Harry Domash's Winning Investing


 Get Second Opinion Before Pulling Trigger 

Even if you’re a great stock picker, it' worth getting a second opinion before you pull the trigger. Super Stock Screener, a site that I only recently discovered, looks like a good resource for getting second opinions, and potentially much more.

Run by Ian Braganza, a Chartered Financial Analyst, who developed systems for hedge funds before striking out on his own, Super Stock Screener (www.superstockscreener.com) employs a sophisticated analysis strategy to rate just about any stock. Even better, as of this writing, use of the site is free.

Similar to published analyst consensus ratings that you see on many financial sites, Braganza grades stocks from one to five, where one corresponds to “strong buy,” two is “buy,” three is “hold,” for is “sell” and five means “strong sell.” The grades reflect Braganza’s take on a stock’s three to 12-month outlook.

Get Your Grades
Get to the stock grades section by selecting “Rankings” on the top menu on Super Stock Screener’s home page. Once there, enter any number of ticker symbols to see each stock’s grade. Alternatively, you can use the Ranking Filter to see all stocks corresponding to any of the grades. You can narrow the list down to stocks within a specified sector such as energy or financial, and/or stocks within ranges that you specify for trading prices, dividend yields, market-caps, or price/earnings ratios.

Braganza doesn’t personally analyze each stock. He uses a computerized formula that evaluates a variety of factors including valuation, profitability, cash flows, analysts’ earnings forecasts, and financial strength.

Sophisticated Strategy
Unlike other strategies, Braganza doesn’t grade his stocks based on fixed rules such as requiring profitability or valuation ratios to fall within certain ranges to qualify for a particular rating. Instead, his ratings reflect how a stock compares to others at any given time. For instance, “strong buy” stocks are better valued, financially stronger, more profitable, etc. than lesser-ranked stocks.

Do the grades work? Probably, but with a major limitation.

Grading the Grades
Braganza has data showing that “strong buys” outperform “buys,” and that “buys” outperform “holds,” etc. Although that relationship holds for all sizes of companies, the effect is more pronounced for small and mid-sized firms (small- and mid-caps) than for large companies (large-caps). However, that data is old and it’s hard to know if it still holds true in this market.

Always "All In"
But, the biggest downside of using Braganza’s grades is that a fixed percentage of stocks are always rated “strong buy,” even if the market is tanking.

You can see that by looking at the returns recorded by four free portfolios that Braganza offers on the site: small-cap, mid-cap, large-cap, and all-cap. All are rebalanced monthly, and typically turn over around a third of their holdings each month. Super Stock began tracking the portfolios in July 2006 (inception date).

Small-caps, up an impressive 229% since inception, have done the best overall. But, much of that outperformance can be attributed to 2009 when the portfolio soared 206% vs. 26% for the S&P 500. The 11 stock portfolio also outperformed in 2007 when it gained 25% compared to 5% for the S&P. However, because Braganza keeps his portfolios 100% invested no matter what, small-caps lost 36% in 2008, more or less even with the S&P 500, which dropped 37%.

In my view, it’s worth paying attention to Braganza’s stock grades. Even though he doesn’t have recent performance data, my impression is that he knows what he’s doing and is probably getting it right.

Know When to Fold 'Em
But if you want to follow his portfolios, you need to come up with your own way of deciding when to get in and get out of the market. One simple approach is to compare the S&P 500 to its 200-day moving average, which you can check using Yahoo’s (finance.yahoo.com) Basic Technical Analysis chart. Be in the market when the S&P is above the moving average and go to cash when it’s below.

At the very least, consider Braganza’s grades another tool to add to you stock analysis toolbox.

published 1/2/11

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