This can be committed to individuals which purchase individual stocks. I want to share together with you the methods Personally i have tried in the past to select stocks i have found being consistently profitable in actual trading. I prefer to utilize a mix of fundamental and technical analysis for selecting stocks. My experience has shown that successful stock selection involves two steps:
1. Select a stock with all the fundamental analysis presented then
2. Confirm that this stock can be 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 end up picking will likely be profitable. It now offers a transmission to trade stock that has not performed needlessly to say 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 could be the study of monetary data such as earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over many years Personally i have tried many means of measuring a company’s rate of growth in an attempt to predict its stock’s future price performance. I have used methods such as earnings growth and return on equity. I have found that these methods are not always reliable or predictive.
Earning Growth
By way of example, corporate net earnings are at the mercy of vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are all at the mercy of interpretation by accountants. Today as part of your, corporations they are under increasing pressure to get over 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 development, etc. Many times these write-offs are not reflected as a continue earnings growth but rather arrive as a footnote over a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many companies which make up the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
Another popular indicator, which I have 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 higher the ROE better).
Which company is much 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 any measure. But Coca-Cola has 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 the reason is stockholder’s equity is only corresponding to about 5% in the total monatary amount in the company. The stockholder equity is so small that nearly anywhere of net income will make a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity corresponding to 42% in the monatary amount in the company and requires a greater net income figure to create a comparable ROE. My point is always that ROE doesn’t compare apples to apples so therefore is not a good relative indicator in comparing company performance.
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