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I'm like everyone else. I want to find the perfect stock. That absolute sweet gem of a stock that has all the attributes of great stock market winners - a good company at a reasonable price that everyone else has missed. I've studied the market hard. I've read all the books. I know what works in stock picking. But I just can't seem to find it. I keep looking. I keep screening the market for it. But it's just not there. My stock screens are empty. Dammit. Why?
Everyone else is looking for the perfect stock too. When everyone is looking for the same thing, you aren't going to find it as they've already bought it. The market is just too efficient. But within this very human behaviour lies an incredible opportunity. What if all that searching means we all miss what's right under our nose? What if there are entire portfolios of "perfect stocks" hidden in plain sight.
Join me on my short adventure quest to discover them.
Let me put together a very typical stock screen, with a few parameters that might define the "perfect" stock. By that I mean something that's inexpensively valued, good quality, with growth prospects and market beating momentum. I'm keeping this basic, and I know everyone has their own definition - but humour me for simplicity's sake:
That's a good list of everyday screening rules. I'd love to find a share like that in this market. So I put together a stock screen that uses these parameters:
You can view the results of this screen at this link. Go on - click the link and come back and read more.
The title of this piece gave it away. In the UK Market there is not a single share that qualifies for those rules (except a couple of VCTs which I've excluded as they aren't individual companies). The perfect stock does not exist.
What if I told you to stop looking so hard for the perfect stock and start allowing yourself to find the perfect portfolio instead? If you give up your desire for the perfect stock you can quite easily build a portfolio of 10, 20, 50 or even more stocks that have exactly the attributes you desire... or even better... not individually, but on average.
Sequential screening rules are a destructive mechanism. They cut, cut and cut away possibilities and all the best shares. The trick is to use 'simultaneous screening' rules that don't cut away possibilities. This is the benefit of ranking the market, rather than screening the market. It is inclusive, not exclusive.
As an easy shortcut I've downloaded the top 200 ranked shares (by StockRank) in the UK stock market (though this idea applies equally to all international markets). I've 'customised' my table view so that it adds all the above fields mentioned into the view - which you can download yourself as a list here.
I've exported them into a spreadsheet here - which I've then adapted into three sheets. The first has the top 200 shares. The second has the top 20. The third has the top 20 shares diversified across sectors (in the usual NAPS portfolio fashion).
Just look at the average and median statistics!
Below you can see all the Portfolio metrics in heavy blue versus all the individual stocks numbers. The vertical axis has been adjusted to allow an effective visualisation.
These numbers are way stronger than the original screening rules we used. If you found a share with these kinds of numbers nobody would believe you - and you can't, but we've found up to 200 of them!
So herein lies the lesson. It's not just that trying to find the perfect stock is impossible - and I'm not trying to discourage you from trying - but you may find it more helpful to focus on building the perfect portfolio instead - which is like synthesising the perfect stock.
As Ben Graham once said:
"To try to buy groups of stocks that meet some simple criterion for being undervalued - regardless of the industry and with very little attention to the individual company... my enthusiasm has been transferred from the selective to the group approach."
Buying groups of shares that meet your criteria is a better approach and is far easier than seeking individual stocks. There's also a great deal of academic research that shows that taking a ‘group’ approach ends up outperforming over time, and it's something that we've illustrated time and time again on the site. These approaches lead to strong returns as those shown from a “top 20 ranked portfolio” over the last 9 years… perhaps the kind of returns we’re all looking for from the perfect stock anyway.
About Edward Croft
I'm the co-founder and CEO here at Stockopedia.com - with one goal - to help private investors beat the market. I've a passionate belief that the use of data-informed investment processes are the best way to improve investment results. I've a background in science and wealth management and have spent years building a superb cross-functional team here to deliver on our vision. We aren't finished yet - there's so much to deliver. These days, other than managing the business, I spend a lot of my time on educational activities, researching markets and sharing learnings. Do connect with me here in the comments section or at Twitter/X.
