04 Oct | My New Investment Philosophy – Part II
This post is a follow on from the My New Investment Philosophy post I wrote earlier this week.
As I alluded to then, my stock screening process would evolve over time. Well, with a little more reading under my belt since writing that post, the eight selection criteria I had chosen have crept up to eleven. I’ve tweaked a few of the numbers involved too. But that’s the beauty of defining your own system, you can change things around, fiddle with the numbers and see what comes out the other end. If you don’t like the results, try try again. At this early stage I’m hesitant to keep adding to the criteria as for every criterion added, the pool of potential equities returned shrinks. I need a place to start.
And whilst I’d love to have flexibility inbuilt in any system I’m to employ – I’m happy to dig deeper into a share that meets eight or nine of the 11 criteria for example – the ADVFN screening system I’m using only returns results that meet all 11 criteria. So you can see my dilemma – I’d love to be flexible but that flexibility can’t be automated. There are ways around it but I think I’m probably getting a little ahead of myself, so more on that later.
Onto the criteria, well almost. Let me start by stating these are criteria that suit my investment philosophy based on my experience and my knowledge level, today. I’d like to think if you asked fifty investors to name 10 stock screening criteria each, you’d get fifty radically different sets of criteria. Sure, there’d be a lot of overlap but I’d give you huge odds on any two investors returning more than eight matching criteria. And they’d probably know what they were doing. Me on the other hand……
Now, by all means plug these criteria in over at ADVFN but keep in mind that I’m a totally amateur personal investor with a very checkered investing history.
If you haven’t done so already you’ll need a free ADVFN account. So sign up and sign in, click on Toplists in the top navigation and you’ll see a bunch of pre-formatted toplists created by the good people at ADVFN. Take a good look around. For each of the toplists you’ll see the criteria they employ to return the companies they do.
For example the Value Investor Toplist employs the following criteria and – at the time of writing – returns 85 candidate companies:
[PE Excluded: Nulls (-)] [PE > 1] [PE < 10] [DIV YIELD Excluded: Nulls (-)] [DIV YIELD > 3] [HIGH(Y) Excluded: Nulls (-)] [CASH Excluded: Nulls (-)] [CASH > 1] [PRICE TO SALES Excluded: Nulls (-)] [PRICE TO SALES < 2]
Don’t worry too much if that looks like gobbledygook at the moment, things will become clearer the more time you spend experimenting with ADVFN toplists. There’s a great help section there too which covers any and all pertinent data and ratios.
So have a good look around the free toplists they’ve created. They might well have created the perfect stock screen for your needs and you can just start digging into the results they return. There’s also a selection of premium toplists listed to the right but you’ll need to pay for those.
To start your own toplist, click on Start New Filter and begin adding columns. At this stage you’ll have no criteria added so the result set will include all companies on the London Stock Exchange. Add a criteria by selecting a piece of data from one of the companies in the result set.
For example select Market Cap from the first dropdown list, then click on the Market Cap data (14.89) for 1Spatial and then plug in the market capital criteria you’d like to filter the data on. For example, you can exclude companies with a market capital of less than £10M and more than £100M and already the results returned are down from 2,700 to less than 900 – congratulations, you’ve filtered out two-thirds of the London Stock Exchange in one fell swoop.
Continue adding criterion and soon you’ll have a workable number of companies returned. What that number is, is up to you and the time you have to devote to the process.
Apologies, I did plan to begin listing my criteria in this post but I’ve already prattled on long enough. Sorry if I’ve bored you to tears but creating your own stock screening criteria based on what’s important to you as an investor, could prove to be a very profitable move.
So if you’ve found any of the above interesting, I suggest you get acquainted with ADVFN toplists and I’ll be back soon to enthrall you all (sarcasm alert) with the criteria I’m using. Here’s a taster, my criteria includes Market Cap, Return on Equity, EPS Growth Rate, Market to Book Value and Gearing.
Thanks again for dropping by.