Automatic Income Method

This is committed to those who want to spend money on individual stocks. I wants to share along the techniques Personally i have tried through the years to pick stocks that I have realized to be consistently profitable in actual trading. I want to use a mix of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:

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

This two-step process increases the odds how the stock you select will probably be profitable. It offers a transmission to offer 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, a different type of strategy.

Fundamental Analysis

Fundamental analysis could be the study of monetary data including 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 the years Personally i have tried many strategies to measuring a company’s rate of growth in an attempt to predict its stock’s future price performance. I have used methods including earnings growth and return on equity. I have realized that these methods are not always reliable or predictive.

Earning Growth
As an example, corporate net income is at the mercy of vague bookkeeping practices including depreciation, cash flow, inventory adjustment and reserves. These are at the mercy of interpretation by accountants. Today inside your, 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 their own balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are not reflected being a continue earnings growth but alternatively arrive being a footnote with a financial report. These “one time” write-offs occur with an increase of frequency than you might expect. Many companies which constitute the Dow Jones Industrial Average have got such write-offs.

Return on Equity
One other popular indicator, which i’ve found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management that’s maximizing shareholder value (the better the ROE the better).

Which company is 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 answer then is Merrill Lynch by any measure. But Coca-Cola has a greater ROE. How are these claims 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 what has stockholder’s equity is merely comparable to about 5% from the total market price from the company. The stockholder equity can be so small that nearly any amount of post tax profit will create a favorable ROE.

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