How to choose a promising investment by facing such large number of stocks and financial figures? Each investor has probably a slightly different answer to this question. It only seems certain that there is no stock selection strategy which leads to a positive return in any single case. Nevertheless, to increase the probability of positive return I use the top 25% strategy.

On the positive side, this strategy requires only the very basic financial figures of stocks. However, as it compares stocks relatively to each other, a high number of different stocks is strongly recommended. It avoids choosing 'the best' stock from a small pool of weak stocks.

At first, all stocks get listed in descending order in terms of the return on equity. Afterwards, the top 25% of the list score a point whereas the lowest 25% of the list lose one. The procedure is repeated with the financial figures EBIT margin, expected sales and expected earnings growth. Similar it is done with the price book and price earnings ratio except here the stocks are listed in ascending order because in these categories lower values are preferred. Finally, the total sum of a stock's points indicates its attractiveness. High scores signalize promising and low scores rather unattractive investment.

I use this strategy only to decide which stocks deserve a more detailed analysis and which not. I never solely rely on the results of the strategy while considering a stocks investment. Background information concerning the rated financial figures, which can be found in the corporation`s financial reports, must carefully be checked in each individual case!