Successful investors use several tools to aid them in making better investment decisions and tracking their investments. The best tools give individual investors the means to quickly do their own research in finding quality investments.
Screening for stocks is something every investor does. You may be screening using personal contacts and recommendations or using a sophisticated computer algorithm to narrow down your choices. No matter your method, every investor narrows down their choices to the select few they will actually purchase and here lies both the problem and the opportunity.
The obvious problem is that your selections may not be profitable. Not so obvious, is that any selection can produce a profitable outcome simply by chance. The best selection process should be repeatable and this is the opportunity. The question becomes, how to test your strategy.
Testing a strategy is typically done with a backtesting tool which simulates the strategy over a defined period of time with real purchase parameters such as portfolio size and commissions per trade. This allows investors to see how their stock selection strategy performs in a variety of market conditions. You can do this on your own by paper trading (we have a tool for that called Trade Tracker) but it is difficult to do over long time periods. With a backtesting tool, you can easily see the results of your strategy without waiting months or years for results to unfold.
Having an investment strategy that you are confident in will allow you the ability to execute the strategy without being swayed by your emotional predilections. Backtesting your strategy, paper trading in the current market, and finally trading your screening selections in the real market is one of the best ways to improve your investing performance. These are the successful investor’s tools of the trade.