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Let
Famous Gurus Help You Pick Stocks
Good news! One of my favorite
investing sites is back.
In early 2001, I described
Validea, a free site that let you use famous guru’s strategies to pick
stocks. As happened all too often back then, Validea went bust shortly
after I wrote the column.
Now Validea is back (www.validea.com).
Use of the site requires a subscription, but you can access many of its
features free on the Nasdaq stock exchange site (www.nasdaq.com).
Validea emulates the stock
picking strategies of seven well-know gurus such as Benjamin Graham,
co-author of “Security Analysis,” the first book ever published on
fundamental analysis, and Peter Lynch, who ran the Fidelity Magellan
fund during its market-beating heydays. Besides for the famous gurus,
Validea includes two additional strategies, one, based on the Motley
Fool’s small-cap growth formula, and another for finding promising
technology stocks that the Validea crew devised themselves.
You can use Validea either by
picking one or more gurus and seeing a list of stocks meeting their
requirements, or by seeing how Validea’s gurus would rate a stock that
you’ve chosen. In either case, you are seeing Validea’s
interpretation of each guru’s strategy. The real gurus aren’t making
the picks or doing the evaluations, and they may not agree with
Validea’s conclusions.
Here’s how to get one or more
of Validea’s gurus to pick a list of stock candidates for you.
Start by selecting Investor
Tools on Nasdaq’s home page and
then pick Guru
Screener. Once there, you’ll see a list of the nine gurus. You can
see a brief overview of the guru’s selection strategy by clicking on
the guru name. Later, I’ll show you how to learn about each strategy
in detail.
You can choose one or more
gurus by selecting either “strong interest” or “some interest”
from the dropdown menu next to their name. “Strong interest” stocks
must meet all of the guru’s requirements, while “some interest”
stocks need meet only about half of their selection criteria.
For example, I recently asked
for a list of strong interest stocks using Validea’s interpretation of
Forbes columnist and money manager Kenneth Fisher’s strategy. Fisher
is a value investor, meaning that he looks for stocks that are
relatively cheap because they are out of favor with most investors.
Fisher described his strategy in his bestselling book, “Super
Stocks,” which was first published in the early 1980s.
Validea turned up a list of 17
stocks that, in its view, should be of strong interest to Fisher. But
that’s only the beginning. Click on the name of any stock on the list
and Validea shows you how each of the nine gurus rate the stock.
For instance, it turns out that
Texas-based specialty retailer Stage Stores is also of strong interest
to Fisher’s fellow value investors Benjamin Graham and James
O’Shaughnessy, who is best known for “What Works on Wall Street,”
a bestselling book first published in 1996.
There’s more. Select Detailed
Analysis for any guru to see how to see a list of that guru’s
criteria, and whether your stock passed or failed each one. Below the
pass/fail list, Validea describes each criterion in detail, and why your
stock passed or failed.
For example, not surprisingly,
since it’s a value pick, Stage Stores only passed eight of the Motley
Fool’s Small Cap Growth Investor’s 16 requirements. For instance,
the Fool requires at least 25 percent sales and earnings growth over the
past year. Stage’s sales growth, coming in at 43 percent, passed, but
its 16 percent earnings growth fell short, so Stage flunked that test.
Reading the strategy
descriptions, and why each stock passed or failed, is a learning
experience, and for me, equally as important as the lists of guru
stocks.
You don’t have to depend on a
single guru to pick your stocks. You can require some or strong interest
from any number of gurus, even all nine if you like. However, you’ll
get better results by sticking with the same type of selection strategy,
that is, all value or all growth. For instance, I came up with four
picks, State Stores, Warnaco Group, Atlantic Coast Airlines, and Rex
Stores, when I required strong interest from value investor Benjamin
Graham as well as Kenneth Fisher.
The guru’s picks are a great
way to find stock candidates, but applying the guru analysis to your own
stocks is equally valuable. You can see all nine guru’s analysis for
any stock by getting an Info Quote (left menu) and then selecting Guru
Analysis.
Everything I've described is
available free on the Nasdaq site. But Validea offers more gurus such as
Warren Buffet, model portfolios, advanced screeners, and a bunch of
other features on its own site.
As is always the case, consider
the stocks turned up by Validea’s guru screens as candidates worthy of
further research, not a buy list.
published 5/16/04 |
