Stock selection criteria

Stock selection criteria is a strategy in which an stock analyst or investor uses a systematic form of analysis to determine if a particular stock constitutes a good investment and should be added to their portfolio. The objective of stock selection criteria is to: (1) maximize the total return on investment (appreciation plus any dividends received) for the targeted holding period (2) limit risk (according to an individuals risks tolerance levels) (3) maintain an appropriate degree of portfolio diversification. The stock position can be either "long" (to benefit from a stock price increase) or "short" (to benefit from a decrease in a stocks price), depending on the analyst or investor's expectation of which way the stock is going to move. It is widely acknowledged that a disciplined stock selection approach is one of the primary factors behind the success of well-known investors like Warren Buffett and Peter Lynch. As a result several systematic stock picking approaches have been developed over the years by various stock market experts. In addition, automatic computer programs that query a stock database to select and rank stocks according to specified criteria are also commonly used by investors to aid in their stock selection process.