Implementing
Our Improved Cornerstone Growth Stock Screen
There is no one best way
to implement a stock screen as stock screens are only a starting
point used to provide ideas for potential investments. The
options for designing a way to follow a stock screen are nearly
limitless, but realize that these stocks are often
very volatile. Monthly moves of twenty percent or
more on the upside and downside are not rare, especially with
the smaller stocks. Remember, in general, the more securities
you have in your portfolio from different industries, the
less volatile your returns will be.
Here are our suggestions for
getting started:
- Step one: choose a number
of stocks* in which to invest. We don't recommend buying
all fifty stocks. That would be too many to follow. We suggest
somewhere between three and ten stocks. If you want just
a few stocks, buy only the stocks in the 4th,
5th, and 6th positions. If you want a few more than
that, buy the stocks in the positions 4-10. For a more diverse
portfolio, buy the stocks in the 4-20 positions. To reduce
risk, one could also choose to not buy stocks in duplicate
industries. Conservative investors may want to focus on
the stocks with the largest market caps. These stocks tend
to be less risky. Information on market caps can easily
be found on Internet finance pages like this.
- Step two: choose
a minimum holding period. This will determine how often
you rebalance the portfolio.
- Step three: make your initial purchase
based on the screen
and check it periodically for updates. The screen is updated
the first Friday of each month. Those choosing a minimum
holding period of one-month should check the screen each
month for rebalancing. Investors choosing a minimum holding
period of three months should only check the screen every
three months for rebalancing.
- Always remember that a stock screen is just a starting point. It is important to perform your own due diligence before purchasing a stock. Also remember that value stocks rarely look exciting. They are a value for a reason. Patrick O'Shaughnessy, coauthor of What Works on Wall Street, had this to say about diving deep into value stocks. "Deep dives into value stocks will hurt your returns. As a quantitative money manager, I am of course very biased, but every time I dive deep into a value stock that come out of our models, I am appalled by the business and its prospects (Seagate Technology from 2010 to 2014 comes to mind). If I did that for all value stocks, I’d probably never buy any of them. Some people may be able to improve on simple value screens by going very deep into the business, but in my experience you find many more reasons not to buy than reasons to buy. People disagree as to why value works. Some say it’s a compensation for taking more risk, others that investor psychology drives the opportunity in value stocks. I fall in the latter camp. Either way, it has always paid to be a contrarian value investor. Being one is much easier if you don’t know all the dirty details." Source: Millennial Invest.
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Past Screen Results
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