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I was curious as to the assistance AI might be able to lend to investing practice. My watchlist is out of date, and I don't have a systematic way of updating it. So I turned to Perplexity AI Research with a simple inquiry. I find the AI response to be most impressive, and potentially quite helpful.

(I lost the formatting in copying the website response. Sorry about that.)


My inquiry:
How to most effectively maintain a value-oriented watchlist for stock market investing by a US citizen.


Perplexity AI Research response:

A well-structured watchlist is the cornerstone of successful value investing, serving as your personal radar system for identifying undervalued opportunities while filtering out market noise. The following comprehensive guide outlines how US investors can build and maintain a value-oriented watchlist that aligns with time-tested principles from investing legends like Warren Buffett, Benjamin Graham, and Charlie Munger.

Fundamentals of Value Watchlist Creation

Defining Your Investment Goals

Before building your watchlist, clearly articulate your investment objectives and time horizon. Value investing typically focuses on long-term appreciation through identifying companies trading below their intrinsic value. Your watchlist should reflect whether you're seeking:

Pure value opportunities (deeply discounted stocks)
Growth at a reasonable price (GARP)
Dividend income from value stocks
Special situations (turnarounds, spinoffs)

Having clear investment goals helps focus your watchlist on securities that align with your specific objectives and risk tolerance.

Optimal Watchlist Size and Management

For effective monitoring, consider these guidelines:

Part-time investors should maintain a focused list of 50-100 securities tracked daily

Committed full-time investors might expand to 300-500 stocks in a primary database with a smaller secondary list for active monitoring

Categorize stocks by sector, industry, and value characteristics to maintain organization as your list grows

Most brokerage platforms allow creating multiple watchlists, enabling you to segment potential investments by strategy, sector, or investment thesis. For instance, Fidelity permits up to 15 custom watchlists with 50 securities each, while Charles Schwab allows 25 watchlists containing up to 100 symbols each.

Essential Value Metrics to Include Core Financial Ratios

Effective value investing requires tracking specific metrics that signal potential undervaluation. Include these essential ratios in your watchlist:

Price-to-Earnings (P/E) Ratio: Benjamin Graham recommended companies with P/E ratios of 9.0 or less. Compare a company's P/E to its industry average and historical levels to identify potential value.

Price-to-Book (P/B) Ratio: Graham favored stocks with P/B ratios below 1.2, suggesting they trade below their asset values. This metric is particularly useful for evaluating financial and capital-intensive companies.

Price/Earnings-to-Growth (PEG) Ratio: This metric incorporates growth expectations, with values below 1.0 potentially indicating undervaluation relative to growth prospects.

Free Cash Flow Metrics: Monitor FCF yield and FCF-to-net income ratio (preferably above 75%). Strong free cash flow indicates a company can fund operations, pay dividends, and reinvest without additional financing.

Financial Health Indicators:

Debt-to-Equity Ratio: Value investors typically prefer companies with debt-to-equity below 0.5, or where free cash flow can pay down debt within three years. Lower ratios indicate reduced financial risk.

Return Metrics: Track ROIC (Return on Invested Capital) and ROE (Return on Equity), looking for values consistently above 10% and preferably increasing over time. These metrics demonstrate management's efficiency in deploying capital.

Growth Indicators: Monitor consistent growth in EPS, book value per share, operating cash flow per share, and revenue (ideally 10%+ over 8+ years).

Platform Selection for US Investors. Brokerage Platforms with Strong Watchlist Features:

Fidelity: Offers robust watchlist functionality with customizable views and integration across desktop and mobile platforms. You can include stocks, mutual funds, options, and indices in your watchlists.

E*TRADE: Provides a powerful stock screener with filters for value metrics like forward P/E ratios and earnings expectations. Its watchlist offers up to 43 customizable data fields to monitor your selected metrics.

Charles Schwab: Allows monitoring a wide range of streaming market data about securities of interest through its StreetSmart platform.

Robinhood: Offers simpler watchlist functionality with the ability to reorder stocks by holding and dragging them to new positions.

Dedicated Stock Screening Tools

For more advanced filtering and monitoring:

FINVIZ: Particularly useful for swing traders and value investors due to its comprehensive screening criteria and visualization tools.

Stock Rover: Well-suited for buy-and-hold value investors with strong fundamental analysis capabilities.

Morningstar Portfolio Manager: Enables tracking diverse investments in one place with Morningstar's research and analysis integrated.

Value Stock Screener: Free tools like StockInvestorIQ's value screener can help identify potentially undervalued stocks globally based on Buffett and Lynch principles.

Organizing Your Value Watchlist – Effective Categorization Strategies

Structure your watchlist using these approaches:

Sector-Based Organization: Group stocks by sectors (financials, healthcare, technology, etc.) to identify value opportunities within specific industries.

