This can be dedicated to individuals who want to spend money on individual stocks. I wants to share along the ways Personally i have tried in the past to pick stocks that I have discovered to become consistently profitable in actual trading. I want to utilize a mixture of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a regular with all the fundamental analysis presented then
2. Confirm that the stock is surely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process boosts the odds that the stock you select is going to be profitable. It even offers an indication to offer options that has not performed as expected 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, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis may be the study of financial data for example earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over time Personally i have tried many methods for measuring a company’s growth rate so as to predict its stock’s future price performance. I purchased methods for example earnings growth and return on equity. I have discovered why these methods usually are not always reliable or predictive.
Earning Growth
By way of example, corporate net income is subject to vague bookkeeping practices for example depreciation, cashflow, inventory adjustment and reserves. These are all subject 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 specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs usually are not reflected as being a drag on earnings growth but appear as being a footnote with a financial report. These “one time” write-offs occur with increased frequency than you could expect. Many businesses that form the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other indicator, which i’ve found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management that’s maximizing shareholder value (the larger the ROE the better).
Recognise the business is a bit 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 features a better ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola can be so over valued that its stockholder’s equity is simply corresponding to about 5% of the total rate of the company. The stockholder equity can be so small that almost anywhere of post tax profit will make a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity corresponding to 42% of the rate of the company and requires a greater post tax profit figure to generate a comparable ROE. My point is that ROE does not compare apples to apples then is very little good relative indicator in comparing company performance.
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