How to Make Use of Stock Screeners

Some people use dart boards and the financial sections of their business papers to choose a stock and claim to have equivalent results to the big time analysts. If you're not into darts or big time analysts, there are other investment tools available. Just use caution, and see them for what they really are.

When looking online for stock screening or investment tools, your search will bring you more websites than you could ever hope to visit. If you want free advice and add that keyword to your search, you will narrow the field some. But even the sites that want you to subscribe to their investment tool may offer some limited free trial, typically a week or two, to try out their brand of stock screening.

Take care on the sites that are offering something 'too good to be true'. One stock screening site boasts picking stocks that had 2-4 day returns of 241%. Now what could that mean? It might mean a stock value of a company went from $1.00 to $2.41, or it could mean some misleading market information leaked out, spiked the stock and it's due to crash at any moment.

Unless you're a day trader that is willing to risk it all and accept the horrendous tax ramifications, those kind of 'opportunities' are not really opportunities at all.

Also be careful for sites that show trends that are for something specific. If it is to show their performance on their picks, be careful to really see what they are showing you. They may, as any good marketer would do, show you only the best and brightest choices.

See if they can come up with a statistic of all their picks, and what their percentages are. If they picked 3 stocks that doubled, but 22 that flopped, then a dart and the financial newspaper may be a better choice.

Especially be wary of mutual fund screens. What is true for today could be drastically different tomorrow. A fund may have an incredible track record, but if the fund manager, the one making the buying and selling decisions for the fund, changes , so may the nature of its performance.

With individual companies, look for leadership changes. Is it a case of bigger and better, or rats jumping a sinking ship? Looking through some history and reading part of the company's annual report may give you more insight than a buy/sell rating.

Know what the stock screener is selling. Businesses are in business to make money. Make sure you thoroughly understand the nature and background of the stock screening tool that you choose. If they happen to be a financial services company with their own mutual funds and stocks, be very wary. You want to watch for reasons that advice would be skewed toward one financial product or another.

Even the greats, like Peter Lynch, former manager of Fidelity's Magellan Fund, used his gut instinct at times, especially in industry's that he knew well. Most times, when a stock recommendation seems unbelievable, it is.

Source: http://www.investopedia.com/articles/01/112101.asp