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The Web’s Best Stock Screens: Looking for the next winning investment

fish_netStock screens allow investors to sort through lots of different stocks in search for only the ones that fit certain criteria.  Investors looking for the next stock pick for their portfolios can use basic screening tools, available at both Yahoo! Finance and Google Finance. MSN recently retired its highly-regarded stock screening tools, leaving what’s freely available somewhat lacking.

Screening 2.0, something I like to discuss on the site, provides the same outcomes but incorporates more algorithmic know-how, some artificial intelligence (how do you deal with an infinite P/E one year?), better ability to backtest results, and preset criteria to match results of the world’s best investors.

I decided to piece together a list of some of the Internet’s best free and premium stock screening resources.

So, here goes:

General Investing

  • Validea: One of my favorites and started by author of The Guru Investor, John Reese.  Validea is a premium service that tracks screens preconfigured with the investing criteria of history’s greatest investors, like Buffett, Graham, Peter Lynch, Ken Fisher, and more.
  • Finviz: Lots of stuff going on here. IMO, the most powerful, free screener available.  With fewer preset screens, Finviz is for more advanced investors who have specific criteria they look for in stocks.  A whole lotta descriptive, fundamental, and technical ways to sort for new ideas.
  • Manual of Ideas: Mentioned in my post from last week, Top 6 Ideas for Piggyback Investing, MOI has both free and premium screens like 10×45 Bargain Hunter, European Value Report, Equities and Tobin’s Q.  These screens come in form of subscription newsletters (again, some free, some premium) with more analysis included beyond the output of the stock screens.
  • AAII Screens: Blown away by how many screens the American Association of Individual Investors has on its website (you have to join AAII to access these screens).  You can find growth and value screens with preset parameters (like IBD Stable 70 and CAN SLIM) as well as guru screens that look for specific investment criteria established by famed investors like Graham, Buffett, Dreman, Lynch, Zweig, etc.
  • Zacks: Nice combination of some free screens (Earnings & Margins, Growth and Income) and premium screens (Zacks Rank 1)
  • CNBC: lets users save custom made screens and also has a few prepackaged screens for free
  • The Kirk Report: Couldn’t be remiss in mentioning the great screens Kirk puts together for subscribers to his service.  He calls his screens, the Stock Screen Machine.
  • The Motley Fool’s CAPS: Nifty free screener that incorporates the community’s CAPS ratings into the screens. Allows users to download results to spreadsheets.

Value Investing

  • Old School Value: Nice site with numerous free screeners for all kinds of value investing
  • MagicFormulaInvesting: Built by the man, himself — Joel Greenblatt, this is a nice free site to do basic screening for stocks that fit the criteria of the Magic Formula

Institutional Ownership

  • AlphaClone: Of course, this hedge fund slicer-and-dicer is a stock screen of sorts.  This premium product (read my review here) allows users to identify the top performing funds, peer into their holdings and backtest their strategies.

Insider Buying/ Selling

  • GuruFocus: Interesting free and premium offerings that track top guru buys as well as insider transactions.  Can download results into spreadsheets for more analysis.

Technicals

  • StockFetcher: Nice premium screen for technical investors encompassing Bollingers, Candlesticks, Moving Averages, and more. Output is downloadable to Excel.

I am SURE I left really good tools out — let me know in the comments if you think I should include something I’ve missed.

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ETFs, overindexing and the power of financial brands

Just doing some thinking about the growth and future of the ETF industry:

In my eyes, ETFs began as a second-generation of mutual funds with the following characteristics:

  • Passively managed: ETFs were passively managed (though that’s changing), building upon Jack Bogle’s success at Vanguard.  Most research at the time clung to the Efficient Market Hypothesis and academics declared that trying to beat the markets was a fool’s game.  ETFs were this vehicle.
  • Cheap: They were cheap.  If theory shows that you can’t pick stocks and win the game that way, better to index and reduce fees for better long term success.  ETFs’ passive structure enabled fund sponsors to get big and compete on price, driving prices further downward.
  • New access: Beyond their philosophical underpinnings and reduction in asset management fees, ETFs also opened doors to new asset classes (commodities), markets (Peru), and strategies (leveraged short funds) that weren’t easily accessible or understandable for retail investors previously.

Things are a’changin

Things are changing.  With Blackrock’s purchase of Barclays Global Investors iShares (BGI), ETFs are no longer seen as a pure threat to the much larger mutual fund industry.  Diversified asset managers like Blackrock and PIMCO, mutual fund firms like Vanguard and Fidelity, and online brokers like Schwab are building and buying ETFs as part of a larger smorgasboard of choices for their clients.  ETFs fit in like precious metal and international funds into a firm’s offerings.

In a sense, ETFs have now become purely productized, competing against similar strategies in different structures.  Contributing to this trend is the fact that numerous ETF offerings targeting the same strategy/geography have all hit the market. With multiple offerings for almost every market and strategy in ETF land, overindexing has blurred any and all distinctions in investors’ minds about which securities to select.  Instead of doing the work to pick the most appropriate security, brand will ultimately trump other things.

While there may be 3 general, broad ETFs for investors to get Chinese market exposure, most retail investors have no idea that they’ve been structured differently, that the compositions of the indices these ETFs track are wildly different and have led and may very well lead to different performance outcomes.

