Automatic Income Method

This is specialized in individuals who wish to spend money on individual stocks. I wants to share with you the ways I have used in the past to select stocks that I have discovered to get consistently profitable in actual trading. I like to work with a blend of fundamental and technical analysis for picking stocks. My experience shows that successful stock selection involves two steps:

1. Select a standard using the fundamental analysis presented then
2. Confirm that the stock is an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA

This two-step process raises the odds that the stock you decide on will be profitable. It also provides a signal to trade Automatic Income Method which includes not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful means for selecting stocks for covered call writing, quantity strategy.

Fundamental Analysis

Fundamental analysis may 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 time I have used many means of measuring a company’s rate of growth so as to predict its stock’s future price performance. I manipulate methods such as earnings growth and return on equity. I have discovered that these methods aren’t always reliable or predictive.

Earning Growth
For example, corporate net profits are susceptible to vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are all susceptible to interpretation by accountants. Today inside your, corporations they are under increasing pressure to get over analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs aren’t reflected as a continue earnings growth but instead appear as a footnote on the financial report. These “one time” write-offs occur with more frequency than you might expect. Many companies that make up the Dow Jones Industrial Average have got such write-offs.

Return on Equity
Another popular indicator, which I have found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management which is maximizing shareholder value (the greater the ROE the greater).

Recognise the business is more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%

The solution is Merrill Lynch by measure. But Coca-Cola carries a greater 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 indeed over valued the reason is stockholder’s equity is only comparable to about 5% from the total rate from the company. The stockholder equity is indeed small that nearly any amount of post tax profit will produce a favorable ROE.

Merrill Lynch alternatively, has stockholder’s equity comparable to 42% from the rate from the company and requires a much higher post tax profit figure to produce a comparable ROE. My point is always that ROE will not compare apples to apples so therefore isn’t a good relative indicator in comparing company performance.
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