You’re setting out on your investment journey, and you’re excited at the possibilities presented by the many different stock options on the market. But finding options that suit your investment needs and offer the returns you’re hoping for can be daunting.
Stock screeners are a handy tool that will help you quickly sift through the sea of options and select the most viable ones based on your criteria. Screeners allow you to set yourself up with stocks that will work well as long-term investments or short-term trades. You can build your ideal investment portfolio using advanced stock screeners over time.
1. Thorough Research
When you buy into a stock, it means you own a part of the company behind that stock. Therefore, it’s wise to acquaint yourself with the ins and outs of the company.
You should only invest in a company if you like how their numbers look both in the present and future projections. Also, you should only become a part of an entity if you agree with how it does business—regardless of whether you’ve read a newspaper article saying its stocks are on the rise.
Doing thorough research means digging through the financial reports and statements a company has made available to the public to gauge its financial health. Beyond numbers, you need to understand how the company operates and what sets it apart from other businesses in its field. If the entity has a unique product or service that competitors don’t offer or can’t duplicate, this bodes well for future sales.
Another good indicator of a company’s growth potential is its customer base. What are the growth prospects of their key customer segment? How likely are their customer’s tastes to change in the future? Consider how strong the company’s brand is in the market currently and how long it has been in the industry. Taking a look at the firm’s management team and board of directors will also give you a sense of the direction the company is headed.
A company with good profit-making prospects has the potential to offer you better returns on your investment.
2. Tools of the Trade
A stock screener can help you sift through many stock options and find those that will work best for you as either long- or short-term investments. Investment brokers generally share this set of tools with their customers free of charge. There are also subscription-based stock screeners offered by independent providers for a monthly charge. These tools are not just for investment novices; they can be used by seasoned traders as well.
How does a stock screener work? You begin by selecting various parameters to zero in on stocks that will work best for you. These parameters include operating cash flow, market capitalization, and dividend yield. The overall goals and level of experience an investor or trader has will affect which parameters influence their decisions.
Short-term investors will be keen on tools that chart the movement of stocks, as well as alerts on price movements, while long-term investors can use these tools to build up a portfolio.
Investors have many tools at their disposal to achieve their goals in the stock market. They include:
- Trading newsletters: A newsletter is regular updates sent to traders detailing innovations and unfolding developments in the stock market. They can also contain expert opinions on future stock movements.
- Stock simulators: These simulators allow beginner investors to get a grasp of fundamental analysis and try out trading strategies.
- Charting software: Offers a graphical way to trace the performance of a stock over time. Short-term investors can use this tool to see the point in time when it will likely be best to sell.
3. Stock Screener Functions and Essential Metrics
By understanding how to use your stock screener, you can sort stocks based on your specific needs. Some of the parameters you can set in your stock screener are:
- Volatility: A measure of how the returns of a particular stock fluctuate
- Relative Strength Index (RSI): A measure of the amount of change and speed of change in stock prices
- Market Capitalization: The total value of all a company’s stocks
- Trading volume: This is the number of stocks traded in a particular time frame
4. Use a Stock Screener, But Do Your Homework
While a stock screener is a great tool to help you whittle down your stock choices, it is no substitute for research. You’ll want to use this tool in conjunction with in-depth research of the company whose stock you’re considering purchasing. When your screener presents you with stock options, do your homework on each of them to get a feel for where the companies behind these stocks are heading. This will help you ensure that you’re betting on the right horse.