Automatic Income Method

This is focused on those of you which invest in individual stocks. I wants to share along the techniques I have used over time to pick out stocks which i have discovered to become consistently profitable in actual trading. I love to utilize a mixture of fundamental and technical analysis for selecting stocks. My experience has demonstrated that successful stock selection involves two steps:

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

This two-step process boosts the odds that this stock you choose is going to be profitable. It offers a signal to offer Chuck Hughes containing not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful means for selecting stocks for covered call writing, a different type of strategy.

Fundamental Analysis

Fundamental analysis is the study of economic data including earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over the years I have used many strategies to measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I have used methods including earnings growth and return on equity. I have discovered why these methods aren’t always reliable or predictive.

Earning Growth
As an example, corporate net income is at the mercy of vague bookkeeping practices including depreciation, cashflow, inventory adjustment and reserves. These are all at the mercy of interpretation by accountants. Today more than ever before, corporations are under increasing pressure to overpower analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs aren’t reflected as being a continue earnings growth but instead appear as being a footnote with a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many businesses that from the Dow Jones Industrial Average have got such write-offs.

Return on Equity
One other indicator, which i’ve found is 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 greater the ROE better).

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

The solution is Merrill Lynch by 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 that it is stockholder’s equity is merely equal to about 5% from the total market value from the company. The stockholder equity is indeed small that nearly any amount of net income will develop a favorable ROE.

Merrill Lynch alternatively, has stockholder’s equity equal to 42% from the market value from the company and needs a greater net income figure to generate a comparable ROE. My point is the fact that ROE doesn’t compare apples to apples then is very little good relative indicator in comparing company performance.
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