Stock screening is the process of applying a set of filters to a stock universe that narrows down the focus from possibly several thousand stocks to a more reasonable handful. From there, you can focus your time on those stocks that meet your base criteria instead of randomly picking stocks to analyze.
Not only is stock screening a useful time-saving mechanism that literally allows you to winnow down a universe of thousands of stocks to only a handful in an instant, but stock screening also instills an element of discipline that is essential in becoming a successful investor.
Managing a stock portfolio can be a rewarding and low-cost approach to meeting all or a portion of your allocation if you can follow a disciplined and systematic approach that matches your philosophy, time commitment and interest and is based upon sound investing principles.
If you invest in individual stocks, you know there is an overabundance of sources for which stocks you should buy. However, there isn’t a “one size fits all” approach when it comes to buying stocks. So the question becomes: With so many ways to get stock ideas, how do you know which strategies are right for you?
To begin answering this question, you need to do some self-reflection to get a clearer idea of:
After putting some thought into the above, you can start looking for a stock selection approach that fits your needs.
AAII tracks 55 stock screening strategies and A+ Investor offers several ways to parse this listing to focus on those that are of greatest interest to you, whether it be growth, value, short-term, long-term or a combination of factors. These include:
The Screen Power Rankings allow you to rank the 55 AAII stock screening strategies based on a number of different performance periods (year-to-date, one-year, three-year, five-year, 10-year and since inception) as well as on a risk-adjusted basis and over the last bear market and current bull market. You can also sort only the factor-based screens or only those based on investment gurus. The performance data is updated monthly while the screening results for the various strategies are updated daily (Tuesday through Saturday) for A+ Investors.
If you looked at the top strategies over the three, five and 10 years, three rank in the top five for all those periods: Graham Enterprising Investor Revised, O’Shaughnessy Growth II and O’Shaughnessy Tiny Titans.
Factor investing chooses stocks based on attributes that have been shown to generate above-average returns. These attributes have come to be called factors and include small stocks, low valuation, high price momentum and high yield. AAII has developed several screens based on these common investment factors, and you can view a sortable listing of these Factor screens. With this listing, you can identify top-performing strategies that follow investment factors that may interest you.
Looking at the top-performing factor strategies over the last 10 years, value was most prevalent while estimate revisions claimed the top two spots. Select the Risk & Return tab to see the specific factors that each screen favors.
If you prefer to invest like other successful investors, AAII tracks dozens of stock screening approaches based on the methodologies of some of the most successful guru investors in history.
Over the last 10 years, the top-performing guru screen is O’Shaughnessy Tiny Titans.
With these Guru screens, you can also see which investment factors underly each approach by selecting the Risk & Return tab. Among the guru strategies, value, growth and momentum factors were underlying many of the top guru strategies over the last 10 years.
For all of the strategies AAII has developed and tracks, you can read about the underlying approach as well as see the daily passing company listings and performance dating back to 1998.
Having a systematic approach to selecting stocks can go a long way toward removing emotions from the decision-making process. Not only does A+ Investor offer educational background and daily passing companies for 55 different stock selection strategies, you can filter those screens based on performance over a number of different periods. In addition, you are able to see which factors play a prominent role in all of these screening approaches to help you identify those strategies that fit your philosophy.
Set aside some time today to investigate the Guru and Factor strategies that are in our library. Also, remember that you have access to daily updates of the screening results for all the AAII screening strategies.
