This can be focused on people who want to spend money on individual stocks. I wants to share with you the methods I have used in the past to pick out stocks that I have found to become consistently profitable in actual trading. I want to make use of a combination of fundamental and technical analysis for choosing stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a share with all the fundamental analysis presented then
2. Confirm the stock is surely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process increases the odds the stock you select will probably be profitable. It offers a transmission to offer Chuck Hughes containing not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way of selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis is the study of financial data like 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 means of measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I purchased methods like earnings growth and return on equity. I have found that these methods are certainly not always reliable or predictive.
Earning Growth
For instance, corporate net profits are at the mercy of vague bookkeeping practices like depreciation, cash flow, inventory adjustment and reserves. These are all at the mercy of interpretation by accountants. Today inside your, corporations they are under increasing pressure to get over analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are certainly not reflected as being a drag on earnings growth but rather make an appearance as being a footnote on a financial report. These “one time” write-offs occur with increased frequency than you may expect. Many companies which constitute the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other popular indicator, which has been found is just not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management which is maximizing shareholder value (the higher the ROE the greater).
Recognise the business is more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The answer then is Merrill Lynch by any measure. But Coca-Cola features a higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola can be so over valued that it is stockholder’s equity is merely add up to about 5% of the total monatary amount of the company. The stockholder equity can be so small that just about any amount of net profit will develop a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity add up to 42% of the monatary amount of the company as well as a greater net profit figure to create a comparable ROE. My point is always that ROE doesn’t compare apples to apples so therefore is not a good relative indicator in comparing company performance.
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