That is committed to people who want to put money into individual stocks. I would like to share along the strategy Personally i have tried through the years to choose stocks which i have found to get consistently profitable in actual trading. I prefer to make use of a blend of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a standard while 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 above the 100-Day EMA
This two-step process increases the odds that the stock you end up picking will be profitable. It even offers a sign to market stock that has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is also a useful means for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis will be the study of economic data like earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over time Personally i have tried many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I purchased methods like earnings growth and return on equity. I have found these methods usually are not always reliable or predictive.
Earning Growth
For instance, corporate net earnings are subject to vague bookkeeping practices like depreciation, income, inventory adjustment and reserves. These are all subject to interpretation by accountants. Today more than ever before, corporations they 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 specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs usually are not reflected as a continue earnings growth but instead show up as a footnote with a financial report. These “one time” write-offs occur with an increase of frequency than you could expect. Many firms that make up the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other indicator, which i’ve found just isn’t 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 higher the ROE the higher).
Recognise the business is much more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The solution is Merrill Lynch by any measure. But Coca-Cola includes a better ROE. How is this possible?
Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola is so over valued that its stockholder’s equity is only corresponding to about 5% of the total rate of the company. The stockholder equity is so small that just about anywhere of post tax profit will create a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity corresponding to 42% of the rate of the company and needs a greater post tax profit figure to generate a comparable ROE. My point is always that ROE won’t compare apples to apples then isn’t a good relative indicator in comparing company performance.
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