The Problem With Stock Screeners

28 03 2010

The greatest question of value investing: How do you find an undervalued stock?

I screen for companies with a low price/free cash flow and hope to find a hidden gem. Most of the companies returned by the screen have very negative future outlooks. Still, there are ones that are worthy of real attention. Also, these screens won’t include companies trading at mediocre multiples with high growth expectations (take Buffett’s famous investment in Coke).

So, how does Warren Buffett recommend that we look for stocks (more importantly, why does he recommend this)?

Here is a great blog post on the subject:

Basically, looking through every publicly traded company gives you a great bank of knowledge to increase your circle of competence, and consequently, your rate of return. That’s why I’m “starting with the A’s.”




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