Do the StockRanks or Guru Screens incorporate human input?

No, our ranking systems and screens are based on purely quantitative approaches. We run no qualitative analysis at allon individual stocks in order to come up with our ranks or screens other than in their design and in the choice of the factors that they are composed from. This is because we fundamentally believe that selecting stocks based on sound quantitative research is a far better process than the way most people select stocks.

Research shows that people fall in love with their stocks due to reams of behavioural biases (e.g. confirmation bias). We are hardwired to believe in stories - as a result the average private investor underperforms the stock market by 4-6% per year or more. Behavioural science has shown that rules based approaches are far more effective than personal discretion for the majority of investors. By simply removing emotion from the equation through the use of checklists (ranks/screens), investment results can be improved. James Montier (portfolio manager of GMO and an excellent author) has sagely written that 80% of the institutional investment world should be replaced by simple algorithms.

We don't believe that stock tips have any alpha nor that they are a good means of investment idea generation. Decades of academic research into what actually works in the stock market show that portfolios of good, cheap, improving stocks have a tendency to beat the market. Risky, expensive, deteriorating stocks have a tendency to lag. This is what underlies the entire Stockopedia Quality/Value/Momentum Ranking system. Our systems stand on the shoulders of giants incorporating the research of academics like Eugene Fama, Joseph Lakonishok, Robert Novy Marx and Joseph Piotroski, to popular practitioner authors like Joel Greenblatt and James O'Shaughnessy. You can read up on the whole ethos in this set of help articles -

These screening and ranking systems are designed to be used in portfolio approaches to stock selection. When picking individual shares there is a vast amount of idiosyncratic risk involved - and a wide variance of returns. As a result, picking one stock with a rank of 90+ might be foolhardy, but picking 25 such stocks is more likely to be successful over the longer term. In any individual stock scenario the ranks may not match deeper fundamental research and can appear very wrong as a result. But that is the basis of the system - they are designed predominantly for use across portfolios.

Our whole site ethos is: don't listen to pied pipers, even us - Always Do Your Own Research!Our subscribers are free to use the StockRanks and screens as they wish, either to be completely ignored, helpful as a guide or used as part of a process. While we personally have our own biases towards very quantitative approaches, many investors using Stockopedia are qualitative stock-pickers who use our analysis as a starting point. Most subscribers do appreciate the screens & StockRanks as an aid to decision making in some form or another.