This can be dedicated to those of you who wish to invest in individual stocks. I wants to share along the strategy I have used over time to pick stocks i have discovered being consistently profitable in actual trading. I want to work with a combination of fundamental and technical analysis for choosing stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a standard with all the fundamental analysis presented then
2. Confirm that this stock is definitely 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 select will likely be profitable. It now offers a signal to market Chuck Hughes which includes not performed as you expected 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, quantity 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 time I have used many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I used methods such as earnings growth and return on equity. I have discovered why these methods are not always reliable or predictive.
Earning Growth
For instance, corporate net income is at the mercy of vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are all at the mercy of interpretation by accountants. Today more than ever, corporations they are under increasing pressure to beat analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs are not reflected like a continue earnings growth but instead appear like a footnote over a financial report. These “one time” write-offs occur with more frequency than you could expect. Many companies which make up the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other indicator, which has been found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a top return on equity with successful corporate management which is maximizing shareholder value (the higher the ROE the greater).
Recognise the business 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 measure. But Coca-Cola features a higher ROE. How is that this possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is really over valued what has stockholder’s equity is merely corresponding to about 5% of the total market value of the company. The stockholder equity is really small that just about any amount of net gain will create a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% of the market value of the company and needs a much higher net gain figure to make a comparable ROE. My point is the fact that ROE won’t compare apples to apples then is not a good relative indicator in comparing company performance.
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