I Screen, You Screen

by Ethan Haskel ([email protected])

Baltimore, MD (Sept. 30, 1998) -- I screen, you screen, we all screen for I screen!

This little ditty (or variant thereof) was a regular chant around the Haskel dinner table when either the vanilla, chocolate, or strawberry I Scream was served for dessert. (The scene occurred in the year 10 BCCCD -- Before Chocolate Chip Cookie Dough.) It's certainly an appropriate cheer around this corner of Fooldom, and I'd like to spend a few bytes discussing why it is that I use mechanical screens to choose stocks.

One major issue for me, and I suppose for many other Fools, is time allotment. I've just got too much of a life outside of this investment shtick. For starters, there's that pesky job thing. Being a cardiologist in the brave new world of managed care these days is not exactly my idea of the Life of Riley, but it pays the bills. Eighty-hour weeks are not unusual, and don't get me started on this on-call business. (Why the incidence of heart attacks has to peak at five in the morning is beyond me.)

Then, we mustn't neglect the family life. Those "cherubs" of mine deserve all the quality time I can scrounge. Hobbies and exercise are also essential. Let's see... then there's travel, friends, reading, shopping, gassing up the car, flossing... all this stuff sure adds up, which leaves me about... fourteen minutes per day to handle all my investment decisions.

Enter The Motley Fool. To choose high quality growth stocks for one's portfolio, David and Tom Gardner, as outlined in The Motley Fool Investment Guide, recommend to "keep it simple": Check the company sales, daily dollar volume, share price, net profit margin, relative strength, earnings and sales growth, insider holdings, and cash flow. To get this data, they recommend calling the company and requesting the annual report, 10-K and 10-Q financial statements, press releases, and analysts' reports. Once these are obtained, the perfect Fool would check the income statement for margins, R&D expenses, income tax status, and share growth. Then it's on to the balance sheet to analyze cash equivalents, debt, accounts receivable -- and we haven't even mentioned the cash flow statement.

Excellent advice guys, but I just can't get around to doing this research for each stock I'm considering. Also, let's not forget that once a stock is chosen for our equity basket, we have to watch this basket pretty darn closely.

"Sorry, kids, I can't come up and read you that bed time story now. The margins on Amazon are falling and I'm not sure why!"

That's why I screen. In trying to reach my financial destination, I prefer to find one excellent set of wheels and keep using it year in and year out, rather than trying to reinvent a new one every week.

It's partially for this reason that I set out a number of years ago to develop a new large stock value screen, which I called Beating the S&P, or BSP for short. Not only does BSP have a pretty darn good track record for almost 12 years, it has beaten or tied the S&P 500 each year for nearly six consecutive years (and is trouncing the markets again in 1998). Over the next few weeks, I hope to share with you some of my experiences in developing this screen, potential snafus I've had to deal with, and how the process might be instructive to all you Screening Fools out there.

See you next week.

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