That is specialized in people who would like to put money into individual stocks. I want to share together with you the strategy I have tried personally over the years to choose stocks that we have found being consistently profitable in actual trading. I prefer to utilize a mix of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:
1. Select a share with all the fundamental analysis presented then
2. Confirm the stock is an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process boosts the odds the stock you end up picking will be profitable. It now offers a signal to offer Automatic Income Method containing not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful way for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis is the study of monetary data for example earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over recent years I have tried personally many methods for measuring a company’s growth rate so that they can predict its stock’s future price performance. I purchased methods for example earnings growth and return on equity. I have found why these methods are not always reliable or predictive.
Earning Growth
For instance, corporate net income is subject to vague bookkeeping practices for example depreciation, earnings, inventory adjustment and reserves. These are all subject to interpretation by accountants. Today as part of your, corporations are under increasing pressure to get over analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are not reflected as being a continue earnings growth but instead make an appearance as being a footnote on a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many companies that constitute the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other popular indicator, which I have found just isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a top return on equity with successful corporate management that is certainly maximizing shareholder value (the higher the ROE better).
Recognise the business is more successful?
Coca-Cola (KO) with a Return on Equity of 46% or
Merrill Lynch (MER) with a Return on Equity of 18%
The answer then is Merrill Lynch by any measure. But Coca-Cola carries a greater ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola can be so over valued the reason is stockholder’s equity is just equal to about 5% in the total monatary amount in the company. The stockholder equity can be so small that just about anywhere of post tax profit will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity equal to 42% in the monatary amount in the company as well as a much higher post tax profit figure to produce a comparable ROE. My point is always that ROE won’t compare apples to apples therefore isn’t a good relative indicator in comparing company performance.
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