Automatic Income Method

This can be specialized in those of you which purchase individual stocks. I want to share with you the ways Personally i have tried over time to pick out stocks which i have found to get consistently profitable in actual trading. I like to use a mixture of fundamental and technical analysis for selecting stocks. My experience has demonstrated that successful stock selection involves two steps:


1. Select a share using the fundamental analysis presented then
2. Confirm how the stock is an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being over the 100-Day EMA

This two-step process raises the odds how the stock you select will likely be profitable. It even offers a signal to trade ETFs which includes not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is also a useful means for selecting stocks for covered call writing, a different sort of strategy.

Fundamental Analysis

Fundamental analysis is the study of monetary data for example earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over recent years Personally i have tried many methods for measuring a company’s rate of growth so as to predict its stock’s future price performance. I used methods for example 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 income is be subject to vague bookkeeping practices for example depreciation, cash flow, inventory adjustment and reserves. These are be subject to interpretation by accountants. Today more than ever before, corporations are under increasing pressure to conquer analyst’s earnings estimates which leads to 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 developing the site, etc. Many times these write-offs are not reflected as a continue earnings growth but instead appear as a footnote on a financial report. These “one time” write-offs occur with more frequency than you may expect. Many companies that form the Dow Jones Industrial Average have got such write-offs.

Return on Equity
One other indicator, which i’ve 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 higher the ROE the greater).

Which company is a bit 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 measure. But Coca-Cola includes a better ROE. How is 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 its stockholder’s equity is only comparable to about 5% of the total market value of the company. The stockholder equity is so small that nearly anywhere of post tax profit will develop a favorable ROE.

Merrill Lynch alternatively, has stockholder’s equity comparable to 42% of the market value of the company as well as a greater post tax profit figure to generate a comparable ROE. My point is the fact that ROE does not compare apples to apples so therefore is not an good relative indicator in comparing company performance.
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