A stock screen is central to mechanical investing. This system involves the use of a specified set of rules to determine which stocks to buy, hold and sell. You will be required to hold stocks for a certain period of time before you sell them.
A stock screen uses a single or multiple strategies to rank stocks. The criteria for ranking include a combination of return on capital and the earnings yield. Also, the stock screens are made to undergo a selection process before they can be used. Mechanical investing is a popular option with most traders as it offers various benefits. We have discussed them below.
 1.     Emotion-less Investing –
This is the main reason to use a mechanical strategy. Involving emotions in the investment process can cause irreparable losses. Emotions force an investor to make transactional decisions based on hunches rather than based on the historical and prevailing market trends. They buy when the market is high and sell when it is low.
Mechanical investing gets rid of the emotions from your investment decisions. Thus, you can make decisions based on facts increasing your profit potential and reducing risk to the minimum.
 2.     Low cost –
Commission is a major cost involved in trading. Mutual funds entail a number of overhead expenses commonly referred to as the expense ratio. Also, investment professionals might charge a few hundred dollars as commissions to manage your trading account.
Most online brokers charge a low commission rate and therefore it reduces the cost involved in implementing these strategies. If you get a no-commission free broker, you can get it down free of cost. This increases the returns on investments in the long run.
 3.     Reduced Time Investment –
With other investments, you purchase your investment, hold it for certain duration, let it build equity and sell it at the end of the period for a profit or loss. This is not the case for the stock market. The stock market changes almost every second and money is made only if you capitalize on these opportunities. It might be hard for a person to take advantage of the movements in the market unless he lets a professional manage his account.
In case of mechanical investing, stocks are picked up directly from the stock screen reducing the amount of time you need to dedicate to this form of trading. At the most, you have to rebalance your portfolio once a year or a few times a year.
 4.     The Ability to Back test –
When you use mechanical investing, you are able to back test every strategy you use. This way you are in a position to determine how well a strategy performs and how consistently. This makes it very effective because you can replace non-performing strategies.
A stock screen uses a single or multiple strategies to rank stocks. The criteria for ranking include a combination of return on capital and the earnings yield. Also, the stock screens are made to undergo a selection process before they can be used. Mechanical investing is a popular option with most traders as it offers various benefits. We have discussed them below.
 1.     Emotion-less Investing –
This is the main reason to use a mechanical strategy. Involving emotions in the investment process can cause irreparable losses. Emotions force an investor to make transactional decisions based on hunches rather than based on the historical and prevailing market trends. They buy when the market is high and sell when it is low.
Mechanical investing gets rid of the emotions from your investment decisions. Thus, you can make decisions based on facts increasing your profit potential and reducing risk to the minimum.
 2.     Low cost –
Commission is a major cost involved in trading. Mutual funds entail a number of overhead expenses commonly referred to as the expense ratio. Also, investment professionals might charge a few hundred dollars as commissions to manage your trading account.
Most online brokers charge a low commission rate and therefore it reduces the cost involved in implementing these strategies. If you get a no-commission free broker, you can get it down free of cost. This increases the returns on investments in the long run.
 3.     Reduced Time Investment –
With other investments, you purchase your investment, hold it for certain duration, let it build equity and sell it at the end of the period for a profit or loss. This is not the case for the stock market. The stock market changes almost every second and money is made only if you capitalize on these opportunities. It might be hard for a person to take advantage of the movements in the market unless he lets a professional manage his account.
In case of mechanical investing, stocks are picked up directly from the stock screen reducing the amount of time you need to dedicate to this form of trading. At the most, you have to rebalance your portfolio once a year or a few times a year.
 4.     The Ability to Back test –
When you use mechanical investing, you are able to back test every strategy you use. This way you are in a position to determine how well a strategy performs and how consistently. This makes it very effective because you can replace non-performing strategies.