Automatic Income Method

That is committed to people who would like to put money into individual stocks. I wants to share along with you the methods I have tried personally through the years to select stocks that we have discovered to become consistently profitable in actual trading. I want to make use of a mixture of fundamental and technical analysis for choosing stocks. My experience shows that successful stock selection involves two steps:

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

This two-step process enhances the odds the stock you end up picking will probably be profitable. It offers an indication to market stock which has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful method for selecting stocks for covered call writing, yet another kind of strategy.

Fundamental Analysis

Fundamental analysis may be the study of financial data like earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over recent years I have tried personally many options for measuring a company’s rate of growth to try to predict its stock’s future price performance. I purchased methods like earnings growth and return on equity. I have discovered why these methods are certainly not always reliable or predictive.

Earning Growth
As an example, corporate net earnings are susceptible to vague bookkeeping practices like depreciation, cash flow, inventory adjustment and reserves. These are common susceptible to interpretation by accountants. Today more than ever before, corporations they are under increasing pressure to conquer analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are certainly not reflected as a drag on earnings growth but alternatively arrive as a footnote on a financial report. These “one time” write-offs occur with an increase of frequency than you could possibly expect. Many companies which from the Dow Jones Industrial Average have got such write-offs.

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

Which company is a bit 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 features a better ROE. How is 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 add up to about 5% from the total monatary amount from the company. The stockholder equity is indeed small that nearly any amount of net income will make a favorable ROE.

Merrill Lynch conversely, has stockholder’s equity add up to 42% from the monatary amount from the company and requires a much higher net income figure to generate a comparable ROE. My point is that ROE won’t compare apples to apples then isn’t a good relative indicator in comparing company performance.
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