Value Criteria Categories: Create separate watchlists based on value characteristics:

Deep value (low P/B, P/E)
Quality value (high ROIC, reasonable valuation)
Special situations (turnarounds, spin-offs)
Dividend value plays

Investment Stage Classification – Categorize by where they stand in your investment process:

Initial screening candidates
Under deep research
Waiting for price targets
Current holdings to monitor

Watchlist Maintenance Best Practices:
Regular Review Schedule –Implement a disciplined approach to watchlist management:

Daily Quick Scan: Briefly review price movements and news for significant developments.
Weekly Deep Dive: Allocate time to analyze any stocks that have reached potential buy/sell thresholds.
Monthly Comprehensive Review: Reassess all watchlist entries, removing those that no longer meet your criteria and adding new prospects.

Quarterly Fundamental Update: Review latest earnings reports and adjust intrinsic value estimates accordingly.

Setting Up Alerts and Notifications – Leverage technology to stay informed without constant monitoring:

Price Alerts: Configure notifications when stocks reach predetermined price levels or exhibit significant movements.

Volume Alerts: Set up notifications for unusual volume spikes that might indicate important developments.

Technical Pattern Alerts: Monitor for specific patterns like death crosses, golden crosses, or moving average crossovers if they align with your entry strategy.

Earnings/Dividend Announcements: Receive alerts about upcoming earnings releases or dividend declarations.

Implementing a Value Investing Checklist

Incorporate Charlie Munger's investment principles into your watchlist evaluation process:

Business Understanding: Only include companies whose business models you thoroughly comprehend.

Competitive Advantage Assessment: Evaluate each company's "moat" – sustainable competitive advantages that protect profits and market share.

Management Quality: Track management's capital allocation decisions, insider buying/selling, and shareholder-friendly actions.

Financial Strength: Verify low debt levels, strong cash flow, consistent profitability, and high return on capital.

Margin of Safety: Calculate the gap between current market price and your estimated intrinsic value to ensure adequate downside protection.

From Watchlist to Investment Decisions
Determining Entry Points

Use your watchlist to identify optimal buying opportunities:

Price Targets: Establish specific price levels that would represent sufficient discounts to intrinsic value.

Valuation Triggers: Set specific thresholds for key metrics (P/E below industry average, P/B below historical mean).

Catalysts: Identify potential events that might correct the undervaluation (earnings surprises, management changes, industry transformations).

Risk Management and Position Sizing

Let your watchlist inform portfolio construction:

Diversification Check: Ensure your watchlist spans multiple sectors to avoid overconcentration.

Risk Rating: Assign a risk level to each watchlist entry to guide position sizing.

Correlation Analysis: Identify stocks with low correlation to your existing holdings to enhance diversification.

Conclusion

A well-maintained value-oriented watchlist serves as the foundation for disciplined investment decisions, helping you identify opportunities that align with proven value investing principles. By systematically tracking key metrics, organizing your prospects effectively, and implementing rigorous review processes, you position yourself to capitalize on market inefficiencies while maintaining the patience central to successful value investing.

Remember that a watchlist is a dynamic tool that should evolve with market conditions and your investment experience. The most effective value investors use their watchlists not only to identify buying opportunities but also to enforce discipline and objectivity in their decision-making process.

Related possible follow-up questions
What are the best practices for regularly reviewing and updating a value-oriented watchlist?
How can I incorporate new money into my existing watchlist effectively?
What metrics should I prioritize when evaluating stocks for my watchlist?
How often should I rebalance my watchlist to ensure it remains effective?
What are the common pitfalls to avoid when maintaining a value-oriented watchlist?

Full time job and approach and philosophy, right there.

My "mechanical" approach is just simplifying down to GTAA - trend following - and morphing to more stability through following Alpha Architects "Beta+Factor" model. Which involves about 20% max smallcaps.

FC

I read a nice essay by a hedge fund manager once, alas I forget who--Mr Dalio maybe?--that set forth a nice step in the middle ground between value investing and mechanical.

They analyzed a lot of well known investments, including all of theirs and several by other folks, and did post mortems. They asked two questions of each. What was the key cause of the failure of the investment thesis? and What question, had it been asked in advance, would have made that problem foreseeable?

Then they built a really big checklist from the answers to the second question. For any new investment idea, they run down the checklist, and if it fails any of them, they don't invest in that idea.

This approach could be a big help in keeping one's watchlist down to a manageable size.

Jim

They built a really big checklist from the answers to 'what question, had it been asked in advance, would have made [investment failure] foreseeable?' For any new investment idea, they run down the checklist, and if it fails any of them, they don't invest in that idea.

This approach could be a big help in keeping one's watchlist down to a manageable size.

I'd like to have just such a checklist of simple questions. Many have been mentioned here and elsewhere, often by Jim. It would be great to automate that, perhaps by properly training an AI tool to work on the VL 1700 or some such.

