That is dedicated to people who would like to purchase individual stocks. I would like to share along the methods I have tried personally through the years to pick out stocks that I have realized being consistently profitable in actual trading. I prefer to work with a mixture of fundamental and technical analysis for choosing stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a regular while using fundamental analysis presented then
2. Confirm that this stock can be an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process enhances the odds that this stock you select will likely be profitable. It offers a transmission to sell Automatic Income Method which includes not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful means for selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis will be the study of financial data such as earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over the years I have tried personally many strategies to measuring a company’s growth rate so as to predict its stock’s future price performance. I purchased methods such as earnings growth and return on equity. I have realized the methods aren’t always reliable or predictive.
Earning Growth
As an example, corporate net income is subject to vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are subject to interpretation by accountants. Today more than ever before, corporations they 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 such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs aren’t reflected like a continue earnings growth but alternatively show up like a footnote with a financial report. These “one time” write-offs occur with more frequency than you could possibly expect. Many companies that form the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
Another popular indicator, which i’ve found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management which is maximizing shareholder value (the greater the ROE the better).
Recognise the business is more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The answer is Merrill Lynch by any measure. But Coca-Cola has a much higher ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is so over valued that its stockholder’s equity is only comparable to about 5% with the total market price with the company. The stockholder equity is so small that nearly anywhere of net profit will develop a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity comparable to 42% with the market price with the company and requirements a greater net profit figure to produce a comparable ROE. My point is always that ROE will not compare apples to apples then is not an good relative indicator in comparing company performance.
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