| Do Your Research: Stock Market Research

Do Your Research: Stock Market Research


Stock market research is very important when it comes to investing. I don’t mean reading up on the history of the Stock Market, although that couldn’t hurt. I mean researching the particular stocks you want to invest in. If you don’t understand the background of the company you want to invest in and you can’t see any future growth, there’s no point in investing in them.

Without understanding a company you invest in, you are basically investing in a random stock which is just a gamble. Investing is not gambling. When you gamble, you are taking a big chance because there can be any outcome that you have absolutely no control over. Investing isn’t gambling because even though something totally unexpected could happen, that risk can be greatly reduced when you understand where you company has been and is expecting to go.

When researching stocks, you can analyze them two different ways or a through a combination of the two.

Fundamental Analysis

Through fundamental analysis, your goal is to determine its value based on the business practices and history of the company. You look at the fundamentals of the business to see how strong it is and if it will go up in the future.

The fundamentals of a business can include revenue and profits, management, market share, and future plans. Through fundamental analysis, you should look for stocks that are either undervalued or have a lot of potential growth. If a stock is undervalued, you buy it hoping that the market will even out causing the price to increase. A stock with a large growth potential should also go up in value as it grows.

Fundamental analysis will mean reading financial statements, management history, and putting all this information together to see if it’s the right investment for you.  You will need to know how to read financial statements.

Technical Analysis

Technical analysis does not require research of the fundamentals. You will not look at balance sheets and income statements, nor will you look at where management is going and what they are doing. Instead, you will study the charts.

With technical analysis, you will study trends. Based on what has happened in the past, how will the supply and demand change for the company? You will look at charts to determine whether or not you should buy and sell.

Both

Nowhere does it say you must do fundamental or technical analysis, not both. You could always look at both and try to use them together to your advantage. Do a thorough fundamental analysis and then look at some charts to verify your move before you make it. See what happens.

If you want to learn more about stock analysis and how to do your own, I recommend getting a copy of A Random Walk Down Wall Street to learn the basics.  If you want further instruction on technical analysis, try Technical Analysis of Stock Trends.

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