how to screen good stocks using sharpely in just four simple steps
Investing is the game of odds. Creating a data-driven process and optimizing it across different market cycles will increase the odds in your favour. And that is why, at sharpely, we aim to empower our users with data-driven decision-making. We know that sometimes looking at multiple data points can be complex. So, we have designed institutional-level research tools that do the heavy lifting of data analysis for you.
So, we will look at how sharpely simplifies your investment framework with its very powerful and unique investment tools. In this blog, we will understand and analyze how you can find investment ideas by using sharpely’s Styleboxes. And there is more to it. We will backtest the process and validate how informed investing can make a huge difference in returns over time.
And what is the best part? Not only can you do all these in just a few clicks, but you can also take your investment strategy live!
On sharpely, we have created a “classification” methodology that tries to classify stocks into separate buckets (called StyleBoxes) using the stock’s quality, value, and momentum. We measure these three factors using our proprietary factor scores. You can read more about them here.
We have created ten style boxes. Four out of them are favourable. And we will use them in our screening process. Simply open the stock screener from the products dropdown. Now in the universe by default “All Stocks” will be selected. For this article, we are not changing it, but you can change the universe if you wish to. Now, let’s find investment-worthy stocks in four simple steps.
Click on the add rule and select “styleboxes” from the universe tab. Keep the “includes” tab as it is and add “Super stock”, “Under the radar”, “market angel”, and “Potential Turnaround” as shown in the image below.
As you can see, 378 stocks qualify after our first step. So we have eliminated more than 1000 stocks in the first step.
Here we want to identify companies that are growing fast. So we will use sales growth (3Y). Again click on “Add another rule” and select “Sales CAGR (3Y) > 25%” as shown below.
As you can see, 108 stocks are left after this step.
Here we want to filter out stocks with good return ratios. And we will use ROE for the same. Because with solid ROE, value will not be created for shareholders! So, add another rule of “Average ROE (3Y) > 15%” as shown below.
After this step, we are left with 62 companies.
Finally, we don’t want to overpay for our investments. So we will add P/E as the valuation metric. We will add another rule by adding “P/E < 25” as shown below.
And that’s it. After adding this rule we are left with 41 stocks. You can see the full list in the below image.
This list contains some really good names. Don’t believe that’s true? Here is our way to show you the proof.
When we say, we are data-driven, we mean it. So, we will prove this is a good list of stocks using backtesting. You can do this on sharpely. Do you know how? With just one click! Simply hit the backtest screen button at the right top of your screener and see the results.
Our backtesting calculation is very easy to understand. To calculate the performance, we run the same screen every quarter and buy stocks that are filtered at the time and sell the stocks that were bought in the last quarter. We assign equal weights to all stocks.
Here is the performance of the screen that we created above.
As you can see, the portfolio CAGR in the last 3 years is a whopping 40% compared to Nifty 50 CAGR of 19.24%! On sharpely, you can backtest the performance of your screens on various timeframes.
Here, we are not suggesting that this screen is the crystal ball, and you should invest blindly in all the stocks mentioned here. But we are showing that with sharpely’s powerful tools and features, you can find potential opportunities very easily in a few steps!
Just creating a good rule-based investment framework is not enough. It is worthless if you cannot invest using this framework in a fully automated manner. Well, at sharpely, you can convert your screen to an investment strategy. You can paper trade this strategy without risking any money. And once you are confident, you can take the strategy live on your preferred broker. We will discuss more on that in more detail in an upcoming blog.
Sharpely's powerful tools, particularly the StyleBoxes, simplify the process of identifying investment-worthy stocks. By combining the elements of quality, growth, return on equity, and valuation, we've demonstrated how sharpely users can streamline their stock selection process. Backed by data-driven insights, our approach has shown impressive results, with a portfolio CAGR of 40% over the last three years, emphasizing the potential investment opportunities that can be easily discovered with just a few clicks on the sharpely. It's a testament to the advantages of data-driven decision-making in the world of investments.
