Your Next Great Stock: How to Screen the Market for Tomorrow's Top Performers

Chapter 11. How to Use the Strategies

The purpose of the screen strategies that follow is to generate short research lists, and not automatic buy lists.

Given two groups of stocks, one that will produce average returns of 10 percent a year over the next several years and another that will produce annual returns of 13 percent to 18 percent, you stand a better chance of selecting winning stocks from the second group. As we look at each strategy, we'll review ample evidence that suggests it can produce average returns significantly higher than the broad market's returns.

Also, given two groups of stocks, one with 8,000 of them and another with 12, you'll be better able to perform research on the second group. Any stock screen can reduce the field of candidates to a manageable number. The ones that follow can reduce the number of candidates while at the same time improving their average returns.

There are more than a dozen strategies covered, which raises the question of whether you should choose one and stick with it or run a few of them from time to time in search of your next great stock. Before we come to the matter of faithfulness, let's see how the two broad approaches to stock picking compare.

Growth Screens versus Value Screens

Stock market pros love to argue this one—whether it's better to invest in growth or value stocks. I've never quite understood the labels. How can an investor choose between growth and value? Surely we should only invest in companies that are likely to grow, ...