This can be committed to people who want to put money into individual stocks. I wants to share with you the ways I have tried personally over time to pick stocks i have realized to be consistently profitable in actual trading. I want to utilize a combination of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:
1. Select a standard with all the fundamental analysis presented then
2. Confirm that this stock is an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process raises the odds that this stock you decide on will probably be profitable. It even offers an indication to market options which has not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful method for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis may be the study of economic data such as 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 tried personally many methods for measuring a company’s rate of growth so as to predict its stock’s future price performance. I manipulate methods such as earnings growth and return on equity. I have realized these methods are certainly not always reliable or predictive.
Earning Growth
By way of example, corporate net income is be subject to vague bookkeeping practices such as depreciation, earnings, inventory adjustment and reserves. These are common be subject to interpretation by accountants. Today inside your, corporations are under increasing pressure to overpower analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are certainly not reflected being a drag on earnings growth but instead make an appearance being a footnote on the financial report. These “one time” write-offs occur with additional frequency than you may expect. Many firms that constitute the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other popular indicator, which I have found isn’t 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 greater the ROE better).
Recognise the business is more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The answer is Merrill Lynch by any measure. But Coca-Cola features a greater ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is indeed over valued what has stockholder’s equity is just comparable to about 5% from the total rate from the company. The stockholder equity is indeed small that almost anywhere of net gain will produce a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity comparable to 42% from the rate from the company and requires a much higher net gain figure to generate a comparable ROE. My point is ROE doesn’t compare apples to apples so therefore is not a good relative indicator in comparing company performance.
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