Have you been wondering how you can make the process of investing easier and more accurate? An effective way to do so is to use a stock screener.
What is a stock screener?
A stock screener is a tool that you can use in order to filter stocks based on metrics that you define at the start. These metrics include variants like price, market cap, average five-year return on investment, price-to-earnings ratio, and more. Essentially, they help you make sure that you are focusing on the stocks that meet your needs and suit your investing strategy while ensuring that they fit pre-defined standards.
You can use a stock screener
If you’re considering using stock screeners, but are wondering why you should do so, here are some of the reasons stock screeners can be advantageous to you when investing:
1. Save Time
There are thousands of stocks available to buy on the market, and exploring each one individually would take you far too much time. You would need to explore each company’s financial statements, historic and future growth prospects, ratios, multiples, and more.
By using a stock screener instead, you can filter stocks easily and quickly using pre-determined metrics. Essentially, the screener does the research for you. The stricter and more numerous your metrics, the fewer stock options the screener will show you, allowing you to have a better idea of which stocks to buy.
2. Help Remove Emotion From Investing
Investors have natural behavioral biases that can lead to unwise investing decisions. These illogical decisions can severely hurt your returns from investment over time.
One way that emotion can affect investing is by convincing you to change your investment strategy so that you can justify investing in a particular stock. For example, say your friend has invested in a stock that he likes. This stock may have too little revenue growth according to your strategy. However, because your friend likes the stock, he may convince you to invest in it as well.
By using a stock screener, you do not have to worry about such biases and emotional decisions. The screener will strictly follow your investing strategy and only show you the stocks that fit your strategy, allowing you to invest smarter.
3. Identify New Investment Options
Given the number of stocks available on the market, it is unlikely that you know of all, or even most. A benefit of using a stock screener is that it can help uncover new investment options that you were previously unaware existed.
Most stock screening databases contain a few thousand stocks. Of those stocks, it is statistically unlikely that you are aware of all of them. Thus, if a database has 6000 stocks, there are likely several that you are not only unfamiliar with but also fit your investing parameters.
Often, these stocks are also ones that have been overlooked, making them undervalued in the larger market. This increases your opportunity to profit from investing in it.
4. Screen Lower Performing Stocks
An important thing to keep in mind with any investment strategy is to be flexible. This not only means being open to investing in stocks that you were previously unfamiliar with, but also to selling lower performing stocks and adjusting your investment strategy for those changes.
Stock screeners can help identify which of your current stocks do not fit your investment strategy. This allows you to sell off lower performing stocks, ensuring that you have the best returns possible.
5. Easy to Use
A major benefit of using a stock screener is that they are easy to set-up and use. This is an especially important consideration if you are a newcomer to the stock market, as more complicated tools can often turn people off of investing.
With stock screeners, you get easy access to a host of information and can customize the stocks you are shown to fit your needs. While there is a little upfront work involved, once you have your screener set up to your specifications, all you need to do is press go, and you have a host of information at your fingertips.