This can be dedicated to those who would like to purchase individual stocks. I has shared along the ways I have tried personally through the years to pick stocks that we have discovered to get consistently profitable in actual trading. I love to make use of a mixture of fundamental and technical analysis for choosing stocks. My experience has shown that successful stock selection involves two steps:
1. Select a stock using 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 higher than the 100-Day EMA
This two-step process raises the odds that the stock you decide on will probably be profitable. It also provides a sign to market ETFs which has not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way for selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis will be the study of economic data such as earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over time I have tried personally many options for measuring a company’s growth rate so as to predict its stock’s future price performance. I used methods such as earnings growth and return on equity. I have discovered the methods are not always reliable or predictive.
Earning Growth
For example, corporate net income is at the mercy of vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are at the mercy of interpretation by accountants. Today inside your, corporations are under increasing pressure to conquer analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs are not reflected like a continue earnings growth but make an appearance like a footnote on a financial report. These “one time” write-offs occur with additional frequency than you could expect. Many companies which constitute the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other popular indicator, which I have 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 is maximizing shareholder value (the larger the ROE the greater).
Recognise the business 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 solution is Merrill Lynch by measure. But Coca-Cola includes a greater ROE. How is that 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 it is stockholder’s equity is only equal to about 5% with the total market price with the company. The stockholder equity is so small that nearly anywhere of post tax profit will make a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity equal to 42% with the market price with the company and requires a greater post tax profit figure to create a comparable ROE. My point is that ROE will not compare apples to apples then isn’t a good relative indicator in comparing company performance.
For more details about ETFs have a look at our new webpage: click for info