There are only two classic schools of stock analysis: fundamental and technical. Below are the basic concepts of each school.
Fundamental analysis tells you what to buy. The complete focus is on the performance of the individual company. Products, revenues, and earnings of a company all make up fundamental analysis.
Fundamental analysts will advise individual investors to buy the shares of companies that have good potential to make profits. These profits also have a good chance to grow over the next few years.
A good fundamental company has products that stack up well to the competition. And the company has a loyal following of customers. The future earnings of a company will help a fundament analyst predict the price that investors are likely to pay for that company’s stock in the future. Technical analysis focuses on the behavior of the stock. This method of analysis will help with the decision of when to buy a stock.
Technical analysis is based on supply and demand. The balance of supply and demand for a given stock at a given price will always be reflected in the price chart of a stock.
This price chart provides a picture of the behaviors of buyers and sellers of a stock. A stock will move higher if there are more buyers willing to buy than sellers willing to sell. A stock will move lower if there are more sellers willing to sell than buyers willing to buy.
The combination of fundamental and technical analysis makes it easier to form an investment opinion on any listed security.
Ric Lager
Lager & Company, Inc.
