This is dedicated to people who would like to spend money on individual stocks. I has shared together with you the techniques I have tried personally over the years to pick stocks that we have realized being consistently profitable in actual trading. I want to work with a mixture of fundamental and technical analysis for choosing stocks. My experience has shown that successful stock selection involves two steps:
1. Select a share while using fundamental analysis presented then
2. Confirm that the stock can be an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process boosts the odds that the stock you select will likely be profitable. It also provides a signal to market Automatic Income Method which has not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful method for selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis could be the study of financial data including earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over the years I have tried personally many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I used methods including earnings growth and return on equity. I have realized these methods are not always reliable or predictive.
Earning Growth
For instance, corporate net earnings are be subject to vague bookkeeping practices including depreciation, earnings, inventory adjustment and reserves. These are common be subject to interpretation by accountants. Today more than ever, corporations are under increasing pressure to conquer analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are not reflected like a continue earnings growth but appear like a footnote on a financial report. These “one time” write-offs occur with more frequency than you could expect. Many firms that from the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other popular indicator, which has been found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a higher return on equity with successful corporate management that’s maximizing shareholder value (the better the ROE the greater).
Recognise the business is a bit more successful?
Coca-Cola (KO) which has a Return on Equity of 46% or
Merrill Lynch (MER) which has a Return on Equity of 18%
The answer then is Merrill Lynch by any measure. But Coca-Cola carries a much higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is indeed over valued the reason is stockholder’s equity is only corresponding to about 5% with the total market price with the company. The stockholder equity is indeed small that just about any amount of net income will make a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% with the market price with the company and needs a greater net income figure to generate a comparable ROE. My point is the fact that ROE will not compare apples to apples so therefore is not an good relative indicator in comparing company performance.
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