This is focused on people which purchase individual stocks. I wants to share together with you the ways I have used in the past to choose stocks i have realized to become consistently profitable in actual trading. I want to utilize a blend of fundamental and technical analysis for selecting stocks. My experience has shown that successful stock selection involves two steps:
1. Select a share with all the fundamental analysis presented then
2. Confirm how the stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process increases the odds how the stock you select will 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 can be another useful means for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis is the study of financial data such as earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over time I have used many methods for measuring a company’s growth rate so that they can predict its stock’s future price performance. I have used methods such as earnings growth and return on equity. I have realized why these methods usually are not always reliable or predictive.
Earning Growth
By way of example, corporate net income is be subject to vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are be subject to interpretation by accountants. Today inside your, corporations they are under increasing pressure to beat analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs usually are not reflected like a continue earnings growth but instead appear like a footnote with a financial report. These “one time” write-offs occur with increased frequency than you may expect. Many businesses that constitute the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other indicator, which has been found just isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management that is certainly maximizing shareholder value (the higher the ROE the higher).
Which company is a bit more successful?
Coca-Cola (KO) with a Return on Equity of 46% or
Merrill Lynch (MER) with a Return on Equity of 18%
The reply is Merrill Lynch by any measure. But Coca-Cola has a greater ROE. How is this possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is really over valued that it is stockholder’s equity is only corresponding to about 5% in the total monatary amount in the company. The stockholder equity is really small that nearly anywhere of net gain will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity corresponding to 42% in the monatary amount in the company and needs a greater net gain figure to produce a comparable ROE. My point is ROE will not compare apples to apples so therefore is very little good relative indicator in comparing company performance.
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