Picking Stocks Like a Guru

guru.pngI never knew there’s a stock screening tools that identify stocks based on theories developed by the so-called investment gurus (somebody like Benjamin Graham) until I came across this article on Kiplinger’s Personal Finance last week.

Following the link in the article, I went on to check one of the tools, Guru Screener, at Nasdaq.com, which can be found on the left hand side in the middle of the page. I guess one of the reasons I never knew the tool is I only visited the Nasdaq website a couple of times several years ago, not sure if the tool was available at that time or not. Also, I only buy a small number of individual stocks (half of them are DRIP stocks) and don’t use any tool to select my targets.

Currently the screening tool includes the following gurus:

Of them, I have read the book, The Intelligent Investor*, by Graham and quite familiar with his value based approach. The tool also applies principles developed in the book to identify values stocks. Graham’s approach in the book can be summarized as:

Graham recommended buying stocks of large, prominent and conservatively financed companies with a long record of continuous dividend payments. He warned against stocks with price-to-earnings ratios of more than 25 times trailing seven-year average annual earnings, or more than 20 times their prior 12-months results. (He did that even though he knew it meant excluding growth stocks.) A true bargain, Graham insisted, was a company whose real value was at least 50% more than its stock price.

Applying Graham’s criteria, the screener returned about 45 stocks (including stocks listed on NASDAQ and NYSE).

I am not sure how valuable this tool is as when I want to buy a stock, I usually already have something on my mind and only use tools like Yahoo Finance or Morningstar to gather some data. If, however, I have no idea on what to buy, this tool can certainly help me narrow the initial range.

* Affiliate link

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6 Responses to “Picking Stocks Like a Guru”

  1. Ted |  Jun 08, 2007 at 1:33 pm

    I wonder if you could run through all of the screens and come up with a list of stocks that pop up the most. Then publish your own book with this strategy as the new “guaranteed” can’t miss method of picking stocks, based on the study of greatest investment advisers in the world.

  2. Super Saver |  Jun 08, 2007 at 10:33 pm

    Sun,

    Personally, I have not had much success with criteria such as the screens described in your post. Generally, there are too many choices from which to select and the top stocks in the screen are not necessarily the best performers.

    In addition, these screens typically don’t provide a good sell signal, which I think is a critical component of a good stock picking system.