If you don't research the stock you are purchasing first, you are doing nothing more than gambling with your money. Stock research will help you to improve your returns on the stocks you purchase.
While all the research in the world on a stock cannot guarantee its value will increase, researching your stock purchases will improve the chances of making money.
There are a number of approaches to stock research you can employ and will take a look at those.
Fortunately all publicly traded stocks are required to provide financial information about their company on a quarterly and annual basis. It's from this publicly available information that most stock research is done.
You could obtain copies of this information directly from the companies themselves, or you could use one of the many online trading companies, most of which have extensive stock research sections on their web sites.
There are two types of stock analysis research for predicting a company's stock performance: fundamental and technical.
Technical stock research looks for peaks, bottoms, trends, patterns and other factors affecting a stocks performance and is not tied to anything other than the company's stock performance. Fundamental stock research looks more towards the company's financial information (also known as quantitative analysis) and looks at a company's revenue, expenses, assets, liabilities, etc.
Technical Stock Research
Technical stock research is a method of evaluating securities by analyzing statistics generated by market activity, past prices, and volume.
Technical stock research does not attempt to measure a security's intrinsic value; instead it looks for patterns and indicators on stock charts that will determine a stocks future performance.
Technical stock research has become popular over the past several years, as more and more people believe that the historical performance of a stock is a strong indication of future performance. The use of past performance should not come as a big surprise.
People using fundamental stock research have always looked at the past performance by comparing fiscal data from previous quarters and years to determine future growth.
The difference lies in the technical analyst's belief that securities move with very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable.
Fundamental Stock Research
The massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. On the other hand, if you know what to look for, the financial statements are a gold mine of information.
Financial statement analysis is the biggest part of fundamental stock research. Also known as quantitative analysis, this involves looking at historical performance data to estimate the future performance.
Followers of quantitative analysis want as much data as they can find on things like revenue, expenses, assets, liabilities, etc. This information, and not just its stock price, is what they believe will give insight into how a company's share price will perform in the future.
Fundamental stock research makes extensive use of ratios (comparing two pieces of information against one another). These ratios can be broken down into three primary areas: performance, activity and financing. Each of these areas has its own set of ratios which indicate the company's performance in the given area.
Conclusion
The stock research you do prior to the purchase or sale of a stock can save you money in the long run.
While no one stock research method can guarantee that you will always make money on your purchase or sale, it can increase the likelihood of successful stock trading.
By using a combination of technical stock research and fundamental stock research you can better gauge a stock's past performance and, hopefully, draw conclusions about its future performance. |
