Automatic Income Method

This is committed to individuals which invest in individual stocks. I has shared along with you the techniques I have used in the past to pick out stocks that we have found being consistently profitable in actual trading. I like to use a mixture of fundamental and technical analysis for picking stocks. My experience shows that successful stock selection involves two steps:

1. Select a regular with all 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 across the 100-Day EMA

This two-step process raises the odds that the stock you decide on will be profitable. It now offers a signal to offer Automatic Income Method containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful way for selecting stocks for covered call writing, a different sort of strategy.

Fundamental Analysis

Fundamental analysis may be the study of monetary data including earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over many years I have used many methods for 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 found that these methods usually are not always reliable or predictive.

Earning Growth
As an example, corporate net earnings are subject to vague bookkeeping practices including depreciation, income, inventory adjustment and reserves. These are typical subject to interpretation by accountants. Today as part of your, corporations they are under increasing pressure to beat analyst’s earnings estimates which results in 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 product, etc. Many times these write-offs usually are not reflected like a continue earnings growth but rather arrive like a footnote on a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many firms that form the Dow Jones Industrial Average took such write-offs.

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

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

The solution is Merrill Lynch by any measure. But Coca-Cola includes a much higher ROE. How is this possible?

Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is so over valued what has stockholder’s equity is only comparable to about 5% of the total market value of the company. The stockholder equity is so small that nearly any amount of net gain will produce a favorable ROE.

Merrill Lynch however, has stockholder’s equity comparable to 42% of the market value of the company and needs a much higher net gain figure to create a comparable ROE. My point is always that ROE doesn’t compare apples to apples then is very little good relative indicator in comparing company performance.
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