Thursday, February 24, 2011

Your list of screened stocks Part 1

I don't like to use stock lists because with their popularity, everyone else is thinking the same thing you are. In the short term, where is my edge? I've been trying to compile a list of "momentum" stocks from a stock screener this last quarter.

Does it matter what stocks you pick? Or will everything just go up, just "pull the trigger". If you have an edge, and your following your should be a slam dunk. Earnings have been good this season, the trend is up. Well, maybe it does matter. Nothing is simple, right? What other variables can I remove from the experiment? Distractions?  Not enough homework? O.K. lets limit your list to a bearable 3-5 stocks that you can scan and read about every morning. Volatility? Risk? You took care of that in your plan. It should all be equivalent.

External factors are hard to control things and are just part of trading.

So why the different results? I guess you could say trading is like the "fog of war".

O.K., I'm not giving up that easy. Take 3 lists. Not the only three options, but a start. List one consists of  momo stocks. List two consists of GARP stocks. List three consists of value/dividend stocks.

Assumption 1) Momo stocks sometimes  "regress to the mean" quickly. Faster than you can react. Oh! and your plan says wait a bit, just in case it bounces back from the dip. Sometimes there's no reason that you can see that this stock is appreciating. But you hopefully eliminated that element in your DD.

Assumption 2) With value stocks, the stock trading range will not be as large. You might add in the dividends as income. Sometimes they never appreciate, at least in my short time frame. But you can account for that in your DD.

Assumption 3) Growth stocks have a mix of assumption 1 & 2. Growth rate is not as fast as momo stocks. Less growth would give you less profit.

So which list is best? The amount of  variables in lists are infinite. What edge do you get from your list?

That's my amateur guess.

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