Kappa: Stock screener

Kappa is a mobile application for building a portfolio of stocks which is based on a multi-factor model of fundamental indicators. With Kappa, an investor can find undervalued stocks that have the potential to outperform the average market growth.

Theory

Kappa is a strictly scientific program that does not offer easy money on stock exchange.

The future is generally unpredictable. Therefore, it is impossible to predict the behavior of the stock market. Most investors and traders who try to beat the average market growth end up losing out. However, ways to outperform the market do exist.

By “market” investors usually mean the S&P500 index. It is that index that they cannot outperform. But what is it in a nutshell? This is just the 500 largest US companies, which have been showing profit for 4 quarters in a row, whose stocks are taken in proportion to their capitalization. The set of companies is reviewed annually. It turns out that investors cannot beat the average growth of the largest companies, bought blindly.

Kappa's strategy is to build own index, that is similar to the S&P500 and consists of the largest companies, but excludes overvalued and unprofitable ones. The resulting index should a-priori outperform the average market growth.

This is what Kappa does. The application scans the US market several times per minute and calculates 15 fundamental ratios for 6,000 companies.

The obtained ratios are divided into three groups that characterize the company in terms of value, profitability and sustainability. For each of the three criteria, the company is given a score from 1 to 10. Then the scores are summed up and the company receives an investment rating.

According to the available statistics collected over 50 years on the US stock market, regularly buying companies with “Strong Buy“ rating, it is possible to achieve an average annual return of up to 22%. This is the level of Warren Buffett.

Sounds simple, but this is actually not an easy task. It is the average annual return over the long term. Every year, during at least 10 years, investor should buy 25 to 50 companies with “Strong Buy” rating in equal proportions.

This is a psychologically difficult task. Investor gets in the way of emotions, that say to make an exception for some company or leave the strategy as non-working. The S&P500 has no emotions. That is why it is so hard to outperform it.

Table design

Data table design is one of the most difficult areas of design. Tables are always designed in violation of perception laws and have poor typography, wrong alignment and data formatting.

Kappa's design is built around data tables. Financial systems involve working with a large amount of data that needs to be read quickly and correctly. Therefore, it was not enough to draw nice-looking tables for Kappa; the task was to create a whole language for tables, on the fundament of which the app design would be built.

Kappa's table design is based on San Francisco monospaced font. Tables mostly contain numeric data, so figures need to be compared, that means, the digits must be properly aligned. Therefore, a monospaced font should be used, in which all characters have the same width.

Most fonts force numbers to be the same width, but this doesn't work if the designer uses abbreviations:

Kappa is focused on the US market. It is targeted to financial experts and investors. Therefore, it uses the US number format: decimal part is separated by period, thousands are separated by comma.

In future, Kappa will support the European format, where the decimal part is separated by comma, and thousands are separated by space. There is a drawback in this format: digits separated by space merge with the gap between columns.

To avoid this problem, a thin space can be used, which has a smaller width even in monospaced fonts.

On the contrary, column names should use a proportional font. This can make column titles more compact without any impact to readability.

The hardest part of a table is data alignment. Simply all designers align them wrong.

The common way is to right-align the figures along with the column names. This is easier for developers, but wrong from a design point of view. Tables aligned in this way (that is, almost all tables in the world) seem torn and unconcise. Figures jumps around and difficult to read.

Column names should never be right-aligned. Instead, we must determine column width by the longest figure in it, and then align the title to the left.

This design is quite tricky for developers to implement, but greatly increases the readability of tables. But tables can be made even more great if we break the dividing line and make it personal for each column. Then the boundaries of each columns will be recognized instantly.

Another bad practice is adding measure units to the column name. This is done in order not to repeat it on each line. The result is quite contrary: data becomes much harder to read.

Dollars, percentages and meters turn into nameless numbers. Column names widers and data narrows. The table gets large gaps between columns. This practice should never be used. After all, this is an example where the unit is universal for all columns. What will happen if one stocks are in dollars, euros and yuans?

