This is dedicated to people who want to put money into individual stocks. I has shared along the methods Personally i have tried in the past to select stocks that we have realized to be consistently profitable in actual trading. I love to work with a mix of fundamental and technical analysis for picking stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a stock using the fundamental analysis presented then
2. Confirm how the stock is surely 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 how the stock you decide on will probably be profitable. It even offers a sign to offer stock that has not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful way for selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis will be the study of monetary data for example earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over many years Personally i have tried many means of measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I manipulate methods for example earnings growth and return on equity. I have realized why these methods are certainly not always reliable or predictive.
Earning Growth
By way of example, corporate net profits are be subject to vague bookkeeping practices for example depreciation, cash flow, inventory adjustment and reserves. These are all be subject to interpretation by accountants. Today as part of your, 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 their own balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are certainly not reflected being a drag on earnings growth but alternatively make an appearance being a footnote over a financial report. These “one time” write-offs occur with an increase of frequency than you could expect. Many companies which constitute the Dow Jones Industrial Average have got such write-offs.
Return on Equity
Another popular indicator, which has been found is just not 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 higher the ROE better).
Recognise the business is a lot more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The solution is Merrill Lynch by measure. But Coca-Cola features a higher ROE. How is that this possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is so over valued what has stockholder’s equity is only add up to about 5% from the total market price from the company. The stockholder equity is so small that almost anywhere of net income will produce a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity add up to 42% from the market price from the company as well as a much higher net income figure to create a comparable ROE. My point is that ROE does not compare apples to apples then is not a good relative indicator in comparing company performance.
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