This is Andrew Horowitz with the Winning Investor’s Quick and Dirty Tips for Beating the Market and I'm here to talk about the Quanta side of the Quanta Funda Techna strategy that can help you be a winning investor.

What is Quanta?

Quanta refers to Quantitative Analysis, which, don’t worry, seems scary at first but really it’s quite simple.  We're trying to take the emotions out of investing by using cold, hard facts. Your emotions can bias you to like one of your favorite or popular stocks, even though it might have bad earnings or bad future prospects; or it can cause you to hate certain stocks just because they're unpopular, sort of like the financials right now.  Instead of trying to use your gut to make decisions, you can try to use some of the basic scanning and screening methods that quantitative analysis allows you to do.  Remember we're trying to remove bias -- whether good or bad -- when we look at a stock, and are trying to turn the information about the company into cold, hard, impersonal facts that you can act upon. We can use the scans, stock screens, filters, and searches to try to make a better investment decision.

But it's probably best not to go overboard and better to take into account other aspects of a stock when selecting to find out whether it is really good or bad, use a more diversified approach. We'll talk about some of these methods in future podcasts.

Where Should You Start?

There's thousands of stocks out there to choose from... so where do you start?!  Stock scans can be the answer for you to cut through all the bad stocks and find the shining gems that need your attention and your research. Think of quantitative work as simple filtering to find the best out of a huge bunch of stocks.  That way it's less intimidating. Your goal is to find companies to analyze more in depth -- not to start investing in just because a stock scan or screener or something that you saw on the street or in a newspaper.  Set your goals to find the highest quality stocks from the whole stock universe that you want to take a closer look at and then you can see if they really are something that meet your needs and something you would prefer to invest in utilizing other aspects including fundamental analysis and technical analysis.

How to Use Stock Scans

You can make the criteria or rules for your scans relatively easy -- like looking for high or low P/E ratios. Or you can make the criteria really complex to add lots of layers to your search. Try to balance your scan criteria so that it's not too simple where it gives you too many results and not too complex or strict where it only returns five or so companies.

You can scan stocks using the Finance Pages at Google, Yahoo, MSN Money, FinViz (FinViz.com), and other popular sites. But it is important to make sure the site is reputable and has good data--particularly a long history of stock market data--or else you might not find what you're looking for.

• At FinViz.com, click on the button called "Screener" and you get a page full of options to select.  You can also select some quick and easy pre-sorted scans like recent insider trading and buying or some technical scans by clicking on the "Signals" box... but let's not get ahead of ourselves.

•  You can also access Yahoo.com's Stock Screener tool by visiting screen.yahoo.com.  You can filter out companies by valuation and apply the knowledge of Ratios you just learned in our earlier ratio podcast.

• MSN Money allows you to use their Stock Screener tool which also retrieves P/E ratios, dividend yields, and profit margin just like the other screening tools.

It’s really a matter of preference which one you choose. But, try all the pre-canned screens to kind of get a feel for what it’s all about. Play around with these tools to see which stocks come up in the scans you select.  Remember, you should never run out and buy a stock just because it came up in a scan you ran. Use the list of stocks you have from a well-planned scan to start looking deeper at these companies.

Now that you have a list of the companies you want to start taking a closer look at, stay tuned for the next episode where we talk about fundamental analysis and how to look deeper into a company to see what they're really worth!

And by the way, is there a question you’d really like to ask me and maybe have it appear on our show? Just email me at winninginvestor@quickanddirtytips.com or you can call 206-338-0836. That’s 206-338-0836 and maybe your question will appear. So if you have a question you’ve been thinking about for a long time that you want us to answer on The Winning Investor just email it in or give a call. 

This is Andrew Horowitz with the Quick and Dirty Tips for the Winning Investor. Talk to you soon.