Using Stock Picking Software
Stock picking software can be a good idea for stock investors who want to leverage proven and automated approaches to stock picking and investing. The right stock picking software will scan the thousands of stocks available for investment and return a list of choices that meet specific criteria. The key for investors is to understand and believe in the logic the program is using in seeking out stocks for investment. Additionally, many investors will conduct further analysis on the list of stocks they are presented before actually investing.
The Benefits of Mechanical Investing
The use of stock picking software falls under an investing approach known as “mechanical investing”. This is the use of a pre-determined and objective set of rules to decide which stocks (or other securities) to purchase. Mechanical investing can also help investors decide when to sell a security as it removes any emotion from the decision-making process and determines the actions to be taken based solely on the data that is presented. Mechanical investing relies on strategies that have proven to be successful in the past in delivering potential investment candidates.
Software Takes the Emotion Out of Investing Decisions
There is an old expression that says that the stock market is driven by two emotions from investors: fear and greed. The behaviors from these fears are easily observed during stock market bubbles (greed) and rapid sell-offs (fear). Historical data indicates that, between the two, fear is the stronger emotion as sell-offs usually lead to more rapid price changes than bubbles. As you may already know, succumbing to either of these emotions can have a dramatically negative impact on your portfolio.
Stock Market Software and the Efficient Market Hypothesis
The efficient market hypothesis (EMH) is an investment theory that says it is not possible to “beat the stock market” because, in today’s environment, the rapid flow of information and easy accessibility to all investors has made the market perfectly efficient so that all stock prices are an accurate reflection of current values. Detractors of this theory point out long-term successful investors like Peter Lynch and Warren Buffer to make the point that, if the market were truly efficient, no one would be able to achieve this type of track record. Opponents to the theory also point to events like the stock market crash of 1987 to show how stocks can and do deviate from their actual values. This lack of efficiency in the market, they would say, opens the door for investors who develop a logical and systematic approach to stock picking.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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