PART ONE: WHY SCREEN
STOCKS?
Chapter 1: Meet The Strategies
et’s start out by meeting the strategies and screens we will get to
know a lot better later in this book. For each, we’ll briefly look at:
1. How it’s done: how the screen has performed over 10 years of study.
2. How it works: what kind of companies and shares we’ll be seeking to
identify.
3. Why it works: the common-sense explanation for why the strategy
works.
4. When it works: when the strategy has been most effective
historically.
5. Academic studies: some evidence from research by academia and the
finance industry that shows the approach has long-standing merit.
This is just a taster, though. Something to whet our appetite before we
explore practical considerations and the tools we need in order to construct
great stock screens in the rest of Part One and Part Two of this book.
In Part Three we’ll come back to the strategies again with the aim of
building a really deep understanding of their workings. This is not only
important in helping us construct screens; it should also help us identify
stocks that offer something special regardless of the context in which we
come across them. After all, if we really know and understand what we are
looking for, we put ourselves in a far better position to find it.
A clarity of purpose also helps us better understand our own successes and
mistakes. And it allows each of us to form an appreciation of what
investment approaches gel most with our own personality and risk appetite.
These are vital factors in helping us improve what we do as investors, while
also building resilience.
Resilience is very important when investing. We all feel pressure to give up
on good strategies and investments during periods of disappointing
performance. Such periods are an inevitable and regular feature of
investing. Really understanding what we’re doing allows us to take a step
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