That is specialized in people who would like to purchase individual stocks. I has shared with you the methods I have used over the years to choose stocks i have realized to become consistently profitable in actual trading. I prefer to use a mixture of fundamental and technical analysis for picking stocks. My experience indicates that successful stock selection involves two steps:
1. Select a standard using the fundamental analysis presented then
2. Confirm how the stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being over the 100-Day EMA
This two-step process boosts the odds how the stock you decide on is going to be profitable. It offers a transmission to market options 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, a different type of strategy.
Fundamental Analysis
Fundamental analysis could be the study of economic data like earnings, dividends and cash 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 methods for measuring a company’s rate of growth in an attempt to predict its stock’s future price performance. I purchased methods like earnings growth and return on equity. I have realized the methods aren’t always reliable or predictive.
Earning Growth
By way of example, corporate net profits are susceptible to vague bookkeeping practices like depreciation, earnings, inventory adjustment and reserves. These are common susceptible to interpretation by accountants. Today more than ever, corporations are under increasing pressure to overpower 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 specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs aren’t reflected as being a drag on earnings growth but rather appear as being a footnote on the financial report. These “one time” write-offs occur with increased frequency than you could possibly expect. Many firms that form the Dow Jones Industrial Average took such write-offs.
Return on Equity
Another popular 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’s maximizing shareholder value (the greater the ROE the higher).
Recognise the business is more successful?
Coca-Cola (KO) which has a Return on Equity of 46% or
Merrill Lynch (MER) which has a Return on Equity of 18%
The answer then is Merrill Lynch by measure. But Coca-Cola has a better ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is really over valued that it is stockholder’s equity is simply corresponding to about 5% of the total market price of the company. The stockholder equity is really small that just about any amount of net profit will create a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% of the market price of the company and requires a greater net profit figure to produce a comparable ROE. My point is ROE will not compare apples to apples therefore is very little good relative indicator in comparing company performance.
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