Frequently Asked Questions
Common questions about The Good Cheap Stocks System investment strategy.
- Q: What is the purpose of this website?
- A: This website was built to give everyone access to a free and simple stock screening tool to find and select high-quality, undervalued stocks. The Good Cheap Stocks System is based on the investment methodology described by Joel Greenblatt in his book The Little Book That Beats the Market — a proven, systematic approach to long-term value investing.
- Q: How should I decide how many stocks to choose from the database?
- A: We recommend maintaining at least 20 stocks in your portfolio at any given time. As with any investment portfolio, holding more stocks will generally reduce volatility over the long run and improve diversification.
- Q: How do I choose the minimum size of a company based on its total market capitalization?
- A: A company's market capitalization is calculated by multiplying its total number of outstanding shares by the current share price. Our data shows that larger companies tend to be less volatile than smaller ones. To reduce risk, consider focusing on companies with a market capitalization above $1 billion.
- Q: How do I choose among the top-ranked companies from the stock screener results?
- A: Statistically, it doesn't matter which specific stocks from the top-ranked results you choose to invest in — you're already selecting from the top few percentiles of all screened stocks. Investing in at least 20–30 of these stocks will help ensure adequate diversification.
- Q: How long should I hold these stocks?
- A: The Good Cheap Stocks System is designed with a holding period of approximately one year. This timeframe is intended to maximize your after-tax return. After one year, you screen again for new stocks and build an updated portfolio based on the most current financial data and share prices. If a previously owned stock still appears on the list, you can decide whether to continue holding it.
- Q: How should I decide how many shares to buy of each selected stock?
- A: The Good Cheap Stocks System is based on investing equal dollar amounts in each selected stock. This equal-weight approach keeps your exposure balanced across all positions.
- Q: If I purchase a stock from the top-ranked list and it drops off the list a few weeks later, what should I do?
- A: Stick to the plan. The Good Cheap Stocks System assumes you will continue holding each stock for a full year, regardless of whether it remains on the screener list.
- Q: If I want to add more money to my portfolio in three months, should I screen for a new list of stocks?
- A: Yes. For best results, always use the most current screener output when adding new capital to your portfolio.
- Q: How does The Good Cheap Stocks System select stocks?
- A: The approach is rooted in straightforward financial logic, not guesswork. The methodology comes directly from Joel Greenblatt's book The Little Book That Beats the Market, which demonstrates that disciplined value investing can outperform market averages over the long term. In practice, The Good Cheap Stocks System screens for two key qualities simultaneously: stocks with a low EV/EBIT ratio — meaning they are cheap relative to their earnings — and stocks that generate a high return on capital, meaning they are fundamentally good businesses. We apply minor accounting adjustments to these ratios to make comparisons more meaningful across companies in different industries and geographies. Over 30+ years of research, strategies that identify both cheap stocks and good companies have consistently demonstrated strong long-term results.
- Q: How often is the data updated?
- A: Stock price data is updated every trading day at approximately 07:00 AM CET. Financial statement data is updated quarterly as we receive it from our data provider.
- Q: Are all stocks included in the screener database?
- A: The database covers stocks from 20 global exchanges. Financial sector companies and utilities are excluded due to the unique nature of their accounting structures, which makes comparison with other industries unreliable.
- Q: How long does it take for this system to work?
- A: Financial markets are unpredictable in the short term. We strongly recommend committing to The Good Cheap Stocks System for at least three years before drawing any conclusions. There are no guarantees, but decades of evidence and sound financial reasoning support this as a sensible long-term investment approach.