Stock Assortment

This can be dedicated to those of you who want to put money into individual stocks. I has shared with you the techniques Personally i have tried through the years to select stocks that we are finding to get consistently profitable in actual trading. I prefer to work with a mix of fundamental and technical analysis for selecting stocks. My experience has demonstrated that successful stock selection involves two steps:


1. Select a share with all the fundamental analysis presented then
2. Confirm that the 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 increases the odds that the stock you select is going to be profitable. It also provides an indication to trade Automatic Income Method which has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way for selecting stocks for covered call writing, yet another kind of strategy.

Fundamental Analysis

Fundamental analysis could be the study of financial data such as earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over many years Personally i have tried many means of measuring a company’s growth rate so that they can predict its stock’s future price performance. I have used methods such as earnings growth and return on equity. I are finding that these methods are certainly not always reliable or predictive.

Earning Growth
For example, corporate net profits are be subject to vague bookkeeping practices such as depreciation, earnings, inventory adjustment and reserves. These are common be subject to interpretation by accountants. Today inside your, corporations they are under increasing pressure to overpower analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs are certainly not reflected as being a continue earnings growth but rather appear as being a footnote over a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many firms that make up the Dow Jones Industrial Average took such write-offs.

Return on Equity
One other indicator, which has been found is just not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a higher return on equity with successful corporate management which is maximizing shareholder value (the better the ROE the better).

Recognise the business is a bit 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 reply is Merrill Lynch by any measure. But Coca-Cola includes a better ROE. How is that this possible?

Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is indeed over valued the reason is stockholder’s equity is simply add up to about 5% with the total market value with the company. The stockholder equity is indeed small that almost any amount of net income will produce a favorable ROE.

Merrill Lynch however, has stockholder’s equity add up to 42% with the market value with the company and requires a greater net income figure to make a comparable ROE. My point is ROE doesn’t compare apples to apples then is very little good relative indicator in comparing company performance.
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