I’ve made the analogy between Wall Street and a casino before. And it fits.
It’s a rigged game. That’s nothing new. But in the same way you can count cards to tip the odds in your favor at the blackjack table…you can use a stock screener to beat Wall Street at its own game…
Stock screening is a pretty simple exercise.
All the major finance websites have them – Yahoo…Google, etc. And those screeners are sufficient for most investors – just like knowing the different hands in poker is good enough for the novice sitting down at a table for the first time.
Funny thing is; you can’t just rely on one or two criteria. I mean, most screeners are great for finding companies in a particular sector with a particular market cap or metric (like a P/E range). They’re great for narrowing the field, yes, but it won’t tell you when to double down, and when to fold.
It’s a mistake I made when I first started investing. I often let myself get married to one or two criteria and whittled down the list from there. But I was constantly learning more about the markets, so I kept changing my criteria. Looking back with what I know now, I’d personally attribute a good portion of my returns to luck – and a bull market.
So what I’m really looking for – personally – is a better way to screen.
You see, a great screen will let you look at fundamentals – which I’m a huge fan of – as well as the technical indicators, which give timing signals letting you know when and how much to invest.
Now I’ve been looking at the markets from both the long and short side the past few weeks—and this market doesn’t seem to have any screaming bargains. At least not the kind that would have been attractive to private equity firms back when I worked for one.
Nope, the valuation is simply too expensive.
Not that I’m eager to buy into this rally. There’s an absolute nightmare unfolding on balance sheets – at household, government and corporate levels. The government has so far stalled the inevitable, but that never lasts forever. So my “ultimate screener” would target short-sale prospects for fast-money gains. So far I’ve managed to hit a 98% success rate over a large group of sample trades. Not perfect, but close enough to tip the odds in your favor.
And in the next few months, I imagine we’ll have a golden age of shorting upon us (and by golden, I also mean gold’s a great place to stash your money, even at these prices).
Now, of course, there’s always a catch…
See, the problem with counting cards is that casinos eventually wise up. The big money’s no different. Laws could change – from “uptick rules” to outright bans on short sales. But while it works, it works. And you don’t know what works until you screen through the field of stocks looking at things in ways nobody else has looked at them before.
Editor of Credit Crunch Short Report