This really is committed to those who want to invest in individual stocks. I would like to share along with you the ways I have tried personally over time to pick stocks that I are finding being consistently profitable in actual trading. I love to make use of a blend of fundamental and technical analysis for picking stocks. My experience has shown that successful stock selection involves two steps:
1. Select a regular while using the fundamental analysis presented then
2. Confirm how the stock is definitely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process boosts the odds how the stock you select will be profitable. It now offers a signal to trade options containing not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful method for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis is the study of monetary data such as earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over many years I have tried personally many options for measuring a company’s rate of growth so as to predict its stock’s future price performance. I used methods such as earnings growth and return on equity. I are finding the methods usually are not always reliable or predictive.
Earning Growth
For instance, corporate net profits are at the mercy of vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are at the mercy of interpretation by accountants. Today more than ever, 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 the balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs usually are not reflected as being a drag on earnings growth but rather arrive as being a footnote with a financial report. These “one time” write-offs occur with an increase of frequency than you might expect. Many companies that constitute the Dow Jones Industrial Average have 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 higher return on equity with successful corporate management that is maximizing shareholder value (the greater the ROE the greater).
Which company 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 is Merrill Lynch by measure. But Coca-Cola features a better 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 really over valued what has stockholder’s equity is simply equal to about 5% of the total market price of the company. The stockholder equity is really small that almost any amount of net income will make a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity equal to 42% of the market price of the company and requires a much higher net income figure to generate a comparable ROE. My point is ROE does not compare apples to apples then is very little good relative indicator in comparing company performance.
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