The Perfect Stock Does Not Exist... Stop Searching For It

29th Jul '22 by Edward Croft

49 comments 6966 reads

I'm like everyone else. I want to find the perfect stock. That absolute sweet gem of a stock that has all the attributes of great stock market winners - a good company at a reasonable price that everyone else has missed. I've studied the market hard. I've read all the books. I know what works in stock picking. But I just can't seem to find it. I keep looking. I keep screening the market for it. But it's just not there. My stock screens are empty. Dammit. Why?

Everyone else is looking for the perfect stock too. When everyone is looking for the same thing, you aren't going to find it as they've already bought it. The market is just too efficient. But within this very human behaviour lies an incredible opportunity. What if all that searching means we all miss what's right under our nose? What if there are entire portfolios of "perfect stocks" hidden in plain sight.

Join me on my short adventure quest to discover them.

The Search

Let me put together a very typical stock screen, with a few parameters that might define the "perfect" stock. By that I mean something that's inexpensively valued, good quality, with growth prospects and market beating momentum. I'm keeping this basic, and I know everyone has their own definition - but humour me for simplicity's sake:

When is something reasonably valued? Perhaps it would fairly priced against earnings (Price Earnings Ratio < 15) and paying dividends (Dividend Yield > 2.5%)
When is something good quality? Perhaps it should be profitable (Return on Capital > 12%, Operating Margins > 5%) with not too much Debt (Gearing < 50%)
When is something growing? Perhaps we'd look for strong earnings growth (EPS Growth > 15%)
When is it showing momentum? Perhaps we'd look for relative strength better than the market index over the last year (Rel Strength 1y > 0%)

That's a good list of everyday screening rules. I'd love to find a share like that in this market. So I put together a stock screen that uses these parameters:

You can view the results of this screen at this link. Go on - click the link and come back and read more.

The title of this piece gave it away. In the UK Market there is not a single share that qualifies for those…

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Taff6

1st Aug '22

would be a lot better if you enabled users to set their own customised view as a their default. I.E once one has customised and saved the screen view tab it becomes their screen view for all their screens. Enables all screens to be downloaded and copied into excel the same, so when one then copies and pastes the screen to a template all other customisations or additional calculations are the same for each screen generated.

Edward Croft

3rd Aug '22

I appreciate that but we'd just end up with people complaining that screen views didn't reflect their criteria. There are of course 8 other table views you can edit. What might be good is to mark one of those as your default view instead.

Rusty2

Is it possible to increase the number of screens one new site. On the old site it was unlimited, I had about 100. If I want to add a new screen now I will have to delete about half of them.

Also is there any news about folios?

I already know the shares reflect my screened criteria or they wouldn’t be there. From there I may want other desirable but not essential criteria close to hand. Table views reflect exactly that. QVM etc. so the place to visit to drill down on each element. This is one enhancement that detracts from the new site and I personally being able to set one’s own default as with the old site worked better. Why not see what the community thinks. Thumbs up for Ed to vote for screen view as is or thumbs up to reverse to default custom tab as per the old site.

4th Aug '22

We're working on moving our payments infrastructure to another provider at the moment, which is a frustrating area of development as it's not adding user value. It's essential though.

After that the first set of improvements will be additional portfolios and screens. I can't predict timelines, but the payments side will be going on till at least the end of August - so it's a few months away.

@Taff6 - the screen views work exactly as they did on the old site. There's a default screen view generated from your screen criteria, and you can customise it as you wish. But that customised view is specific to your screen, not shared across others.

Hi @Edward Croft, OK take your point apologies.However if you forked a screen the custom tab criteria remained the the same as in the screen you were copying. You just then had to amend the screen criteria for the new screen. custom tab remaining the same is advantageous for downloading to excel for further analysis and manipulation. Just a thought, thanks and keep up the good work.

Alphaflight

"The perfect stock does not exist."

...Apart from the 3 US stocks and 2 Canadian stocks that the screen returns for me anyway :-)

AnonymousUser1782684

5th Aug '22

Today there were three "perfect stocks" but when I added my usual low debt profit generating company rules then indeed no perfect company exists at this present time. I believe in time some will appear on the list just to disappear again.

Ed makes a very good point. If there was a perfect company then that is all we would ever need. But we know it doesn't exist.

There are 3 on the US market, all energy. Are energy companies perfect, no far from it, just look back to 2020. I suspect if this was run in a bull market then there would be more, many guru screens have a lack of stocks qualifying at the moment.

littledavesab

28th Nov '23

Great article Ed - ever thought of launching a Stockopedia ETF !!

Also posting to remind myself to return to this

Is there a way of bookmarking threads on Stockopedia - i know can bookmark in browsers but this does not help when using different computers, tablets phones etc at different times

Just trying this screen again, nothing on UK or US markets. But if you remove the dividend rule then 4 on UK and 2 on US markets, pop up. A lot of successful companies don't pay out 2.5% dividend. Is it better to pay away tge profits or to reinvest them into the business?

Yes we do think about an ETF. Maybe one day.

Indie

3rd Dec '23

The perfect stock exists! Hello, Supreme (LON:SUP) , which has come up on the screen.

Ankur Shah

4th Dec '23

Unfortunately, the perfect stock in the US still doesn't exist. However, if you remove the valuation criteria, I get a list of 30 names.

Although not perfect stocks, I own two stocks from the screen Booking Holdings (NSQ:BKNG) and Deckers Outdoor (NYQ:DECK).

I'm willing to sacrifice value in favor of quality and momentum. I'm sure Charlie Munger would approve. He was the original architect of buying a wonderful business at a "fair" price.

Getting some weird results on that screen when I change the rules. Remove the PE one and nothing, remove the dividend rule as well then 30 appear.
put back the PE rule and only 2 results.

I do hold some of the 30.

BnB

I've held BKNG for nearly 5 years and it's been a lovely GARP share - by US standards. Certainly not a steady ride, thanks to Covid, but not stressful either, given the strength of the platform and the outstanding cash generation. I rarely bother to check the SP, which I think is a really good measure of confidence. I just wish they would do a 10:1 or even 5:1 share split. It would increase participation from retail shareholders and facilitate the trading of options. I have a position valued in six figures and still can't get halfway to selling covered calls, for which this stock would otherwise be well suited.

I should've clarified. I included the removal of the dividend yield as a valuation metric. So, you're getting the same 30 results from the screen that I did.

OK I see. That would explain it.

catalogue

10th Feb

Top 20 Diversified NAPS - spreadsheet comparing each line with today's stock report reflects my experience with NAPS - you can't just leave it and expect a return. It needs attention and refactoring more frequently than desirable and also shows what a torrid market we have been through this last year and a half. I am referring to the link to the spreadsheet above. The article is excellent and educational.

The perfect stock does not exist... stop searching for it

The Search

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Edward Croft

49 comments

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