Disclaimer - This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
I appreciate that but we'd just end up with people complaining that screen views didn't reflect their criteria. There are of course 8 other table views you can edit. What might be good is to mark one of those as your default view instead.
I already know the shares reflect my screened criteria or they wouldn’t be there. From there I may want other desirable but not essential criteria close to hand. Table views reflect exactly that. QVM etc. so the place to visit to drill down on each element. This is one enhancement that detracts from the new site and I personally being able to set one’s own default as with the old site worked better. Why not see what the community thinks. Thumbs up for Ed to vote for screen view as is or thumbs up to reverse to default custom tab as per the old site.
We're working on moving our payments infrastructure to another provider at the moment, which is a frustrating area of development as it's not adding user value. It's essential though.
After that the first set of improvements will be additional portfolios and screens. I can't predict timelines, but the payments side will be going on till at least the end of August - so it's a few months away.
@Taff6 - the screen views work exactly as they did on the old site. There's a default screen view generated from your screen criteria, and you can customise it as you wish. But that customised view is specific to your screen, not shared across others.
Hi @Edward Croft, OK take your point apologies.However if you forked a screen the custom tab criteria remained the the same as in the screen you were copying. You just then had to amend the screen criteria for the new screen. custom tab remaining the same is advantageous for downloading to excel for further analysis and manipulation. Just a thought, thanks and keep up the good work.
"The perfect stock does not exist."
...Apart from the 3 US stocks and 2 Canadian stocks that the screen returns for me anyway :-)
Today there were three "perfect stocks" but when I added my usual low debt profit generating company rules then indeed no perfect company exists at this present time. I believe in time some will appear on the list just to disappear again.
Ed makes a very good point. If there was a perfect company then that is all we would ever need. But we know it doesn't exist.
Great article Ed - ever thought of launching a Stockopedia ETF !!
Also posting to remind myself to return to this
Is there a way of bookmarking threads on Stockopedia - i know can bookmark in browsers but this does not help when using different computers, tablets phones etc at different times
Unfortunately, the perfect stock in the US still doesn't exist. However, if you remove the valuation criteria, I get a list of 30 names.
Although not perfect stocks, I own two stocks from the screen Booking Holdings (NSQ:BKNG) and Deckers Outdoor (NYQ:DECK).
I'm willing to sacrifice value in favor of quality and momentum. I'm sure Charlie Munger would approve. He was the original architect of buying a wonderful business at a "fair" price.
Although not perfect stocks, I own two stocks from the screen Booking Holdings (NSQ:BKNG) and Deckers Outdoor (NYQ:DECK).
I've held BKNG for nearly 5 years and it's been a lovely GARP share - by US standards. Certainly not a steady ride, thanks to Covid, but not stressful either, given the strength of the platform and the outstanding cash generation. I rarely bother to check the SP, which I think is a really good measure of confidence. I just wish they would do a 10:1 or even 5:1 share split. It would increase participation from retail shareholders and facilitate the trading of options. I have a position valued in six figures and still can't get halfway to selling covered calls, for which this stock would otherwise be well suited.
I should've clarified. I included the removal of the dividend yield as a valuation metric. So, you're getting the same 30 results from the screen that I did.
Top 20 Diversified NAPS - spreadsheet comparing each line with today's stock report reflects my experience with NAPS - you can't just leave it and expect a return. It needs attention and refactoring more frequently than desirable and also shows what a torrid market we have been through this last year and a half. I am referring to the link to the spreadsheet above. The article is excellent and educational.
*Past performance is no indicator of future performance. Performance returns are based on hypothetical scenarios and do not represent an actual investment.
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would be a lot better if you enabled users to set their own customised view as a their default. I.E once one has customised and saved the screen view tab it becomes their screen view for all their screens. Enables all screens to be downloaded and copied into excel the same, so when one then copies and pastes the screen to a template all other customisations or additional calculations are the same for each screen generated.