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Powerful
New Stock Screener
Backtesting Can Save You Big Bucks
Backtesting is a process that allows you to, in effect, go back in time,
build a stock portfolio based on your selection strategy, and then see how
your portfolio would have fared had you actually bought the stocks back
then. StockScreen123, a brand new site, offers backtesting for free.
Have you ever devised what you thought was a foolproof stock picking
strategy, but lost your shirt when you tried it using real money?
Backtesting Can Help
You can reduce the risk of that happening by first backtesting your
great ideas. Backtesting is a process that allows you to, in effect, go
back in time, build a stock portfolio based on your selection strategy,
and then see how your portfolio would have fared had you actually bought
the stocks back then.
For example, say that you’ve determined that the key to success is finding
stocks with a price/earnings ratio below 20 combined with a minimum 25
percent average annual sales growth over the past five years. You could
set up your backtest to see how you would have fared by picking stocks
based on conditions as they existed on January 1 of this year, and then
measure your portfolio returns from January 1 until now, or as of any
dates along the way.
New Backtesting Resource
In the early days of the Web, several sites offered free
backtesting programs, but they all disappeared when the Internet bubble
burst a few years ago. Now, that has changed, at least for a limited time.
StockScreen123 (www.stockscreen123.com),
a new financial site, offers backtesting, initially at least, for free.
More on the backtesting feature after I describe the site. StockScreen123
has only been running for a week or so and is still in Beta test mode.
However, it is available to the public.
The site is an offshoot of Portfolio123 (www.portfolio123.com), which has
offered a powerful stock-screening program, including a backtesting
feature, for several years. On the downside, Portfolio123, at $49 per
month, is somewhat pricey, and it takes a while to get the hang of using
it.
User Friendly
The Portfolio123 people conceived StockScreen123 to overcome those
obstacles. For starters, running a screen can be as easy as clicking on a
link. The site offers 34 pre-defined screens. These include screens
designed to emulate the stock picking strategies of seven famous gurus
such as Warren Buffett, Benjamin Graham, who is often credited with
inventing fundamental analysis, and Joel Greenblatt, author of the
bestselling “The Little Book That Beats the Market.” In fact, there is a
pre-defined screen to emulate just about every popular stock picking
strategy.
If you do want to set up your own screens, StockScreen123 provides a
wizard that makes it easy to set up basic screens.
Replaces MSN Money Screener
For those who rely on screeners to pinpoint stock candidates,
StockScreen123 came on the scene just in time. MSN Money just last week
retired its MSN Deluxe Screener, which had been the only free
full-featured stock screener available.
StockScreen123 includes most of the features that MSN provided, but many
aren’t available via the wizard. So you’ll have to get under the hood and
learn how to configure screens without the wizard to set up advanced
screens.
Although some features such as backtesting may eventually require a
subscription, the StockScreen123 people tell me that they intend to keep
the basic screener free.
More on Backtesting
Speaking of backtesting, you can test any screen, including your
own custom screens, or the pre-made screens. I backtested many of the
pre-made screens last week, including all of the famous guru screens for
the period starting January 1, 2007 and ending on October 30, 2009.
Besides for specifying the starting and ending dates when you run a
backtest, you must also specify a “rebalance frequency,” which is how
often you would run the screen and update your portfolio with the newest
picks.
I found that the screen that emulates the strategies of University of
Chicago professor Joseph Piotroski produced the best returns for the
one-year rebalancing period, but another screen called “Growth-Basic” did
better when I used a six month rebalancing period.
Much More to Talk About
StockScreen123 is the most important new tool for do-it-yourself
investor to come along in recent years. It offers many more features that
I don’t have room to describe now, but I will in future columns.
published 11/8/09 |
