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Author: earslookin Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41614  
Subject: The BMW Screen...er, Method Date: 12/15/2006 9:30 AM
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This may sound like trashing. I prefer to think of it as demystifying. By the way, I sometimes use the BMW screen...er, method.

The BMW method consists of three steps:

1. Find stocks where the current price is at or below the historically low CAGR line and calculate buy and sell prices.

2. Do your due diligence.

3. Cash out when you reach your previously calculated sell point.

Of these three steps, number two requires the heavy lifting. There are few people on the planet who are skilled at assessing the likelihood, magnitude, and longevity of future cash flows. But there are many who either think they are skilled at doing this or who underestimate its difficulty.

This is why Greenblatt, with his Magic Formula method, advises a mechanical buying and selling approach for most investors after getting the results from his screen. He says if you are one of the few who are very, very good at assessing future cash flows, then go ahead and just cherry pick from the Magic Formula screen based on your due dilligence. However, for the great majority he advocates a mechanical approach because most investors are just not very good at doing this due diligence step.

BMW's worthy contribution here is to the practice of screening -- finding that subset of stocks worthy of further action together with an understanding of attractive buy and sell prices. To make more of it than this is dangerous to your investing health.
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