Kevin Matras goes over the importance of Screening and Backtesting. Stocks in this week’s article are Acuity Brands, Inc. (NYSE: AYI), Celanase Corporation (NYSE: CE) and Hanesbrands, Inc. (NYSE: HBI). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109
Screen of the Week written by Kevin Matras of Zacks Investment Research:
This week, I’m starting at square one and going over why screening is so crucial. Even more importantly, though, I’ll cover why backtesting is the most important step of all.
Why Should I Use a Stock Screener?
Other than buying the stocks that are talked about in the media or recommended by friends, how else are you going to find stocks that meet certain fundamental characteristics?
Even if you don’t use a screener now, most people do their own ‘screening’ one way or another. They may hear that a stock has a certain Growth Rate, or a certain P/E Ratio or Sales Surprise, for example. They then find themselves listening for or reading about stocks that meet this criteria.
Well if you want to find stocks that meet certain criteria, you can find them quickly and easily with a stock screener.
But, just because you narrow 10,000 stocks down to a handful, doesn’t necessarily mean that you’ve picked the best ones. You might have picked the worst ones. But how will you know?
Once you’ve created a screen, you can then backtest it and see how your screening strategy has performed. In other words, does your screen generally find stocks that go up once they’ve been identified? Or does your screen generally find stocks that get buried once they’ve been identified? This is good stuff to know.
With backtesting, you can see how successful your stock-picking strategy has performed in the past, so you’ll have a better idea as to what your probability of success will be in the future. Keep in mind, though, a screening and backtesting program isn’t a ‘box of magic’. But it is a great way to see what works and what doesn’t BEFORE you put your money at risk!
But remember, a great strategy for picking winning stocks doesn’t exclude you from ever having another loser. On the contrary, even some of the best strategies ‘only’ have win ratios of 70% or 80%. (NOT 100%.) If your strategy picks winners far more often than losers, though, you can feel confident that your next pick will have a high probability of success.
And don’t be the guy who ‘accidentally’ gets into one or two good stocks and thinks he’s the next Warren Buffett. If your stock account is important to you, test your stock-picking strategies to see if your method for finding winners is a repeatable one. And that’s why someone should use a Screener and a Backtester.
As usual, I’ll close with a few new picks from some of my favorite backtested screening strategies for 04/29/08:
|AYI Acuity Brands, Inc.|
|(from the Increasing cash Flows screen)|
|CE Celanase Corp.|
|(from the Upgrades and Revisions2 screen)|
|HBI Hanesbrands, Inc.|
|(from the Momentum Method1 screen)|
Sign up now for your two-week free trial to the Research Wizard and take your stock screening to another level. And when you’re done, backtest it to see if it works! And don’t forget to check out the winning trading strategies that come loaded with the program. Know when to buy and when sell. It’s all there: http://at.zacks.com/?id=111
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
About Screen of the Week
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