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Screening Overview

Tremendous data and computational power are available for finding great investments. Despite this advantage, very few screening-based investment strategies are successful. Why?

Anyone can look for companies with low P/E ratios or at their 52-week lows. But do those kinds of screens really work? Can we do better? (I would not have become so interested in this work if I didn't think it was possible to do better—much better.) What else is needed to round out a full investment strategy? And how can we decide whether it's a good and robust strategy?

The Advantage of a Screening-Based Investment Strategy

All long-term successful investors have one thing in common: a systematic data-based approach that they follow consistently. The one killer of any investment strategy is emotion. When investment actions are taken based on fear, guilt, hope, or any of dozens of psychological biases, the outcome is much more likely to be bad than good.

This is where a screening-based investment strategy can shine: it can provide the framework for a systematic strategy. It is still up to each individual to apply it consistently, but I hope that the data on this site will convince investors that this is very much possible to do.

Four-Legged Stool

Step back a moment and look at the whole investment problem. We need to find good stocks (fundamental analysis), decide if and when to buy them and how much (valuation, technical analysis, and portfolio management); we need to analyze news about the companies to see if the investment is still a good one (fundamental analysis and our own temperament); and we need to decide when to sell (all of the above).

It should be clear that changing any one of these strategy elements affects all the others. Simply substituting step one—finding stocks—with a screen is not likely to lead to success. All the elements of the strategy have to work together.

Strategy Elements

Over time the four legs of the stool—Fundamentals, Valuation, Technical Analysis, and Portfolio Management—will be fleshed out with detail about what kinds of experiments can be run and conclusions drawn. Let me be clear, however: there will not be a "magic bullet" here. Since every investor is different, every investing strategy should be different. What I hope to help with is to provide some basis for an intelligent formation of an investment strategy based on quality analysis of real data.


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