Stock Screening 'really, really matters' - FT Money on Stockopedia

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Just thought I should flag to subscribers this morning the excellent article "Stock screens to net the ones that got away" in the Financial Times Money section this weekend that references some of the work we are doing at Stockopedia.

David Stevenson's the Adventurous Investor column for FT Money is required reading for anyone who takes their investing seriously. Given that he so regularly covers opportunities in ETFs, structured products and derivatives, when he does decide to cover direct investment in stocks its always worth listening.

In the article he discusses how to ensure one doesn't miss out on great value stock opportunities such as that offered by the airline & logistics company Dart Group in 2012 - a stock which has now 'taken off' 140% in the last 12 months. Noting that some fund managers had made big profits in the stock, Stevenson asks...

How might an ordinary investor, who does his or her own stockpicking, unearth a gem like Dart? Most likely using web-based, online systems such as those developed by Stockopedia.

You need to use a website or system that can run the screens for you, and then identify the stocks that come up most often in each of them, which is exactly what Stockopedia has done.

Essentially, he is describing the process of Stockopedia's 'screen of screens' - which gathers the most highly qualifying stocks across all of our strategies. We have written extensively about the screen of screens - most notably in this article by Ben Hobson - and continue to be impressed by the performance of the portfolio we run based upon it. It has returned 41% in just 15 months since its inception before dividends and has been flagging Dart Group since late last year.

Stevenson wonders whether what stops us investing in these profitable opportunities may be our propensity to prefer to invest in safe names. He concludes with some of the sentiments of Joel Greenblatt, the hedge fund manager, who has argued in an interesting piece called "Adding Your Two Cents May Cost a Lot Over the Long Term" (summarised here) that we should just 'trust the quant', buy the lists and remove most or even all human stock picking from the equation.

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But what does temper my admitted enthusiasm for purely using systematic investment strategies is the fact that some of our excellent contributors - such as Expecting Value and Value Stock Inquisition - had picked up on Dart Group before it was rising up to the top of the list on the Stockopedia Screen of Screens. If you'd been listening to them AND seen Dart Group prominently qualifying for selective turnaround strategies such as the Piotroski Low Price to Book screen, you'd have been very well placed to profit early. DYOR is therefore not just a wise risk-avoidance strategy but also a profit enhancing approach.

Of course, the danger in doing your own stock picking amongst value stocks is that you can end up falling in love with the story and get stuck in a value trap or a stock lacking a catalyst for a very long time. The great benefit of utilising an approach such as the screen of screens is that it blends value with momentum and other styles while remaining completely unemotional. Dart group qualified for the screen of screens right at the point the share price was starting to fire. Choose your weapons wisely !

Again - if you don't have a hard copy, I do recommend reading David Stevenson's article at the FT Website, and check out the Screen of Screens at this link.