIC.  (1996).  The challenge tree.  In, Starting and running a profitable investment club (pp. 147-157).  New York: Random House.