The Stockopedia Stock Screens are an invaluable resource for the intelligent investor. They enable investors to search for stocks that meet their own unique investment criteria without relying on others for ideas. Screens are particularly beneficial to me as a value investor since I am always searching for the most unloved investment ideas. These types of stock rarely appear among the most talked about on discussion boards, at least when I start investing in them. However, by utilising the Stockopedia screening tools, I can identify these potentially lucrative investments early and get in ahead of the herd.
Since writing this value investing series, the stock screens I have created have led me to find several new investments that I wouldn't have considered otherwise. For example, my 52-week low screen highlighted several companies that made it onto my watchlist. After further research and patiently waiting for a good entry price, two stocks entered my portfolio: Angling Direct (LON:ANG) and National World (LON:NWOR) . Since purchase, these have risen 15% and 35% respectively and still look excellent value. Without this stock screen, I wouldn't have made these gains. Nor would I be up by around 35% on my average Luceco (LON:LUCE) buy price if this company hadn't stood out amongst my analysis of potential Buffett and Munger Stocks.
While a well-constructed Stock Screen can uncover many hidden gems like these, some common pitfalls can plague the screen creator:
Error #1 - Generating too many or too few results
Some value screens look for very specific conditions. For example, a screen intended to identify Ben Graham Net Nets may only have a few results unless we are in the depths of a severe bear market. (See the following talk I delivered back in 2020 for more information about this type of stock).
However, the vast majority of screens are not like this. Instead, investors use them either to create a list of stocks where they intend to buy all of them, a so-called quant strategy, or to narrow down the market to some of the most promising investing ideas. In both cases, there is an optimum number of stocks. For a quant strategy, this is a balance between investing in enough stocks to own a diversified portfolio and the costs of owning many stocks. When narrowing down…
