Getting Technical

When it comes to stock market investing, there are two main schools of thought on how you decide which apples you want to buy and sell. They are known -- in not very colorful terms -- as fundamental analysis and technical analysis.

Fundamental analysts study everything from the financial performance and management reputation of individual companies to the overall economy and industry conditions.

Analyzing company fundamentals has been the bread and butter for generations of stock-pickers. They use this approach to select companies that represent the best value and probability of increasing shareholder equity.

Day and night, they shuffle through reams of company data, such as earnings per share, price/earnings ratios, debt-to-capitalization ratios and business models, comparing them with those of peers, competitors and industry averages to identify the elusive undervalued jewel.

Analysts, market strategists and economists apply this same kind of study to an industry or economic level to forecast future trends.

At the economic level, broad measures such as employment figures, inventories, the money supply, interest rates, currency fluctuations and many other indicators are analyzed for their potential impact on stock markets. At the industry level, they dissect industry conditions, competitive factors and product supply and demand.