Stock Choice

This really is dedicated to people who want to put money into individual stocks. I wants to share along with you the methods I have used through the years to pick out stocks that we have realized being consistently profitable in actual trading. I like to utilize a mixture of fundamental and technical analysis for picking stocks. My experience shows that successful stock selection involves two steps:

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

This two-step process increases the odds that the stock you end up picking will probably be profitable. It offers a transmission to sell Automatic Income Method that has not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful way for selecting stocks for covered call writing, quantity strategy.

Fundamental Analysis

Fundamental analysis will be the study of financial data including earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over the years I have used many methods for measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I manipulate methods including earnings growth and return on equity. I have realized the methods aren’t always reliable or predictive.

Earning Growth
By way of example, corporate net income is susceptible to vague bookkeeping practices including depreciation, income, inventory adjustment and reserves. These are 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 their own balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs aren’t reflected as being a drag on earnings growth but alternatively show up as being a footnote on a financial report. These “one time” write-offs occur with increased frequency than you might expect. Many companies which constitute 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 an increased return on equity with successful corporate management that’s maximizing shareholder value (the larger the ROE the greater).

Which company is a bit 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 measure. But Coca-Cola carries a higher ROE. How is that this possible?

Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola can be so over valued that its stockholder’s equity is merely equal to about 5% from the total market price from the company. The stockholder equity can be so small that nearly any amount of net gain will create a favorable ROE.

Merrill Lynch however, has stockholder’s equity equal to 42% from the market price from the company and requires a much higher net gain figure to make a comparable ROE. My point is always that ROE won’t compare apples to apples so therefore is not an good relative indicator in comparing company performance.
For details about Automatic Income Method go to this useful web site: look at here now