This can be dedicated to those who would like to spend money on individual stocks. I would like to share along with you the methods Personally i have tried over time to select stocks which i have discovered being consistently profitable in actual trading. I want to use a blend of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a share using the fundamental analysis presented then
2. Confirm the stock is surely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process increases the odds the stock you decide on will be profitable. It offers an indication to trade ETFs which has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful means for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis could be the study of financial data like earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over many years Personally i have tried many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I have used methods like earnings growth and return on equity. I have discovered the methods aren’t always reliable or predictive.
Earning Growth
As an example, corporate net income is subject to vague bookkeeping practices like depreciation, cashflow, inventory adjustment and reserves. These are subject to interpretation by accountants. Today inside your, corporations are under increasing pressure to conquer analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs aren’t reflected like a drag on earnings growth but rather appear like a footnote on the financial report. These “one time” write-offs occur with increased frequency than you could possibly expect. Many businesses that constitute the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other popular indicator, which has been 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 that is certainly maximizing shareholder value (the higher the ROE the greater).
Which company is much more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The reply is Merrill Lynch by any measure. But Coca-Cola features 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 can be so over valued the reason is stockholder’s equity is only add up to about 5% in the total monatary amount in the company. The stockholder equity can be so small that almost anywhere of net profit will make a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity add up to 42% in the monatary amount in the company and needs a greater net profit figure to make a comparable ROE. My point is the fact that ROE does not compare apples to apples so therefore isn’t a good relative indicator in comparing company performance.
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