Finally, for such data as price it is useful to show the change over a period. It is best to do this on the second line with smaller font size. Long column names can also be moved to the second line, which will make the table even more compact.

Indicators

Kappa rates companies by their fundamentals ratios, which are number of 15. Ratios are divided into 3 equal groups: valuation ratios, profitability ratios, and financial stability ratios.

How does Kappa rate a company? Let us take the popular P/E ratio and calculate it for all 6,000 companies in the US stock market. We will get 6,000 values of P/E. Let us sort them in descending order and divide into 10 equal parts. Let us call each of these parts a decile.

Statistically, companies with the smaller P/E are more profitable in the long term. The higher the P/E, the more likely the company is overvalued. According to the statistics, the best companies are the ones from decile 1 to 3. And if the average annual market return is 11.2%, then the average return on stocks from the first decile is 16.3%, from the second decile is 15.4%, from the third decile is 13.8%.

Complex statistics folded into a simple indicator.

The color indicates the “goodness“ of the score. If the indicator is green, then the company is able to outperform the market, according to this ratio. If the indicator is yellow, then the company most likely will have an average market return. Red color indicates that the company is likely to lose to the market.

The indicator is divided into ten parts. The decile, in which the company is located, has more saturated color. The specific position of the ratio is market with a tick on the scale.

In addition to these simple indicators, the company's stability is assessed on two complex ratios. This are Altman and Petroski scales.

The Altman scale estimates the probability of a company going bankrupt. A score is calculated based on the financial reports. If the score is less than 1.8, then the company is in a state of distress. If the score is greater than 3, then the company is considered stable. Values from 1.8 to 3 are considered a “gray zone”: there are no obvious signs of bankruptcy, but the company's condition leaves much to be desired.

The Petrosky scale evaluates the financial stability of a company. Based on the financial reports, the company is given a score from 0 to 9. It is plotted on a scale with a gradient from red to green. The higher the score, the more stable the business is considered.

Application

Kappa calculates all 15 ratios for 6,000 US companies in real time and displays all calculations in the form of simple indicators and scales.

The company's page has rich, elaborate financial infographics and clearly answers the investor's question: is it worth investing?

Indicators are summed up and divided into three groups. Each group then gets its own indicator that is built by the same principle. Then the algorithms is applied again for all three groups together. Thus, the final rating of the company is calculated, which can be from “Strong Avoid“ to “Strong Buy”.

All results of the calculations are summarized in a large table with numerical ratios and indicators, designed according to all the rules of data table design.

In the mobile app, the table scrolls not only vertically, but also horizontally. Names of columns and rows are being fixed during scrolling.

The most complex table is used on “What to Buy“ screen. All companies are displayed here in descending order of investment attractiveness. Companies can be filtered by inclusion in a popular index (S&P500, Russell 2000, etc), sector, capitalization and trade exchange.

The table on the home screen displays only the main indicators of the companies that are in the portfolio, as well as profitability for the period.

Kappa is a new product. The strategy embedded in the application is used by large investors. For the first time this complex strategy is presented in the form of a simple application, that is easy to use even to a beginner investor.

To explain this investment strategy, Kappa has a detailed built-in help screen. It describes how to choose and buy stocks, rebalance portfolio, and why the strategy is able to outperform the market.

Kappa as well has built-in contextual tooltips. Every ratio on the company page is provided with help on its calculation.

Dark theme

Kappa supports a dark theme that is automatically turned on if enabled in system settings. Indicators, counters, tables and scales look cool and professional on black background. Using Kappa is an aesthetic pleasure.

Download

Kappa is available for iPhone and Android. Kappa is a paid application. A subscription to stock screener is $10 per month. You can use the program for free within 14 days. After that, you will only be able to manage your portfolio, but the access to ratios will be stopped.