This can be focused on those of you which invest in individual stocks. I has shared with you the strategy I have tried personally over time to select stocks that we have discovered to get consistently profitable in actual trading. I love to make use of a mix of fundamental and technical analysis for choosing stocks. My experience has shown that successful stock selection involves two steps:
1. Select a share while using fundamental analysis presented then
2. Confirm that this stock is an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process enhances the odds that this stock you decide on will likely be profitable. It now offers a signal to sell Chuck Hughes which includes not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way of selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis could be the study of monetary data such as earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over recent years I have tried personally many methods for 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 discovered the methods are not always reliable or predictive.
Earning Growth
For example, corporate net profits are at the mercy of vague bookkeeping practices such as depreciation, earnings, inventory adjustment and reserves. These are all at the mercy of interpretation by accountants. Today as part of your, corporations are under increasing pressure to get over analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are not reflected as being a continue earnings growth but instead make an appearance as being a footnote over a financial report. These “one time” write-offs occur with more frequency than you might expect. Many companies which from the Dow Jones Industrial Average have such write-offs.
Return on Equity
Another popular indicator, which I have found just 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 that is maximizing shareholder value (the higher the ROE better).
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 has a better 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 is really over valued that its stockholder’s equity is just add up to about 5% of the total rate of the company. The stockholder equity is really small that just about any amount of post tax profit will develop a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity add up to 42% of the rate of the company as well as a much higher post tax profit figure to generate a comparable ROE. My point is always that ROE doesn’t compare apples to apples then is not an good relative indicator in comparing company performance.
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