This really is dedicated to people which put money into individual stocks. I wants to share together with you the strategy I have tried personally through the years to pick stocks i are finding to get consistently profitable in actual trading. I prefer to utilize a blend of fundamental and technical analysis for picking stocks. My experience indicates that successful stock selection involves two steps:
1. Select a stock with all the 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 over the 100-Day EMA
This two-step process raises the odds that this stock you decide on will be profitable. It now offers a signal to sell Automatic Income Method which includes not performed as expected 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, a different type of strategy.
Fundamental Analysis
Fundamental analysis could be the study of economic data for example earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over the years I have tried personally many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I purchased methods for example earnings growth and return on equity. I are finding the methods usually are not always reliable or predictive.
Earning Growth
For example, corporate net income is susceptible to vague bookkeeping practices for example depreciation, cashflow, inventory adjustment and reserves. These are common susceptible to interpretation by accountants. Today more than ever, corporations are under increasing pressure to overpower analyst’s earnings estimates which results 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 as being a drag on earnings growth but rather appear as being a footnote with a financial report. These “one time” write-offs occur with more frequency than you may expect. Many businesses that from the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other popular indicator, which I have found is just 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 better the ROE the greater).
Which company is 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 has a much higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is indeed over valued the reason is stockholder’s equity is merely add up to about 5% with the total market value with the company. The stockholder equity is indeed small that nearly anywhere of net gain will create a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity add up to 42% with the market value with the company as well as a much higher net gain figure to produce a comparable ROE. My point is the fact that ROE does not compare apples to apples so therefore is not a good relative indicator in comparing company performance.
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