That is dedicated to those of you which spend money on individual stocks. I has shared with you the methods I have tried personally over time to pick stocks i are finding to be consistently profitable in actual trading. I love to work with a combination of fundamental and technical analysis for selecting stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a regular while using the fundamental analysis presented then
2. Confirm how the 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 increases the odds how the stock you end up picking is going to be profitable. It also provides a sign 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 way of selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis could be the study of monetary 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 time I have tried personally many means of measuring a company’s growth rate to try to predict its stock’s future price performance. I manipulate methods like earnings growth and return on equity. I are finding these methods usually are not always reliable or predictive.
Earning Growth
For example, corporate net profits are susceptible to vague bookkeeping practices like depreciation, income, inventory adjustment and reserves. These are all susceptible to interpretation by accountants. Today more than ever before, corporations are under increasing pressure to overpower 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 things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs usually are not reflected being a drag on earnings growth but instead show up being a footnote with a financial report. These “one time” write-offs occur with increased frequency than you may expect. Many companies that form the Dow Jones Industrial Average took such write-offs.
Return on Equity
Another popular indicator, which has been found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management that’s maximizing shareholder value (the larger the ROE the higher).
Recognise the business is much 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 solution 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 gain by stockholder’s equity. Coca-Cola is indeed over valued that its stockholder’s equity is just comparable to about 5% of the total market value of the company. The stockholder equity is indeed small that almost any amount of net gain will create a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity comparable to 42% of the market value of the company and requires a much higher net gain figure to make a comparable ROE. My point is the fact that ROE will not compare apples to apples therefore is very little good relative indicator in comparing company performance.
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