That is specialized in individuals who would like to put money into individual stocks. I would like to share together with you the strategy I have used in the past to pick stocks i are finding to become consistently profitable in actual trading. I like to use a mixture of fundamental and technical analysis for picking stocks. My experience has shown that successful stock selection involves two steps:
1. Select a standard with all the fundamental analysis presented then
2. Confirm the stock can be 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 the stock you decide on is going to be profitable. It even offers a sign to sell Automatic Income Method containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is also a useful method for selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis will be the study of economic data including earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over many years I have used many means of measuring a company’s growth rate so that they can predict its stock’s future price performance. I have used methods including earnings growth and return on equity. I are finding that these methods are not always reliable or predictive.
Earning Growth
For example, corporate net income is subject to vague bookkeeping practices including depreciation, cash flow, inventory adjustment and reserves. These are all subject to interpretation by accountants. Today more than ever before, corporations they are under increasing pressure to beat analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are not reflected like a drag on earnings growth but rather make an appearance like a footnote over a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many companies that from the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other popular indicator, which i’ve found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a higher return on equity with successful corporate management that’s maximizing shareholder value (the higher the ROE the better).
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 reply is Merrill Lynch by measure. But Coca-Cola includes a much higher 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 can be so over valued what has stockholder’s equity is only corresponding to about 5% from the total monatary amount from the company. The stockholder equity can be so small that nearly any amount of post tax profit will produce a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% from the monatary amount from the company and requires a much higher post tax profit figure to generate a comparable ROE. My point is ROE doesn’t compare apples to apples so therefore is not an good relative indicator in comparing company performance.
To get more information about Automatic Income Method have a look at the best web site: this site