Brands, brands, brands

What this means, then, is (like most things in life), competition in the ETF space gets muddled.  ETFs compete against mutual funds every bit as much as they do against each other and with this backdrop, the emergence of the firm’s brand will trump performance and index structure.  Index composition or the race to build a better mousetrap becomes less important.  Branding will sway investor decisions and assets away from the smaller, more innovative players, towards the larger, stronger brands.

Like everything commercial, brands wield power.  So true in the financial sector as well.

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stock screen, screening 2.0, investing, warren buffett, peter lynch, dreman

As if we needed another study to spell this out, S&P published a recent study (.pdf) that undermines the hot money chasing performance in the mutual fund industry.  The study shows that very few funds demonstrate persistence — the ability of asset managers to consistently achieve top-quartile or top-half performance.

The amazing take-away from the study:

Over the five years ending September 2009, only 4.27%
large-cap funds, 3.98% mid-cap funds, and 9.13% small-cap funds maintained a top-half ranking over the five consecutive 12-month periods. No large- or mid-cap funds, and only one small-cap fund maintained a top quartile ranking over the same period.

Couple of things here:

  • Not one large-cap or mid cap fund maintained top quartile ranking.  Should investors just use large cap and mid cap indices for their exposure here regardless?
  • While still posting rather poor results, there are twice the percentage of small cap funds achieving top-half performance than large caps.  There still seems to be significantly more value in active portfolio management in the small cap arena.

The study’s ultimate takeaway:

Our research suggests that screening for top-quartile funds may be inappropriate.A healthy plurality of future top-quartile funds comes from the prior period’s second, third and even fourth quartiles. Screening out bottom quartile funds may be appropriate, however, since they have a very high probability of being merged or liquidated.

Compare that to the findings of Jagannathan, Malakhov, and Novikov in “Do Hot Hands Exist Among Hedge Fund Managers?”:

We find evidence of persistence in the performance of funds relative to their style benchmarks. It appears that on average more than 25% of the abnormal performance during a three year interval will spill over into the following three year interval.

[Hat tip: Pragmatic Capitalist]

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Bloomberg beefing up reflects good things for financial industry

I’ve written about previously (here and here) about Bloomberg’s expansion bloombergand eventual dominance of financial media from news to data and consumer.  The WSJ reports today that indeed, Bloomberg is forecasting a respectable 10% growth rate for 2010 and plans to add an additional 1300 employees.

The revenue gains would come largely from a projected increase of 12,000 subscriptions to the Bloomberg Professional service, which provides data, analytics and news geared to financial-services professionals.

Bloomberg’s revenue for last year was estimated at $6.25 billion, according to a person familiar with the matter. Based on that estimate, the new projections would push revenue to nearly $6.9 billion this year.

Growth is good for Bloomberg and ostensibly, the media giant is seeing increased demand for its terminals from institutional investors — a sign that things are picking up on Wall Street and Stamford, CT.

With the recent acquisition of BusinessWeek and content sharing deals that land Bloomberg content on the WaPost and beyond, Bloomberg is turning up the manheat on Dow Jones.

Be afraid, be very afraid.

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Recommendation for Tradestreaming from Cliff Wachtel, Chief Analyst, Ava FX

As part of our service to our readers we occasionally point out books that are uniquely worthwhile. Here’s one, Zack Miller’s Tradestream Your Way To Profits.

Finally, here’s a one-stop guide to the Internet for investors and traders.

This is one of the few new investment books that any serious investor or marketer of financial services truly, truly must read, likely to become the definitive guide to using financial social media to improve investment performance. I’d been looking around for something like this, and now, here it is.

All serious investors and traders realize that they need guidance, and that there is a lot of great advice on the internet, much of it for little or no cost.

Few would dispute that they’d be more profitable following the moves of proven experts.

The trick is to sift through the vast online universe to locate the best sources.

The idea is simple enough, but it took someone with deep expertise in online media, financial planning, and fund management to distill the best the Internet has to offer.

The book provides an overview of how changes in the internet, financial research, social media and online content have given us unprecedented access to some the best investment advice. It then examines 8 different strategies for using online investing resources and provides practical advice for how to implement these 8 approaches, which are:

  • Expert Bloggers: How to access the best blogs for new ideas
  • Imitate Proven Stars: How to build a portfolio made of the top picks of your chosen gurus.
  • Join Expert Communities: How to locate and use online communities to identify and monitor professional or amateur experts.
  • Online Resources For Monitoring Crowd Sentiment.
  • Screening 2.0: How to create screens suing the same parameters as the pros.
  • Tracking Insider Moves
  • Tracking Rumors
  • Non-Financial Online Resources

The summary chapter’s look at how the Internet is changing the financial services industry is a must read for those interested or working in the field.

As an analyst who covers forex, commodities and bonds in addition to equities, I only wish that there wasn’t such a heavy concentration on resources for the equities markets, though the focus is understandable given that stocks have a much more established online presence.

However, the ecosystem of online resources for these other markets is growing.

Can we look forward to a follow up volume covering these markets? — Cliff Wachtel, Chief Analyst, Ava FX