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If you’re a do-it-yourself type of investor you might be overwhelmed trying to make heads or tails of all the information at your disposal.
And that’s totally understandable.
Sifting through the information bombarding us every day is like being a five-year-old in a candy store with only enough money to buy one thing.
One of the quickest ways to filter out the noise and drill down to a short list of investment winners is to use a stock screen.
It used to be that only professionals had access to anything beyond just basic screens – but that’s all changed. With the explosion of information products on the Internet, individual investors now have access to many of the same screening tools that the pros use.
I want to take a moment to demystify how to use a stock screen – and then we’ll finish up with something I like to refer to as the cherry on the top.
It’s an additional input that will take you quickly to tremendous gains…
Using a Screener for the First Time
First off, let’s spend a moment discussing a question I bet a lot of you are already asking… why would I even want to use a screen in the first place?
If you’ve been investing for any length of time you probably remember sifting through Value Line publications at the library in order to zero in on potential investment choices.
At the time these were great, but now, the idea of going down to the library and reading through a printed edition of a book (with information that could be totally outdated by the time I get my hands on it) sounds about as outdated as using a rotary phone.
Second, and probably even more important, by using a screener you remove your emotional bias.
Every successful investor or trader has some sort of system or predetermined guidelines that dictate their investing decisions.
The benefit of a predetermined plan is that it takes a lot of the emotional bias out of your investing decisions. For instance, if your predetermined strategy calls for only investing in large-cap domestic stocks, then you would never even need to consider a small-cap company from a developing economy… no matter how sexy the story.
I could write a book, or a series of books, on the different strategies that investors use, but for the purposes of this article let’s stick to a pretty simple set of parameters based on Benjamin Graham’s and Warren Buffett’s value investing thesis.
For the purposes of today’s article I’m going to keep things simple and limit our screening criteria to some favorites from the school of value investing: Price-to-Earnings, Price/Sales, Price/Book, and Debt/Equity. For all these criteria I only want to see (or allow to pass through the screen) stocks that are less than the median of the S&P 500.
There are a lot of free screening tools out there. Personally, I like the screens at ZACKS (zacks.com) or at CNBC.com.
Just to set the record straight…I don’t receive any compensation from ZACKS or CNBC. I just think the screens listed above offer a lot of functionality – and the best part is that they’re free.
We’ll use the ZACKs screen today using the following criteria:
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About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof.
In the above article you said to compare to the median of the S&P 500. Where do I find the median values of the S&P 500?
I've written my own stock screen based mostly on the turtle trading logic. The config page is:
Invested Amount: (The dollar amount you want to work with. )
Risk Percent: (The percent to risk on each investment. Default: 5.00% )
Pyramid Limit: (The maximum number of same stocks that can be invested. Default: 4 )
Maximun Days: (The stock must have a maximum close value over the last number of days. Default=20)
Minimum Price: (Default: 10 )
Maximum Price: (The stock price will fall between these amounts. Default: 30)
Volume: (The stock trading volumne must be larger that this amount. Default: 100000)
ATR Ratio: (This is the ATR/Close price. must be less than this amount. Default: 7.0).
ATR Variance: (This is the amount that the difference between the Close price and Open price can be from the ATR amount. Default: 0.00)
Close Position: (The Close Price must be in this upper percentile of the candlestick. Default: .25
It goes thru all the stocks each day and provide a list of recommended stocks.
So far its working good.
thanks.
Hi,
I like to use momentum (I call it MO – that's football player talk). I use the Price Charts and consider the ones going up the most. I also look at the Earnings Charts and consider those going up the most. Now, atter reading your article today, I will also look at Earnings Estimates going up. I know that method is too simple to be effective so please tell me what you believe to be the downside of this methos.
Thank you for all of your help.