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Stock Analysis

If you want to become a knowledgeable stock trader, you need to arm yourself with many tools to help you pick the right stocks. One indispensable tool used by many professional traders is stock analysis. This basically means to examine every aspect of the stock and its underlying company to get a good idea about what it is you are investing in or when the time is right to sell. In the past these in-depth types of analyses were left to the financial analysts, who had the experience and resources to do the job. Today, with the explosion of stock information and its ubiquitous availability (e.g., through the Internet), many traders have taken on this task themselves. Before I move any further let me emphasize a couple of points. Becoming a professional stock trader with good analytical abilities is not beyond average investors, but it is complex, it takes years of experience, and to some, including me, it is boring. Don’t be fooled into thinking that you can become proficient at it overnight. Many investors decide to heed the advice of their full service brokers, just like most of us do with the advice of doctors, lawyers, and auto mechanics. Here I will cover some basic analyses that an average investor (such as myself) can achieve in his spare time. My advice: leave the heavy duty stuff to the professionals who do this for a living.

In simple terms there are three types of analyses: fundamental, quantitative, and technical.

Fundamental Analysis

You might have heard of the expression “company fundamentals.” Company fundamentals refers to the general health of a company. If a company is profitable, with healthy earnings and a good future potential, you could say that the company has good fundamentals. On …