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AAII Stock Screens

After installing Stock Investor for the first time, many new users of the program are unsure of where to begin. One of the most popular features of the software is the collection of over 50 preinstalled stock screens, many of which are based upon the screening principles of well-known investors such as Warren Buffett, William O’Neil, and Martin Zweig. Other screens are tied to basic principles of investing, such as the low price-to-sales ratio. Here we will show you how these predefined screens work, as well as offer additional resources and tips for getting the most out of our screen collection.

The Basis for the Predefined Screens

Many of the stock screens that are built into Stock Investor are based upon the selection methodologies of prominent investors. In developing these screens, we typically rely on books either written by the investor—-such as William O’Neil or Martin Zweig—-or written about the investing style of the individual, as is the case for the Warren Buffett screens.

When translating a strategy into a screen, no matter what platform you are using, compromise is inevitable. You are limited by the data and functions that are available with the program. For example, if an approach calls for earnings analysis over the last 10 years, we have to scale back the criterion in our screen to accommodate the seven years of data available in Stock Investor Pro (five years in the regular version of Stock Investor). There is some flexibility when it comes to adding fields that are not in our program, but we are limited by the depth of the data to which we have access. The final results are screens that best capture the spirit of an approach given the capabilities of Stock Investor. The originator of the approach is not involved in the development of the screen, nor do the results necessarily match the stocks these professionals recommend or invest in.

Running Predefined Screens in Stock Investor

This is an oft-asked question among new Stock Investor subscribers. There are two ways to run the screens within Stock Investor—from the Screens pull-down menu and from within the Screen Editor.

If you know which screen you want to run, you can select it from the Screen pull-down menu found at the top of the program window:

Screen_Pulldown_Menu.gif

In Stock Investor, those screens preceded by an asterisk (*) are the screens that come pre-installed with the software. (Note: If there are no screens with asterisks, you did not load the AAII predefined data when you installed the program. Exit the program, open Stock Investor Utilities and choose the “Load predefined data” option.)

Choosing a screen from the pull-down menu will automatically run the screen against the active set of companies and load the passing companies (results of the screen) in the Stock Notebook. You know a screen is loaded because the name of the screen appears in the Screen menu:

Stock_Notebook___Loaded_Screen.gif

You can also load Stock Investor screens through the Screen Editor. To open the Screen Editor, select Tools from the main menu and then select Screen Editor (Tools – Screen Editor). You can also select the Screen Editor icon from the toolbar or use the Alt and S keys (Alt + S).

Following any of these methods will open the Screen Editor:

Screen_Editor.gif

Clicking on the pulldown menu at the top of the Screen Editor window, next to Name:, will show you the preinstalled screens (those screens marked with a “*”) as well as those that you have created yourself and saved:

Screen_Editor_Pulldown_menu.gif

Selecting a screen from this menu will load the criteria into the Screen Editor:

Neff_Screen_Pulldown_Selection.gif

Within the Screen Editor, there are two ways to “run” a screen. At the bottom right-hand side of the Screen Editor window are the How Many and Apply buttons. If you would like to know how many companies pass a screen, but do not wish the results to be loaded into the Stock Notebook, click on the How Many button:

Screen_Editor___How_Many.gif

Doing so with the John Neff screen tells us that 40 companies pass the screen. However, since the *Neff, John screen does not appear in the Screen menu at the top of the program window, we know that the results of the screen have not been loaded in to the Stock Notebook. If you closed the Screen Editor, the companies you would see in the Stock Notebook would not be the results of the screen on which you ran the How Many function.

In order to run a screen and have the results—-i.e., the passing companies—-loaded into the Stock Notebook for viewing and additional analysis, you must click the Apply button. Figure 5 shows the five companies that pass the O’Neil CANSLIM screen (as of July 23, 2004) and that have been loaded into the Stock Notebook.

Applying a Screen

If a screen has already been applied to the active set of companies in Stock Investor, its name will appear in the dialog box and its criteria will be visible in the Screen Editor.

The Reasoning Behind the Predefined Screens

It is always important to understand a particular investment approach before you devote your money to it. Within Stock Investor’s Help System, you will find articles discussing each of the program’s predefined stock screens (Figure 6). To access the articles, select Contents from the Help menu at the top of the program window. From the Contents tab of the Help Topics window, double-click on Pre-Defined Stock Screening Strategies. This will expand the topic category to show all of the stock screens in Stock Investor. Click on any of the article titles to display the full text of the article (Figure 7).

Tracking Screen Results

Beyond making these screens available in Stock Investor, we also track and report performance results at the Stock Screens area of the AAII Web site, accessible to all AAII members at AAII.com (Figure 8).

For the past several years, AAII has been testing the stock screens that are built into Stock Investor. You can view the results of this ongoing process at www.aaii.com/stockscreens, or by clicking on the Stock Screens link found under Portfolios in the AAII.com navigation bar.

The recently redesigned Stock Screens area allows you to see which approaches are the top performers on a year-to-date basis. Clicking on the All Screens tab takes you to a complete list of the approaches we track. For each screen, we present an overview of the methodology, the stock selection rules, a performance chart, and a table of companies that pass the screen each month. The rules of each screen reflect our interpretations of the approaches. By browsing through the passing companies of a stock screen, you can get a good idea of the companies that a screen favors along with a sense of any industry concentrations generated. For insight into why certain criteria were used, read the article (called overview on the Web) describing the screen.

Updates to the monthly lists of companies passing each screen are usually posted to the site in the middle of the month using data from the previous month’s end. This ensures that our Stock Investor subscribers have time to run the screens before the results become available to all AAII members.

Performance is based on hypothetical portfolios, not actual trading results. Furthermore, the performance figures do not take into account commissions, time slippage, or bid-ask spreads. But our results reveal a lot about how the screen performs against other strategies and in different market environments.

To compare performance among the screens, complete statistics—including year-by-year return figures—are presented in the monthly performance table. Note that you can also gain access to this table by clicking on the Performance tab at the top of any Stock Screens page. However, remember that past performance is no guarantee of future success.

The Screen Characteristics tab takes you to a snapshot average of the group of stocks that make up each portfolio at a specific point in time. Updated twice a year, this table gives you an indication of the general types of stocks that each strategy tends to hold.

Conclusion

Before following any AAII stock screen, we recommend that you look at the long-term returns as well as recent performance. Try to gain an understanding of the forces impacting performance and determine what kind of market environment might be expected in the future. Most importantly, remember that screening is just a first step. There are qualitative elements that cannot be captured effectively by a quantitative screening process.