Screening: volatility and stability (Hurst)

Who this entry is for — The scan delivers 80–140 candidates: too many. Here you pick "the elite of the flock" — with the reversal that is the chapter's heart: volatility, which the prudent investor avoids, becomes the timing trader's main profit ingredient.

Source: J. M. Hurst, The Profit Magic of Stock Transaction Timing, Prentice-Hall, 1970 — Chapter 7, Making Use of Screening Criteria → A Word of Caution and Emphasis (pp. 116–119).

Prerequisites

Total scanning — the list to be trimmed comes from there.

The right proportion first

Warning — The caution comes before the criteria, and it is verbatim: whether you make money on a trade "is considerably more dependent on your skill and diligence in applying the price-motion model than in the process you use for selection". Screening only improves already-high probabilities — and cuts the list "by the use of at least reasonably logical comparison criteria".

The three volatility factors

In plain words — A stock can have superb fundamentals and still move slowly. For yield per unit of time you need a stock that runs — and what makes it run is a small float, wide swings, and shorts ready to be squeezed.

Capitalization — shares outstanding: below one million there is capacity for high volatility (little buying moves price a lot); 1–3 million is "light", 3–6 "medium", above 6 million "usually requires tremendous volume". The lower, the better — net of the true float: two million shares locked away for control turn a 3-million issue into an effective 1-million one.
Percentage motion — the era's quick measure: how much chart space one percent takes ("percent per inch" on the Mansfield scale). The larger, the more volatile — the modern equivalent is historical percentage range.
Short interest — shares sold short: high and increasing means that once a rise starts, covering shorts pile demand upon demand — high upside volatility potential.

And the reversal, verbatim: "if you have avoided volatile issues in the past, remember that your situation and your capabilities have changed completely now that you are aware of cyclicality. […] as risk is decreased through improved timing capability, volatility becomes a major ingredient in the formula for profit optimization".

The four stability factors

All else being equal, "you might as well have a few of these so-called fundamental factors on your side":

Factor	What it is	Preference
Rating	Analysts' composite quality judgment (A, A−, B+…)	High
Price/earnings	Current P/E, judged against that stock's own history	Low
Yield	Yearly dividends as % of price	High
Earnings growth	Accumulated four-quarter earnings, in sequence	Large and steady

Earnings growth is the conceptually interesting one: investors discount future earnings in advance — part of the smooth 75% of price motion the model assigns to fundamentals.

The book's summary table

Criterion	To buy	For shorts
Rating	high	low
P/E	low	high
Yield	high	low
Earnings growth	large	deteriorating
Capitalization *	small	small
Motion *	large	large
Short interest *	high	high
Volume interest	large	large

* The volatility factors do not reverse: you want them identical on either side of the market.

Example — Two candidates through the scan: one rated A, low P/E, 8 million shares; the other rated B, average P/E, 900,000 shares with rising short interest. The buy-and-hold investor picks the first; the book's method picks the second — because with equal timing, that is the one that can do +55% in eight weeks.

Warning — "Do not make a meal out of a sandwich": stocks fluctuate — cyclically — and if screening becomes a ritual, "they will fluctuate on without you before you can get your analysis completed". Trim fast; analyse deeply only the stable.

Summary card

Priority	Criterion
1 (always)	Cyclic readability, volatility, imminence of signals
2	Small capitalization · large motion · high short interest
3 (tie-breakers)	Rating, P/E, yield, earnings growth
Golden rule	Screening trims; the model makes the profit