AAII’s stock screens run the full spectrum, from those that are value-based to those that focus primarily on growth. Some AAII stock screens are geared toward large-company stocks, while others uncover micro-sized firms. Most fall somewhere in the middle. There are even a number of specialty screens that attempt to gauge the stock selection impact of a single variable—such as earnings estimates revisions. Needless to say, the characteristics of these stock investment approaches vary widely.
Choosing a ScreenIt is important to understand the investment characteristics of any approach you are using. By browsing through the passing companies tab of a stock screen, you can get a better idea of the kind of companies that a strategy favors along with a sense for any industry concentrations that may be generated. The purpose of AAII’s stock screens is to provide you with access to a wide range of investment approaches.
Lists of the companies that pass each screen are posted at the Passing Companies tab of the screen’s page. The lists are updated monthly near the beginning of the month. (For A+ Investors, the lists are updated each morning, using data as of the previous day’s close.)
The performance of the stocks passing each screen is tracked on a monthly basis. The month-to-month closing price is used to calculate the return, which assumes an equal investment in each stock at the beginning of each month. The impact of factors such as commissions, bid/ask spreads, cash dividends, time-slippage (time between the initial decision to buy a stock and the actual purchase) and taxes is not considered. This overstates the reported performance, but all screens are subject to the same conditions and procedures. Higher turnover portfolios would typically benefit more from these simplified rules. Sell rules are the same as the buy rules: The screens are simply reapplied using each subsequent month’s data. Thus, a stock is “sold” (no longer included in the portfolio) if it ceases to meet the initial buy criteria, and new stocks are added if they qualify. Stocks that no longer qualify are dropped even if the strategist behind a particular approach suggests different sell rules versus buy rules.
In terms of any judgment concerning which screen appears to work best, it is recommended that you look at the long-term returns as well as recent performance. Understand that the screen portfolios presenguruted are merely computer-generated lists, based on AAII’s interpretation of popular investment approaches. Screens following the approach of an investment guru do not represent their actual stock picks. The rules of each screen are defined by our interpretations of their respective investment approaches. The criteria or rules used to generate the list of passing companies are presented for each screen.
That being said, the screen tracking results are quite revealing. If you want to examine the numbers, complete performance statistics—including year-by-year return figures—are presented in the Stock Ideas Performance table, accessed from the Stocks drop-down menu. To see how the screens perform under different market conditions, go to the Risk & Return table, also accessed from the Stocks drop-down menu. Remember that past performance is no guarantee of future success.
The Strategy Characteristics table on the Stocks drop-down menu presents a snapshot of the characteristics of the stocks that made up each portfolio at a specific point in time. This table is updated daily and provides an indication of the types of stocks that each strategy tends to hold.
The factor strategies are identified by their attributes that have been shown to generate high returns. A list of the factors and their definitions is found here.
Keep in mind that the screens here are our own interpretations of the investment approaches advocated by numerous strategists. While we have attempted to illustrate a practical set of rules for each approach, the screens are only the first step. We recommend that you use them to generate an initial list of potential investments that merit further research. In addition, the method we use to track the screens does not replicate a buy-and-hold strategy, which is the optimal approach for an individual investor.
When determining which screen(s) you want to follow, you need to ask yourself the following questions:
For an overview of the stock screening process, read Constructing Winning Stock Screens.
