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

Chapter 24. Which Screen Survivors to Buy

You've run the screen of your choice. You've reduced a database of thousands of companies to just 12 or so companies. And because you've based your screen on a reliable strategy, you're confident that your screen survivors are good stocks. If you were to buy all of them and hold them for a long time, you're pretty sure they'd outperform the broad market.

A couple of them, though, are likely great stocks. Although your basket of screen survivors might be expected to outperform the market by several percentage points a year, one or two of those stocks could be the big gainers we discussed in the beginning of the book—the ones that produce returns large enough to more than make up for your mistakes. You've identified the best 12 stocks among thousands. How do you identify the best one or two among the 12?

There are dozens of different directions in which you could take your research at this point. I'll try to organize them into a three-step strategy that makes the most of your time.

The first step is to look for deal breakers. These are signs of problem companies. Since you wouldn't invest in companies that display these signs, there's no point in looking into such companies. You might as well cut them now.

The second step is to get to know your remaining screen survivors. Up until this point your research has focused on measurable facts—on quantities. It's time to look at qualities. Stock screeners aren't good with those. Software can't tell you ...