This can be committed to those who wish to spend money on individual stocks. I want to share along with you the strategy I have used through the years to choose stocks that we have found to get consistently profitable in actual trading. I love to work with a blend of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:

1. Select a regular with all the fundamental analysis presented then
2. Confirm the stock is definitely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being over the 100-Day EMA

This two-step process boosts the odds the stock you choose will be profitable. It now offers a sign to market Chuck Hughes that has not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful method for selecting stocks for covered call writing, a different type of strategy.

Fundamental Analysis

Fundamental analysis is the study of financial data for example earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over recent years I have used many means of measuring a company’s rate of growth so as to predict its stock’s future price performance. I manipulate methods for example earnings growth and return on equity. I have found that these methods aren’t always reliable or predictive.

Earning Growth
For instance, corporate net income is at the mercy of vague bookkeeping practices for example depreciation, cashflow, inventory adjustment and reserves. These are common at the mercy of interpretation by accountants. Today more than ever, corporations they are under increasing pressure to beat 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 aren’t reflected like a continue earnings growth but rather show up like a footnote on the financial report. These “one time” write-offs occur with an increase of frequency than you could possibly expect. Many companies which form the Dow Jones Industrial Average have 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 a lot 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 solution is Merrill Lynch by any measure. But Coca-Cola has a higher ROE. How is that this possible?

Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola is really over valued the reason is stockholder’s equity is just equal to about 5% with the total monatary amount with the company. The stockholder equity is really small that nearly anywhere of post tax profit will create a favorable ROE.

Merrill Lynch alternatively, has stockholder’s equity equal to 42% with the monatary amount with the company and requirements a much higher post tax profit figure to make a comparable ROE. My point is ROE does not compare apples to apples so therefore is very little good relative indicator in comparing company performance.
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