Stock Screening Advantages
Stock screening works equally beneficially for all types of investors, be it bottom-up or top-down. It will help you to narrow down the scope of stock candidates and save you significant time in making cumbersome researches.
Bottom-up investors tend to select one particular company and make a comprehensive research on its business fundamentals and financial indicators. During the process of research bottom-up investors tend to drop the company if they are not satisfied with the results and move to another stock candidate.
Top-down investors begin their study of a particular industry or a sector. If the latter presents promising numbers, then the investor starts to select companies from the industry or sector. Once companies are selected the top-down investor will make researches on their business fundamentals.
No matter in which category you fall, you should include stock screeners as part of your research and analysis. They will significantly facilitate your work since they narrow the list of potential stock candidates that match the pre-specified criteria.
Getting used to stock screening will pay you off very well. Stock screeners automatically filter thousands of companies and display only those that match your criteria. Thus, they greatly facilitate your work.
Another advantage of stock screeners is that they lack the emotional aspect of stock picking. All you do is entering some criteria and a list of companies is provided.
Word of Caution
You should keep in mind when using stock screeners that they present companies according to their quantitative numbers. Nothing is shown regarding the quality of the company. Stock screeners don't provide information on the management team of the company as well as its brand loyalty and other considerations that may influence its value.
Additionally, you should regularly use the stock screener to verify whether the selected by you stock continues to be displayed. If it fails to appear, then you should reconsider your investment. You should revise the changes that have occurred since you have purchased the stock.
However, you should not consider that the cause of the disappearance of the stock from the screen is of a negative aspect, since it all depends on the parameters you have set.
On the other hand, the disappearance of the stock may be due to a change in some major ratio. If a change in the ratio has occurred you should examine the inner activities of the company and see if something bad is going around, which may influence the value of your stock.
Finally, screening stocks will greatly facilitate your research activity. Periodically run it to check whether your stock continues to be displayed and if not, see the reasons why this is happening.
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