As a trader starting out, at times the advice one reads can feel long on pithy maxims and short on useful advice.
The coronavirus has spawned no dearth of “buy low, sell high” blog pieces offering well-intended tips that are ultimately too broad to be of much use. A quick Google search can tell you to invest into just about anything. Of course, during a downturn there will be opportunities. No doubt some of this advice is sage. But is it right for you?
One key error new traders make is taking advice from friends and forums about the direction an asset is heading in – usually up! But every portfolio and strategy is different. Each individual has a unique tolerance to risk, specific sectoral knowledge, and ideas about the state of the world and its impact on markets. What many retail investors lack though, is time to reflect this in their portfolio.
Luckily, there are tools to help guide your trades. Using a stock screener does most of the heavy lifting of research for you, allowing you to play to your advantage, and turn your big ideas about market direction into practical advice, rather than vague assertion.
The way it works is fairly simple. Markets comprise thousands of stocks. Deeply analysing each company’s financial statements, ratios, multiples, and historical and future growth prospects individually would take a lifetime. With a stock screener, you determine metrics, and the software filters out stocks that fail your criteria.
That tech firm you heard about could be saddled with debt; the growth of that miner is dependent on a risk you’re not willing to take. You can prove the validity of your ideas and how they fit into your portfolio with hard data. Which, in our current circumstances, is more valuable than ever.
For example, in this paper last week, it was reported that “a strong economic recovery following the coronavirus pandemic is likely, with conditions ripe for a quick turnaround”. You might have heard that stocks in the pharmaceutical industry are undervalued. You search for stocks within that sector with a price-to-earnings (P/E) ratio below a specific level and make your pick based on that.
Or, if making a quick buck betting on pharma stocks isn’t your thing, you might be more concerned with long-term growth. In which case looking for shares with a consistent level of year-over-year earnings growth, combined with low debt and cash on the balance sheet, could see you weather the covid storm and gain the returns you seek further down the line.
While the main purpose of a stock screener is to find good stocks and learn which to avoid, it can also stop you from making stupid decisions. When you start out investing, it can be easy to get caught up in emotion, which can create behavioural bias and, subsequently, lead to poor decision-making. A stock screener can help to iron out that bias with a dose of data-led reality. By inputting into the screener highly-specific criteria derived from your trading strategy, you can disprove your impulses. Data doesn’t lie – and you might be kidding yourself.
There are of course more qualitative factors that a stock screener won’t pick up, but from amateur to professional, it’s the best place to start your trade. There are a myriad of stock screeners available to investors, ranging from the very basic to one like the one we offer to all traders on the Fineco platform.
Alongside commission-free trading, multicurrency accounts, and the widest range of tools on the market, our stock screener is included when you sign up. During these uncertain times, you can’t leave decisions about your money to chance. With Fineco as your trading partner, you can start to make sense of what comes next. Make your next trade with us; with clarity.