Getting Started: Fundamental Analysis

When it comes time to make investment decisions, it's a good idea to be guided by more than just your gut instincts. If used effectively, fundamental analysis is one of the most useful ways to determine whether a company is a good investment choice. Even if you don't have a finance background, don't let that stop you from becoming your own personal stock portfolio analyst.

Two Schools

When it comes to stock analysis, there are two main schools: Fundamental analysis and technical analysis . Fundamental analysis is all about using concrete information about a company's business to try to find the real value of a stock, while technical analysis eschews all of that in favor of looking at the way pure market factors will affect a stock's movement ("Chart of the Day").

They call it fundamental analysis for a reason: It can be fundamental to your ability to make money in the stock market. When you take a look at a company's fundamentals, you're judging its corporate health. After all, who wants to invest in an unhealthy company? This is a mantra that the likes of über-investor Warren Buffett uses, so why shouldn't you (Stockpickr: Warren Buffett's Portfolio)?

Business Basics

Before you begin to analyze public companies for their investment potential, you'll need to understand some business basics, particularly those relating to the company's financial statements. Financial statements are to an analyst what a patient's bloodwork might be to a doctor; they're the main data points that can be used to assess overall health. There are three principal financial statements: The income statement , balance sheet , and statement of cash flows .