This is dedicated to people who wish to spend money on individual stocks. I has shared with you the strategy I have tried personally over the years to pick stocks which i have realized to get consistently profitable in actual trading. I like to utilize a combination of fundamental and technical analysis for picking stocks. My experience has shown that successful stock selection involves two steps:
1. Select a share using the fundamental analysis presented then
2. Confirm that the stock is definitely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process raises the odds that the stock you end up picking will likely be profitable. It even offers a transmission to market Automatic Income Method containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis is the study of economic data like earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over many years I have tried personally many means of measuring a company’s growth rate so that they can predict its stock’s future price performance. I used methods like earnings growth and return on equity. I have realized why these methods usually are not always reliable or predictive.
Earning Growth
For instance, corporate net profits are susceptible to vague bookkeeping practices like depreciation, earnings, inventory adjustment and reserves. These are all susceptible to interpretation by accountants. Today inside your, corporations they are under increasing pressure to beat analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs usually are not reflected like a drag on earnings growth but show up like a footnote on a financial report. These “one time” write-offs occur with more frequency than you might expect. Many companies that from the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other indicator, which i’ve found is not 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 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 includes a much higher ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is indeed over valued that its stockholder’s equity is just add up to about 5% in the total monatary amount in the company. The stockholder equity is indeed small that just about anywhere of net income will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity add up to 42% in the monatary amount in the company and requirements a much higher net income figure to make a comparable ROE. My point is the fact that ROE doesn’t compare apples to apples therefore is not a good relative indicator in comparing company performance.
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