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Computerized Investing > May/June 2006

Web-Based Stock Screening Services

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by Wayne A. Thorp, CFA

An easy way to lose money when investing in stocks is to jump in and out of investments without any overall game plan or rules to aid your decisions. AAII has studied the investing methodologies of numerous investment gurus and, while they use a wide variety of rules in selecting stocks, one thing they all have in common is a disciplined system to guide their actions. Whether you are a short-term trader or a long-term buy-and-hold investor, a system to help overcome emotions and provide a consistent framework for making stock investment decisions is critical. Stock screening services can be a very effective tool in a disciplined approach to investing by allowing you to quickly sort through thousands of stocks and identify a more manageable group that possesses similar qualities that merit further analysis.

The particular characteristics that investors seek vary depending upon individual investment philosophy, risk tolerances, and even timeframe. A value investor may look for financially sound, large-cap stocks with price-earnings ratios below 70% of all other stocks, exhibiting solid expected growth rates and that have seen expected earnings recently revised upward. On the other hand, a growth or momentum investor may seek out smaller stocks with strong earnings growth and increasing price momentum.

Beyond identifying potential investment opportunities, screening systems are also surrounded by company and industry data that serve as a framework to investigate any investment tips or ideas that come your way in an organized, consistent fashion.

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