Tom

I used to subscribe to bloodhound, a website that presented backtested strategies, some of which used the Valueline 1700 as their sub-universe. They went out of business after 11/2016 so I didn't update the numbers but you might want to start here. I haven't looked at these since but you might be able to create a usable strategy.

10 stock CAGR 27%
valueline 1700 not otc
12 mo. R&D /sales>=2%
5 yr sales gro>0
beta>=1.25
p>$2
rank by hi gross margin

20% cagr
valueline 1700
price<=$10
inventory/ sales 12 m <=25%
CFPS growth 5 yr>=0
Sales gro 5 hr>= -25%
price>5
rank by 12 mo gross margin high


valueline 1700 not otc
12 mo sales <= 2 bill
FYE declared div<=0
inventory /sales 12 mo <= 12
ROA >= 5
beta<1.25
p>2
Book Value(Reported)/Share Fiscal Quarter End bottom rank

23.9% cagr
valueline 1700 not otc
12 mo sales <= 2 bill
FYE declared div<=0
inventory /sales 12 mo <= 12
ROA >= 5
beta<1.25
p>2
Debt/Capital Fiscal Quarter End. rank high

24%
p>=$4 and NOT NYSE
Sales/Capital Fiscal Year End. Sales expressed as a percentage of total capital. >=150%
rank by high gross margin

38%
mcap >=150 m or 50m
12 mo asset turn>= .5
FYE declared div<= .01 or leave out
inventory /sales 12 mo <= 25%
R&D / sales 12 mo >=2%
beta>= .8
p>2
ROA 12 mo rank high or Cost of Goods Sold/Sales Trailing 12 Months

38%
insider<20%
rank by high sales growth


assets / # of employees >100,000 < 750,000
div per share high


48%
Value Line Financial Strength Fiscal Year End. C++ to B++

49%
insider hold 10% to 30%
rank by sales grow


36%
valueline 1700
not otc
Estimated EBITDA % Current 12 months>= 1 yr ago
( Value Line's estimate for EBITDA margin for the current year)
P/ CF 12 mo>0
p / BV >0
rank by combining various value measures


cagr 41%
valueline 1700 not otc
Standard Deviation Earnings Per Share<= .2
(The standard deviation of the past 12 quarters of Primary Earnings Per Share.)
P/ CF and P/ BK >0
rank by combining various value measures


not nasdaq
current ratio>= .02
div gro 10 yr>0
P>4
cf/ share high rank

54%
sales 12 mo>100m
Net Income Before Discontinued, Non-recurring, and Extraordinary Fiscal Year End>=100mill
(Profit after deduction of all expenses including taxes, and minority interests, but before deduction of preferred dividends paid and accumulated and before any non-recurring, special, and extraordinary items. Reported as of fiscal year end.)
p>2
rank by sales/ share 12 mo high

24%
nasdaq
sales / cap >= 100%
cf/ share <=350
p>8
rank by hi gross maragin

39%
valueline1700 no otc
R&D / sales 12 m >= 2%
gross margin 12 m >=30%
p>5 and mcalp>50
p/ 52 wk high rank low

54%
sales >100 m
Net Income Before Discontinued, Non-recurring, and Extraordinary Fiscal Year End. >100
(Profit after deduction of all expenses including taxes, and minority interests, but before deduction of preferred dividends paid and accumulated and before any non-recurring, special, and extraordinary items. Reported as of fiscal year end.)
rank by sales/ share high

That is a lot of screens.
I wonder if there is ANY VL1700 stock that doesn't get picked in one or more screens.

Seems odd that they went out of business when they had so many extremely profitable investment strategies.

> I used to subscribe to bloodhound, a website that presented backtested strategies, some of which used the Valueline 1700 as their sub-universe. They went out of business after 11/2016...

What a coincidence! That happens to be just after a certain free VL-based backtester went offline.

- Jamie

I noticed that at times, it just says, x%. Does that mean x% CAGR, and if so, for how long.

Thanks for the screens.

And CARG is earnings?

CARG was compound annual growth rate.

When I sent myself an email on strategies I had run on their backtester I was testing weekly trading and monthly; I think the results were monthly in the list but it has been too long for me to recall now.

If I didn't expressly say "Valueline 1700" then that was not a criteria i.e. some screens used their more general stock universe, but those using it gave a reasonably capitalized size universe to start with so I liked having that (I often am doing the same thing on other mini-universes trying to get a better result than on such entire universes but starting with something reasonable, like the Nasdaq100 or S&P500).

They had some "canned" screens and some "public but from customers" screens and then I had some of my own; I didn't care the source so didn't keep the origin in my notes.

Thanks.

And CARG is for earnings, not sales?

Thanks.

And CARG is for earnings, not sales?

not sure if you meant to post twice, but "CARG" was "compound annual growth rate" neither earnings nor sales

What is growing then, the stock price? And if so, for how many years?

Posting twice was a mistake.

Thanks for your help by the way. It is very generous of you to share.

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