When Do You Pay for a Paid Screener

By Revised by Reworked (Own work) [Public domain], via Wikimedia Commons

Sleep per Day: (Target) 7h30m / day (Actual) 7h29m / day (100 day average)

I didn’t realize there were so many net net stocks in Hong Kong (literally my own backyard) until I stumbled upon an article by Mark Lin on Seeking Alpha called “Seeking Hong Kong-Listed Net Cash Stocks As Deep Value Investment Ideas“.

And compared to the literally shit quality net net stocks available in USA (as of Sep 23rd using Graham Investor’s net net screener), the 55 Hong Kong net nets I found from screener.co yielded at least 8 stocks that increased book value over 5 years, paid a dividend in past 5 years, and had profits in past 5 years. I even found a well known local company called Tse Shui Luen Jewellery at 52.09% discount to its NCAV.

To me that was surprising. To absolutely be ignorant in the trove of treasure that I can easily access with my Hong Kong brokerage account is just astounding to me since I’ve spent so much time looking and buying US stocks.

But the question dawned upon me, when does using a paid screener make sense? After all, I could only identify these Hong Kong net nets through a paid screener (albeit with a trial 30 day account), which couldn’t have been done directly using free stock screeners I’ve come across to.

I think there’s two aspects that need to make sense before you go ahead and subscribe to a paid screener:

  1. Does the returns you make from the lucrative investments discovered by the paid screener more than compensate for the monthly subscription fee?
  2. What is your hourly salary if you assume every hour in a month is a working hour?

So for “1. Does the returns you make from the investments discovered by the paid screener more than compensate for the monthly subscription fee?”, using screener.co as an example, let’s do a mathematical exercise to illustrate.

If the monthly subscription fee of the basic plan is 24.95 USD / month, and we assume that what Warren Buffett observed was right about returns from net nets (“returns within a 2-year timeframe 70 to 80% of the time“), and we further assume we were using a 30 stock portfolio (Benjamin Graham recommended 10-20 stocks) with around $1200 USD / stock at $18 stock commission / trade and that every stock was bought at 2/3 discount to NCAV (as recommended by Benjamin Graham as well) the returns from a 30 stock portfolio would still be a respectable 13.32% after taking the monthly subscription fee and stock commissions into consideration [1].

So in this case, if you can’t find any investment that can give you 13.32% return other than a 30 stock portfolio filled with net nets fueled by a paid screener, it probably makes sense to pay for a paid screener.

The only risk would be if there wasn’t enough net net stocks available to fill the 30 stock portfolio, but even then you’d only need 0.83% post-stock commission annual returns to break-even the paid screener’s monthly subscription fee.

For “2. What is your hourly salary if you assume every hour in a month is a working hour?”, it is important to take your waking hour’s worth into consideration because you should always outsource tasks that cost less than your hourly wage to maximize the value of every minute. So taking the 24.95 USD / month subscription fee of screener.co’s basic plan, find out how much time it takes to filter stocks manually to generate your list of lucrative investments multiplied by your hourly salary and compare it to the monthly subscription fee.

Taking net net stocks as an example again, if your hourly salary is 3 USD / hour, the 24.95 USD / month subscription fee implies that it is worth 8.32 hours of your time. The question than becomes whether or not you can generate your list of net net stocks within 8.32 hours.

The other question that needs to be answered is how many times you’ll generate your list of net net stocks in a month? If you generate it twice a month, can you generate your list of net net stocks within 4.16 hours? If you generate it four times a month, can you generate your list of net net stocks within 2.08 hours?

[Notes]

[1] Assuming 80% of stocks reach full value in 2 years and the other 20% of stocks remain at same value as purchase price, then the returns is calculated as ($36,000 * (((1.5 ^ (1/2)) * 0.8) + (1 * 0.2))) – (24.95 * 24) – (18 * 60).

1.5 is the 50% return one would get if 2/3 discount to NCAV is sold when the stock price becomes = NCAV.

^ (1/2) is converting the return over 2 years into CAGR (what is the equivalent compounded return the portfolio makes / year).

0.8 is the 80% of stocks reaching full value.

1 * 0.2 is the other 20% of stocks which remain at same value (which is represented by multiplying by 1).

Multiplying both (1.5 ^ (1/2)) * 0.8) and (1 * 0.2) gives you a weighted average of return one would get.

24.95 * 24 is basically the screener.co’s monthly subscription fee of the basic plan over 24 months.

18 * 60 is the $18 USD stock commission done twice for the 30 stocks in the portfolio (once for buying, once for selling).

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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