This can be dedicated to those which put money into individual stocks. I wants to share with you the strategy I have tried personally over time to pick stocks that we have found to become consistently profitable in actual trading. I love to utilize a mix of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a share with all the fundamental analysis presented then
2. Confirm the stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process increases the odds the stock you select is going to be profitable. It also provides a transmission to market Chuck Hughes containing not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful method for selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis will be the study of monetary data such as earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over time I have tried personally many means of measuring a company’s growth rate to try to predict its stock’s future price performance. I purchased methods such as earnings growth and return on equity. I have found why these methods usually are not always reliable or predictive.
Earning Growth
For instance, corporate net income is subject to vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are all subject to interpretation by accountants. Today inside your, corporations they are under increasing pressure to beat analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own 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 like a continue earnings growth but arrive like a footnote on the financial report. These “one time” write-offs occur with increased frequency than you might expect. Many companies which form the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other indicator, which i’ve 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 better the ROE the greater).
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 then is Merrill Lynch by any measure. But Coca-Cola features a better ROE. How is this possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola can be so over valued the reason is stockholder’s equity is just equal to about 5% in the total market value in the company. The stockholder equity can be so small that just about anywhere of net profit will produce a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity equal to 42% in the market value in the company and requires a greater net profit figure to generate a comparable ROE. My point is the fact that ROE doesn’t compare apples to apples then is not a good relative indicator in comparing company performance.
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