This is dedicated to people who would like to spend money on individual stocks. I has shared along with you the methods I have tried personally over the years to select stocks that we have discovered to get consistently profitable in actual trading. I love to use a combination of fundamental and technical analysis for picking stocks. My experience shows that successful stock selection involves two steps:
1. Select a regular while using fundamental analysis presented then
2. Confirm that the stock is surely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process enhances the odds that the stock you decide on will likely be profitable. It also provides a sign to sell ETFs which includes not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful means for selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis could be the study of financial data such as earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over the years I have tried personally many means of measuring a company’s rate of growth in an attempt to predict its stock’s future price performance. I purchased methods such as earnings growth and return on equity. I have discovered why 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, cash flow, inventory adjustment and reserves. These are typical be subject to interpretation by accountants. Today inside your, corporations they are under increasing pressure to overpower 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 certainly not reflected like a continue earnings growth but arrive like a footnote on the financial report. These “one time” write-offs occur with more frequency than you could expect. Many businesses that make up the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other 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 is maximizing shareholder value (the larger the ROE the higher).
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 is Merrill Lynch by any measure. But Coca-Cola features a higher ROE. How is that this possible?
Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola can be so over valued that it is stockholder’s equity is merely equal to about 5% from the total market value from the company. The stockholder equity can be so small that almost anywhere of post tax profit will produce a favorable ROE.
Merrill Lynch however, has stockholder’s equity equal to 42% from the market value from the company and needs a greater post tax profit figure to produce a comparable ROE. My point is ROE does not compare apples to apples then is very little good relative indicator in comparing company performance.
For additional information about ETFs go to this useful net page: read this