Finding #1 Stocks: Screening, Backtesting and Time-Proven Strategies (The Zacks Series) [Hardcover]

Having recently reviewed a book on investing anomalies by Mitch Zacks and given it four stars for its honest and realistic view of harnessing anomalies for stock portfolios, its ironic that I have to give two stars to this book by another Zacks employee.

One has to keep in mind while reading this that it is first and foremost a marketing tool for Zacks' services. In order to entice someone to try the services the author would likely present some wildly profitable backtested screens to seduce you into trying their services and that's exactly what happens here. Some of the screens claim to achieve compounded results of nearly 70% per annum over a ten year period! Of course in real-life this is completely unachievable. The reason I say they are unachievable is because many of them involve buying and selling a new list of stocks every week. The costs of commissions and far more crucially, the bid/ask spread will eat into the actual results so severely that I wouldn't be shocked if the total anomaly benefit is wiped out by the total trading costs.

What prevented me from giving it just one star is the fact that the author often reminds the reader that these results don't take commissions, slippage and bid/ask spreads into account. However and crucially, nowhere in the book does the author even attempt to give the reader any idea of how much these factors will detract from performance. I have no doubt that the author has a fairly good idea of what these figures are, but if he presented them, the magic trick would be revealed for what it is; sleight of hand.

Do we have any actual portfolio(s) we can examine to see how the Zacks screens perform in real life? Not exactly, but Zacks does manage a few mutual funds. Granted, the funds are not managed by the author nor do they use the same strategies mentioned in the book, but let's face it, if Zacks could achieve anywhere near the performance documented in this book it's safe to assume they would use the strategies. Sadly, for the five years from 1/1/06 to 3/31/11, their All-Cap Core fund (CZOAX) would have grown from an initial investment of $10,000 to $11,983 compared to $12,171 for the Russell 3000. As such, not only did they come absolutely nowhere near achieving the wild figures claimed in this book, but they didn't even beat their benchmark index!

Finally, there is also a long section on technical analysis that seems quite out of place. The author shows some screens that duplicate some TA, but suspiciously includes not a single backtested result for any of these screens. But again, this is primarily a marketing book so the point is to sell the product, not necessarily clearly demonstrate the truth. If you want to buy a Zacks book, go for the Mitch Zacks "Little Book" instead.

The sales pitch in this book borders on nauseating. I get that lots of authors do this with stock / investing books and i have somewhat come to expect it, but this book just takes it to an entirely new level.

You cannot run ONE SINGLE SCREEN in this book without a subscription to Zack's Premium service, which as you guessed, costs $$$. Every single screen requires the Zack's Rank, which is proprietary and non-existent outside of their paid service.

In order to actually backtest anything, you also need Zack's Research Wizard, another service -- this one around $1,000/yr.

And on the subject of backtesting, let's talk about offensive. Practically every one of these screens comes with backtesting results, and you know what the results are? The results are that the screens in this book are generating returns of upwards of 80,000% in some cases. Yes you heard me right -- EIGHTY THOUSAND PERCENT. If this isnt a cheap trick to lure in the fresh meat to buy these obnoxious services then I don't know what is. Yea, sure, there are the obligatory disclaimers like "These tests do not take into account slippage and other factors, so your results may differ significantly." Oh wow, ya think? This is unacceptable and sleazy at best, offensive at worst, and it is a grotesque illustration of luring people in on false hopes. Advice to the author - instead of saying in metaphorical fine print "This test was completely and utterly useless", here's a crazy idea. -- MAKE A TEST THAT ISNT USELESS. Whatever you need to "account for", account for it.

To top it all off, I even question the legitimacy of these reviews since the very first 5 star review appeared on exactly the date of publishing and is not a verified Amazon purchase.

This book is broken.

I have been a long time reader of Kevin Matras' on Zacks.com. His Screen of the Week articles have been a consistent source of great investment strategies and top picks. So when I heard that he wrote a book on stock screening, I knew I had to get a copy. And I am so glad I did.

This is a breakthrough work on how to make stock screening accesible to the average investor. Yet still provide advanced ideas for long time screeners like myself.

Long story short, there is simply no way that someone can read Finding #1 Stocks without getting profitable investment ideas that will pay for the book many times over.