What do you need to know if you want to pick stocks on your own? How can you analyze the thousands of investment options available to you? There are a couple of different methods used to evaluate stocks, they are fundamental analysis and technical analysis.
Fundamental analysis takes a more simplified, straight-forward approach in analyzing companies and their stocks. Every public company is required to publish quarterly and annual reports with regards to their financial position. What does this mean to you and me? You have the ability to look at their books, and determine for yourself if their stock is undervalued, right on, or overvalued. By looking at their financial statements you can analyze their profits and losses along with their assets and liabilities. This approach focuses on the long term health and financial postions of companies. We will discuss the tools to help you analyze these statements in later lessons, for now we will stick to the basics.
As for Technical Analysis, this method relies more on market data and relies heavier on investors feelings about particular stocks and knowing the right time to buy and or sell. This method relies on tools and ratios to determine whether or not a stock is a good buy or sell at any particular time. This method is probably better suited for the more advanced investor and is more suited for short term investing, rather than the long haul.
In my estimation, use of both methods will probably result in providing you the best idea of how well a company is doing and whether to buy, sell, or hold a particular stock.
The next two lessons will wrap-up this mini-series when we explore the details of both fundamental and technical analysis. Keep going on to the next lesson! Fundamental Analysis Basics.
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